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2015economic outlook &

regional housing forecast

MID-YEARUPDATE

©2015 CREB®. All rights reserved.

The forecasts included in this document are based on information available as of June 2015. Prepared by Ann-Marie Lurie, CREB® chief economist.

300 Manning Road NECalgary, AlbertaT2E 8K4, Canada

Phone: 403-263-0530Fax: 403-218-3688Email: [email protected]

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contents

summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

energy sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

economic overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 International Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Canadian Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Alberta Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Calgary Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Calgary Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Net Migration and Population Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

calgary & surrounding area housing market . . . . . . . . . . . . . . . . . . . . . . . . 11 Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 New Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

resale market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Total Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 The Detached Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 The Apartment Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Attached Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Airdrie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Rocky View County . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Region of Foothills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

outlook risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Forecast table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

CREB® 2015 EConomiC outlook & REgional maRkEt FoRECast - mid yEaR updatE 3

>> It was a turbulent first half of the year for Calgary’s regional housing market. Low energy prices impacted consumer confidence early in the year, causing a significant pullback in sales and a sharp rise in supply levels. As we moved into the second quarter, there was some calming in the housing market. This change was partially driven by easing concerns over the likelihood of worse case scenarios of $30 US per barrel oil prices.

While the initial shock of declining oil prices has dissipated, housing market activity is likely to be guided by economic realities in the second half of the year. The long-term outlook continues to remain optimistic, but short-term expectations have changed from the previous forecast. This is related to slower than anticipated recovery of oil prices and the impact that it’s having on Alberta’s economy.

Many economists warn that the broader e�ects of oil price shocks have yet to be fully realized in both the energy and non-energy sectors. Even with no further changes, most sectors are likely to face more downward pressure in the second half of 2015 and into 2016.

West Texas Intermediate (WTI) price forecasts for 2015 are now expected to average $55 US per barrel, according to the U.S. Energy Information Administration’s (EIA) July Short-Term Energy Outlook report. This is nearly 13 per cent lower than expectations from the end of 2014.

In response to these changes and the impact they are having on capital investment, Alberta GDP growth forecasts for 2015 have been revised down, ranging from a 1.5 per cent contraction to moderate growth of 0.4 per cent. In Calgary, both the Conference Board of Canada and the City of Calgary corporate economics groups anticipate economic growth to contract by more than one per cent in 2015. This will place further downward pressure on employment and migration.

Despite the recent decline in lending rates, resale housing demand will continue to remain weaker than what we have become accustomed to in Calgary. While declining lending rates typically support demand growth, further job losses are expected in the fall of this

year. Rising unemployment levels and limited job opportunities far outweigh the benefits of a lower lending rate and will continue to keep housing demand weak in the months ahead. Overall, sales activity in the city is forecasted to decline by 22 per cent for a total of 19,798 units in 2015.

Meanwhile, the pullback in new residential construction, combined with some moderation of new listings, will help lessen the impact on housing supply. However, inventory imbalances in some sectors of the market are still expected to weigh on housing prices in the second half of the year, causing residential prices to contract by an estimated 0.2 per cent on an annual basis in 2015.

SUMMARY

Calgary Sales and Price Growth Forecast

Source: CREB®

-20%

-10%

0%

10%

20%

30%

40%

50%

0

5,000

10,000

15,000

20,000

25,000

30,000

Detached Price growth10 yr averageApartment Attached

‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

FORECAST

CREB® 2015 ECONOMIC OUTLOOK & REGIONAL MARKET FORECAST - MID YEAR UPDATE4

“The Canadian Crude oil industry is facing risks on multiple fronts in a market transformed by increased global crude oil supplies resulting in lower crude oil prices.” Canadian Association of Petroleum Producers – Crude Oil forecasts, Markets and Transportation, June 2015.

