Download - August Market Report

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RESALE MARKET - TOTAL RESIDENTIAL

Concerns over the impact of low oil prices caused consumers to take a step back from the resale market in the first half of the year. Sales activity totaled 10,197 by the end of June for a year-over- year decline of 26 per cent. While last year’s sales activity was relatively strong, somewhat exaggerating the decline in 2015, overall sales this year were well below historical averages. Meanwhile, the amount of new listings climbed sharply !in the first few months of the year, easing only when sellers who were likely not in!a must sell situation started pulling their listings off the market. After the first six months of 2015, new listings levels totaled 18,678 units, nearly eight per cent lower than last year’s levels and 10 per cent below long-term trend levels.

Despite the decline in new listings, rising inventory levels in the first part of the year created more choice for consumers and favourable market conditions for buyers. While first quarter sales relative to inventory levels gave buyers an advantage, the second quarter pullback of new listings helped alleviate pressure on inventories, moving the market toward more balanced conditions.

There was also downward pressure on prices during this time. The city-wide unadjusted benchmark price started contracting compared to previous months from December through to April. It wasn’t until May and June that prices finally started leveling off. Despite the recent change in direction, by the end of

June, prices remained lower than what was recorded in January of this year.

While first quarter buyers’ market conditions inevitably resulted in price declines on a monthly basis, market

prices continue to remain higher than last year’s levels. Year-to date benchmark prices averaged $455,133, a 3.31 per cent increase over annual levels in 2014, and slightly lower than our January annual forecasted price of $456,346.

Peter Jennings

August 2,2015

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While housing market conditions in the first quarter were primarily driven by a lack of consumer confidence, many of the extreme concerns subsided by the second quarter. This slowed the rate of decline in sales activity and led to a pullback in new listings with price levels remaining relatively unchanged.

Moving forward, as we transition into the third and fourth quarters of the year, employment conditions are expected !to worsen and put increased downward pressure on wages. When combined with lower levels of migration, it’s expected that these conditions will cause further impacts on the housing sector.

Overall, city of Calgary sales are forecasted to decline to 19,798 units, a 22 per cent decline over the previous year, but only !12 per cent lower than the long-term average.

Supply levels in the new home sector and rental markets will likely continue to rise, while the rate of decline for resale listings may also ease as the need to sell may become more prevalent in the later portion of the year. These factors will likely keep inventory levels relatively elevated with continued week sales activity, placing some downward pressure on pricing in the second half of the year.

The city of Calgary residential benchmark price is expected to average $448,354

for 2015, a 0.20 per cent decline over !the previous year. This is a shift from !the previous forecast and is mostly a reflection of the downward forecast revision being seen across all economic indicators. While the worst case scenario has not yet played out in the energy sector, expectations about the recovery timeline and degree of impact have shifted.

While some price moderation is expected, it should be noted that it is not going to be the double digit decline that some forecasters have suggested. In part, this is related to the limited supply moving into this cycle. In addition, the forecasted pullback in employment!and migration is not expected to be as severe as what occurred the last time we recorded significant price declines.

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RESALE MARKET - !THE DETACHED SEGMENT

By the end of the first half of 2015, detached sales totaled 6,203 units, a 25 per cent decline relative to the previous year. These year-to-date sales were weaker than expected and resembled 2009 activity.

While sales have declined in every price range, the largest unit drop occurred in the $300,000 to $399,999 range. Some of this decline is likely related to the overall pullback in market activity, but the primary reason is a continued lack of new listings in this range. There was a total of 1,590 new listings in the under $400,000 segment of the detached market and 1,297 sales. The relatively high absorption rate limited any significant inventory gains in this price range. This outcome reflects the continued strong demand for lower priced detached homes.

The variance between absorption rates within each price range influences aggregate prices. In the detached segment, most of the growth in new listings was occurring in the higher price ranges. In fact, YTD, more than 57 per cent of new detached listings were priced above $500,000 this year, compared to 52 per cent last year.

When comparing sales and new listings by price range, it’s evident that the spread is wider in the higher price ranges, reflecting more buyers’ conditions. This situation should not come as a surprise given that most of the job losses to date occurred in the higher paying business services sector, a trend that is likely to continue throughout the year.

Meanwhile, the $400,000 to $500,000 segment of the detached market had the largest share of sales activity in the first six months of the year at 34 percent. While the sales to new listings ratio declined relative to last year, in this price range it remained on the higher end of the balanced scale, preventing any significant aggregate price declines.

The recent pullback in new listings!has helped reduce upward pressure on inventory levels, moving the market toward more balanced conditions. However, most of this decline occurred in the lower price ranges, suggesting market balance and price changes will depend on the price range the property occupies within its sub-market.

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In the months ahead, further job losses !and declining prospects of comparable !replacement positions may prevent !further declines in higher end inventory levels. Consumers in a must sell situation will have to carefully consider the !price they are willing to accept. These !decisions could place further downward pressure on aggregate prices in the second half of 2015. While activity will continue to vary based on price and !location, continued weakness in demand relative to supply levels are expected to!cause aggregate detached benchmark home prices to decline in the second half !of this year. However, year-over-year !gains in the first half of the year will offset !the decline resulting in a relatively stable !annual price.

A price reduction may start to encourage!those sitting on the sidelines to enter !the market if they are in a position to!do so. While improved affordability and !increased choice will not cause a reversal !in the decline of sales, it will cause the !degree and magnitude of decline to ease !in the second half of the year. Overall, detached sales are expected to total 12,105 units, a 19.8 per cent decline over last year.

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