>> WTI oil prices have improved since the January forecast, but remain below previous expectations. Year-to-date prices have averaged around $50 US per barrel, nearly half of what they averaged last year. At the beginning of the year, consumer confidence was low with WTI prices hovering around $40 US per barrel. However, concerns started to ease as prices improved from those lows. Despite pushing up to $60 US per barrel, recently WTI prices have slid back to below $50 US per barrel. According to the Bank of Canada, the recent fall is related to the developments in Greece, ongoing excess supply and the prospects of Iranian oil exports returning to the market.

As expected, the drop in oil price has impacted energy industry revenues. The Canadian Association of Petroleum Producers (CAPP) estimates that oil industry revenues will fall by 40 per cent in 2015, with capital investment declining by 38 per cent and well drilling by 45 per cent.

Despite this decline in investment, oil production is projected to increase over the next three years. Industry experts have indicated that most active projects will continue as many of those capital intensive projects have long-term horizons and are not as susceptible to shorter-term price volatility. Current

production is also not expected to shut-in, as per barrel operating costs are lower than current market prices, minimizing losses to larger companies.

Reports indicate that integrated companies are benefiting from refinery profits. Furthermore, the falling exchange rate combined with tighter heavy oil di�erentials and downward pressure of supplier and service costs will help mitigate some of the impact that lower prices are having.

Oil price forecasts continue to remain widespread. Some analysts expect further price declines in light of the continued rise in OPEC production, while others feel we have already reached the low point and that prices will gradually climb. The U.S. Energy Information Administration’s (EIA) recent energy outlook points toward WTI prices

averaging US $55 per barrel in 2015 and $62 per barrel in 2016.

In the near term, persistently low energy prices will continue to cause energy companies to look for ways to cut their costs. Some of the measures already taken include delaying or cancelling new investments, layo�s and wage adjustments. These measures could be revisited in the second half of the year following the upcoming royalty review, or pending any progress on pipelines, or if there are changes to the international political environment.

Either way, persistently low prices will continue to weigh on investment and impact job prospects to the area. Furthermore, if sanctions are lifted on Iran, this can impact oil supply levels, potentially limiting upward pressure on prices over a longer period of time.

ENERGY SECTOR

Jan‘05

Jan‘06

Jan‘07

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15

US $ / BBL

Brent Crude Oil Price WTI Crude Oil Price Western Canadian Select

Source: Alberta Oil Sands BVM, PEMEX, Statistics Canada

Crude Oil Price

20

40

60

80

100

120

140

CREB® 2015 ECONOMIC OUTLOOK & REGIONAL MARKET FORECAST - MID YEAR UPDATE 5

INTERNATIONAL HIGHLIGHTS

• U.S. economy has gained momentum, with GDP growth to accelerate for the remainder of this year into next;

• U.S. consumer confidence is improving as low household debt improves labour markets and lower energy prices increase purchasing power and fuel consumer spending;

• Euro area to remain tepid. Despite the recent monetary stimulus and a weaker Euro, challenges remain and growth is uneven across the region. Unemployment is high, especially for the young and uncertainty about Greece persists;

• Growth in China has been easing as the government made adjustments to help better position the country toward a stabilized growth pattern. Slower growth prospects have created some concerns in the energy sector.

ECONOMIC OVERVIEW

2014 (E) 2015 (F)

0%

-1%

-2%

-3%BC AB SK MB ON QC NB NS NL PEI CAN

1%

2%

3%

4%

5%

Real Annual GDP Growth

Source: Statistics Canada, Forecast TD Economics, July 2015

CANADIAN ECONOMY>> Canadian economic growth over the first half of the year is expected to show a retraction. This weakness is related to the oil price shock and declines in other non-energy goods exports. Given these challenges in the first half of the year, 2015 GDP forecasts for Canada have been revised downward.

Despite forecasts of further declines in energy sector business investment, Canadian growth is expected to resume in the next two quarters. The improving U.S. economy and a weaker Canadian dollar should support a partial recovery in exports. Federal fiscal stimulus should also support consumption growth in the second half of the year, according to

the Bank of Canada. These factors are expected to support enough economic growth to outweigh the contraction recorded in the first half of the year.

While energy producing economies are currently slowing, there is some evidence that non-resource based provinces such as Ontario, British Columbia (BC) and Manitoba are benefiting. In addition to lower energy costs, these economies are experiencing gains as a result of the weaker Canadian dollar and improvements in the U.S. economy. Unfortunately, the retraction in mining and energy are outpacing gains in manufacturing and consumer spending, which is causing some pullback in overall Canadian economic growth.


Calgary CMA GDP Growth

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

-6%

-4%

-2%

0%

2%

4%

6%

8%

Milliions ($2002)

Source: Statistics Canada, Conference Board of Canada Forecast

‘07‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14(E) ‘15(F)

Annual Growth Total GDP

ALBERTA ECONOMY>> The energy sector is the primary driver of Alberta’s economy. Based on figures from Statistics Canada and the Alberta government, oil and gas activity accounts for 73 per cent of our total exports, 64 per cent of all provincial investments and 25 per cent of our GDP.

Given this reliance on the energy sector, it’s no surprise that weakness in the energy sector is having a sooner than expected impact on Alberta’s economy. This has caused many to revise their forecasts for the province to reflect a

contraction in 2015. While some recovery is expected in 2016, weaker conditions in the energy sector are expected to persist through the first half of 2016.

Already, several oil and gas sector firms have announced a sharp reduction in their planned capital spending this year. As a result, demand for workers and wage gains are expected to ease this year. The Petroleum Labour Market Information (PetroLMI) estimates the contraction in capital expenditures would result in 111,760 direct and indirect jobs lost in the province. An additional 14,111 would be lost due to reductions in operational expenditures.

The one benefit of the downturn is that non-energy companies will benefit from improved labour availability, which will reduce cost pressures. Against this backdrop, a weak Canadian dollar and strengthening U.S. economy is also expected to benefit the agriculture and forestry industries in Alberta.

If the energy sector downturn persists, it will start to trickle into other sectors of Alberta’s economy. The lack of job prospects will impact migration, income, consumer spending and the housing market.

CALGARY ECONOMY>> Calgary’s economy is not sheltered from the impacts of the slowdown in the energy sector. The local economy is expected to shrink by 1.2 per cent in 2015. While this contraction is not expected to be as steep as the four per cent decline recorded in 2009, the slowdown will not only impact oil and gas extraction activities, but also local construction projects, transportation and warehousing, wholesale and retail trade.

ECONOMIC OVERVIEW (CONT.)


CALGARY EMPLOYMENT>> As of June, the unemployment rate rose to 5.9 per cent, with employment levels falling below levels reported in May. Meanwhile, on a year-over-year basis we are still reporting employment growth in 2015. A closer review of the figures illustrates significant variation between industries

While there continues to be more people employed on a full-time basis this year compared to 2014, there has been a downward trend in full-time employment. Data from Statistics Canada shows there were 11,925 fewer full-time jobs in June than there were in January of this year, compared to the 23,900 part-time job gains over the same time frame. The decline in full-time positions combined with more people looking for work, has contributed to the pullback in housing sales activity.

Employment levels are higher this year than they were last year, but the figures vary depending on the industry. Manufacturing, construction, primary and utilities, FIRE (Finance, Insurance and Real Estate), and business services have all recorded year-over-year contractions in total employment levels. The pullback in manufacturing, primary and utilities and business services is primarily related to the contraction in the energy sector. The losses in these sectors have been mostly o�set by significant gains in transportation and warehousing, personal services and non-commercial employment, which include education and health care. A large proportion of job loss tends to be in the higher earning industries as opposed to the lower earning sectors. The changing composition of employment can have an impact on the housing demand profile.


Jan‘05

Jan‘04

Jan‘06

Jan‘07

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15

Calgary CMA Full Time Jobs

-10,000

-5,000

0

5,000

10,000

15,000

20,000

480,000

530,000

580,000

630,000

680,000

730,000

Full-Time Employment Growth (M/M) Full-time Employed Source: Statistics Canada

Calgary CMA Business Services

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

(30,000)

(20,000)

(10,000)

0

10,000

20,000

30,000

Source: Statistics Canada Y/Y GROWTH Business services growth Employed Business Services

Jan‘07

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15

Calgary CMA Personal Services

Personal Services Growth Employed Personal Services

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

(25,000)

(20,000)

(15,000)

(10,000)

(5,000)

0

5,000

10,000

15,000

20,000

Source: Statistics Canada Y/Y GROWTH

Jan‘07

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15


CALGARY EMPLOYMENT (CONT.)

In addition to job losses, several energy companies are reported to have also taken other cost cutting actions such as salary freezes and wage cuts. These measures reinforce overall concerns about the economy. This can cause consumers to reduce discretionary spending and impact the service sector.

Even with some recent improvements in oil prices, it’s anticipated that the impact of lower energy prices have not yet been fully realized in relation to employment figures. The Conference Board of Canada has forecasted employment growth to slow to 0.4 per cent in 2014 on an annual basis. This translates into approximately 23,000 job losses in the second half of this year. Overall, this will continue to keep housing demand levels relatively weak for the remainder of the year.


Employment Growth by Industry, June 2015

-4,640

-9,308

-891

3,481

12,185

769

-2,334

-14,272

25,312

15,808

4,022

-132

-4,955

-2,910

1,494

-3,261

-445

3,175

-1,917

5,770

1,027

-1,662

Primary and Utilities

Construction

Manufacturing

Wholesale and Retail Trade

Transportation and Warehousing

Information and Cultural Industries

Finance, Insurance and Real Estate

Business Services

Non-Commercial Services

Personal Services

Public Administration

M/M Change Y/Y Change Source: Statistics Canada, seasonally adjusted data

Calgary CMA Employment GrowthY/Y % Change Average Annual Employed

% change (y/y) Total employment

FORECAST

‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16500,000

550,000

600,000

650,000

700,000

750,000

800,000

850,000

900,000

-2%

0%

2%

4%

6%

8%

10%

Source: Seasonally adjusted data Statistics Canada,Conference Board of Canada Forecast


NEW MIGRATION AND ECONOMIC GROWTH (CONT.)

>> First quarter estimates of Alberta’s net migration dropped to the lowest levels since early 2011. Fewer high paying energy sector jobs, combined with improving economies in BC and Ontario, are making it more di¥cult to attract migrants. Despites the slower pace of net migration, Alberta continues to lead Canadian provinces in population growth. Our relatively young population has contributed to these gains as births outweighed deaths in the first half of 2015. While further gains in population are encouraging, housing will be impacted by weaker net migration.

Estimates of net migration in 2015 were further revised downward for the Calgary census metropolitan area, relative to our last forecast. Despite the expected decline in net migration, population growth is forecasted to remain positive in Calgary, albeit at levels far lower than what we have become accustomed to seeing. Overall, slower net migration levels and weaker population growth point toward continued weakness in local housing demand.

FORECAST

Calgary CMA Net Migration

‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘175,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Source: Statistics Canada, Conference Board of Canada adjustment,Conference Board of Canada Forecast

FORECAST

‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17

Calgary CMA Population Growth

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Source: Statistics Canada, Conference Board of Canada adjustment, Conference Board of Canada Forecast



RENTAL>> Vacancy rates have started to rise in the Calgary area. Based on the CMHC April 2015 Rental Market Statistics report, two bedroom apartment and row vacancy rates rose to 3.6 per cent in 2015. This is a significant increase over the modest 1.5 per cent recorded in the April survey last year. Slower economic conditions have reduced demand for labour and made it more di¥cult to attract migrants to the area.

Less new demand, combined with additional supply coming from purpose-built rentals and ownership rentals, has contributed to the rise in vacancy rates. While rental rates have improved due to the lack of supply in last year’s market, improved choice in rental property will likely limit any additional rental gains over the near term.

A rise in rental product availability will impact the resale market for investors and potential homeowners. Given the

economic uncertainty, more options for renters with less concern over rental hikes may cause some to delay the purchase of their first home. Meanwhile, as the investment risks associated with higher vacancies rise and perspectives on capital appreciation change, the returns on a potential investment property may become more challenging for certain buyers and impact investor demand.

NOTE: INTEREST RATESThe Bank of Canada surprised observers when it dropped the target overnight rates in January by one-quarter of a percentage point to 0.75 per cent. This decision was made in response to the sharp drop in oil prices as a way to counter negative impacts on Canadian growth and underlying inflation. Since then, further weakness in the Canadian economy caused the Bank of Canada to cut their rate again in July. Interest rate declines can support further gains in the housing sector. However, in Calgary, the benefits of lower rates are outweighed by economic concerns that are limiting housing demand.

Calgary CMA Vacancy Rate - CMHC April Survey

Source: CMHC, Rental Market Survey, April 2015Calgary CMA Vacancy Rate - CMHC April Survey

0.00%

1.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

CALGARY & SURROUNDING AREA HOUSING MARKET


FORECAST

Calgary CMA Housing Starts

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Source: CMHC, Conference Board of Canada Forecast

‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

Single Family Multi Family

-32%

NEW HOME>> Improved selection in the resale market and slower economic activity has caused a pullback in new permits and starts activity. Year-to-date single-family and multi-family starts have contracted by 31 and 24 per cent. Meanwhile, the value of new residential permits, which serve as an indicator for future development, have also pulled back by 20 per cent from last year.

While the pullback in starts will help prevent further build up in product under construction, there are still more than 14,000 units already under construction. Over the past four years, City of Calgary household formation numbers have exceeded the amount of completions, which is why inventory levels have been dropping in the new home, resale and rental markets. This is good news in that prior to the recent downturn we were not seeing housing supply exceed demand, which limits the risk of oversupply and large price corrections. However, if the economic downturn is worse than expected and extends beyond this year into 2016, it could start to impact household formation numbers, causing some inventory buildup.

NOTE: HOUSEHOLD FORMATIONThe formation of new households is an important consideration for housing demand because every household requires their own dwelling. Household formation figures are provided by the City of Calgary Corporate Economics group. They have indicated that their estimates are generally attributed to three factors: population growth, population aging and propensity to form new households (including social factors such as marriage and divorce trends, as well as economic factors such as incomes and mortgage lending rates).

NOTE: OVERVALUATIONThere have been several articles and methodologies used to determine if a housing market is overvalued. The two most commonly referenced are the rent to ownership levels and the debt to income comparison. There are other frameworks that take into account factors such as population growth, changes in disposable income, interest rates and housing demand levels relative to supply. While several entities have identified some level of overvaluation in Calgary’s market, these assessments do not point toward a price correction. More often, a price correction is associated with an economic shock that propels the market in a di�erent direction.

CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)


CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)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 o� 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 o�. 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.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

YTD- 2005

YTD- 2006

YTD- 2007

YTD- 2008

YTD- 2009

YTD- 2010 2011

YTD- YTD- 2012

YTD- 2013

YTD- 2014

YTD- 2015

Calgary YTD Comparison Sales, YTD-Jun

Detached Apartment Attached 10 yr averageSource: CREB®

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0

1

2

3

4

5

6

7

8

9

Estimated months of supply Benchmark y/y price change

Calgary Months of Supply and Price Changes

Source: CREB®

Jan‘05

Jan‘04

Jan‘03

Jan‘02

Jan‘01

Jan‘06

Jan‘07

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15


CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)RESALE MARKET - TOTAL RESIDENTIAL (CONT.)

NOTE: PRICE DIFFERENCESThere are many di�erent ways to measure price trends. Some include the average price, median price, and the MLS® Home Price Index (HPI). The average price is easily impacted by the composition of sales, which is why it’s not a surprise that the year-to-date average price measure has recorded the largest price decline relative to 2014 annual figures. Total sales have declined across all ranges. However, as a proportion of the sales, activity has declined in the $600,000 plus sectors, while either improving or remaining the same for product priced under $600,000. This shift in the distribution of sales has contributed to the steeper decline in the average prices.

The benchmark price is based on specific attributes of the home, measuring the change based on a similar property. The majority of properties fall into the mid-range of the market. This sector has moved from seller’s conditions last year to more balanced conditions this year, primarily in the detached sector.

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.

NOTE: HOUSING AFFORDABILITY Lower lending rates and price compressions improved a�ordability in the first half of 2015, according to the RBC A�ordability Index report for Calgary. As the economic climate improves in Calgary, our markets will remain among the most a�ordable in the country. Despite short-term concerns, the mid-range outlook is positive. Alberta’s a�ordable advantage will help the province be well positioned in the lead up to a recovery in the energy sector.


CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)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 per

cent. 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.

Calgary YTD Sales and New Listings by Price Range, Detached

0

500

1,000

1,500

2,000

2,500

3,000

3,500

<$200,000 $200,000- $299,999

$300,000- $399,999

$400,000- $499,999

$500,000- $599,999

$600,000- $699,999

$700,000- $999,999

$1,000,000+

Source: CREB® Year to Date

YTD - Jun 2014New Listings

YTD - Jun 2014Sales

YTD - Jun 2015New Listings

YTD - Jun 2015Sales


Calgary Annual Sales Forecast, Detached

Source: CREB® Detached 10 yr average

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

FORECAST

Calgary Price Forecast, Detached

0

100,000

200,000

300,000

400,000

500,000

600,000

-10%

0%

10%

20%

30%

40%

50%

Source: CREB® Price Growth Benchmark Price

‘07‘04 ‘05 ‘06 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15(F)

FORECAST

CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)RESALE MARKET - THE DETACHED SEGMENT(CONT.)

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 o�set 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 a�ordability 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.


Calgary Months of Supply and Price Changes, Apartment

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Source: CREB®

Jan‘05

Jan‘04

Jan‘03

Jan‘02

Jan‘01

Jan‘06

Jan‘07

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15

Estimated monthsof supply

Benchmark y/y price change

Months ofsupply trend (12M)

Calgary Monthly Inventory by Price Range, YTD-Jun

0

100

200

300

400

500

600

<$200,000 $200,000– $299,999

$300,000– $399,999

$400,000– $499,999

$500,000– $599,999

$600,000– $699,999

$700,000– $999,999

$1,000,000+

Source: CREB® Detached Apartment Attached

CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)RESALE MARKET - THE APARTMENT SEGMENT

>> After the first half of the year, the apartment market moved toward the higher end of balanced market conditions. While months of supply eased from 7.4 months in January to 3.0 in June, the oversupply in this market has made the apartment segment the only city sector to record year-over-year price declines in the second quarter.

Challenges in the resale apartment segment are linked to the rising supply in competing markets. There is more selection in the detached and attached segments, which makes it di¥cult to attract buyers into the resale apartment market. Sellers also faced added competition from new apartment units and increased selection in the rental market. More than 85 per cent of apartment sales occurred at a price below $400,000, with the benchmark price over the first half of the year averaging $294,617.

While the second quarter decline in new listings will help prevent further gains in inventory at the moment, further new project completions could add pressure to the resale apartment market in the second half of the year. This would result in continued weakness in demand, a potential rise in new listings and further price compression.


CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)RESALE MARKET - THE ATTACHED SEGMENT

>> Much like the detached segment, sales declines for attached product were less severe in the second quarter. A reduction in the level of new listings also helped push the market toward more balanced conditions. The year-to-date benchmark price for an attached home in this segment averaged $354,533, which represents a 4.12 per cent increase over the previous year. The attached segment is fairly diverse in its composition of listings relative to the apartment market. However, over 40 per cent of the sales in this segment occurred in the $300,000 to $399,999 range.

The attached market represents nearly 22 per cent of total sales activity in the Calgary housing market. This is an improvement from levels recorded throughout 2001 to 2012. Attached units have grown in popularity and provide a bridge between the higher priced detached home and the lower priced apartment product.

While the range of housing options in the attached segment is significant, the typical property is 1,157 square feet with three bedrooms and a June benchmark price of $354,500. The typical detached home in the city of Calgary is 1,294 square feet with three bedrooms above ground and a June benchmark price of $515,500. The typical apartment home is smaller and less expensive at 882 square feet with two bedrooms and a price of $293,600.

For the balance of 2015, the attached sector will likely continue to face some pullback in activity and further price compression. However, it is also anticipated that annual prices in the attached segment will remain stable relative to 2014.

NOTE: The attached market includes all semi-detached and row product that is not accessed by an interior hallway. In this segment, there can be significant di�erences in the price of a property based on the di�erent types of product available and the location.

Calgary YTD Sales Share by Price Range, Attached

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

<$200,000 $200,000- $299,999

$300,000- $399,999

$400,000- $499,999

$500,000- $599,999

$600,000- $699,999

$700,000- $999,999

$1,000,000+

YTD - Jun 2012 YTD - Jun 2013 YTD - Jun 2014 YTD - Jun 2015 Source: CREB® Year to Date


CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)RESALE - AIRDRIE>> After the first half of the year, Airdrie sales activity totaled 759 units, a 16 per cent decline over the previous year. While demand is lower across all regions, there were some notable di�erences in Airdrie. The rate of decline in sales was not as steep as the pullback in Calgary. In fact, outside of last year’s record levels, year-to-date sales activity in Airdrie remained higher than levels recorded since 2007.

Beyond lifestyle preferences, many consumers turn to Airdrie for housing a�ordability. As of June, the typical detached home in Airdrie cost $398,200. Properties in this area are also typically newer and larger than the typical detached home in Calgary, which is priced at $515,500. The amount of new listings has recently pulled back in Airdrie, but the overall amount of inventory still remains higher than levels reported last year. However, when comparing sales activity to the amount of product in inventory, Airdrie’s market has remained relatively balanced throughout the second quarter.

Airdrie unadjusted benchmark prices also eased by 0.51 per cent in the second quarter compared to the first. However, year-to-date benchmark figures remain four per cent above last year’s annual benchmark price average of $363,017. Most of the decline that was experienced in this region was related to a stronger pullback in the attached and apartment segments of the market.

The attached segment accounts for nearly 24 per cent of the sales in Airdrie. In the second quarter of 2015, attached product recorded a price decline of 1.35

per cent relative to the first quarter of the year, and is only 1.40 per cent higher than last year. By way of comparison, detached benchmark home prices in the second quarter of this year totaled $397,133, which is just below first quarter benchmark prices and four per cent higher than second quarter prices recorded in 2014.

Moving forward, Airdrie will continue to benefit from its relative a�ordability. However, in the event that current economic conditions persist, Airdrie’s resale market may face added competition from the new home sector and competing resale markets in other surrounding areas.

Airdrie YTD Comparison Sales, YTD-Jun

0

100

200

300

400

500

600

700

800

900

1000

Source: CREB®

YTD- 2005

YTD- 2006

YTD- 2007

YTD- 2008

YTD- 2009

YTD- 2010 2011

YTD- YTD- 2012

YTD- 2013

YTD- 2014

YTD- 2015

Detached Apartment Attached 10 yr average

Airdrie Months of Supply and Price Changes

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0

1

2

3

4

5

6

7

8

9

Jan‘05

Jan‘04

Jan‘03

Jan‘02

Jan‘01

Jan‘06

Jan‘07

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15

Source: CREB® Estimated months of supply Benchmark y/y price change


CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)RESALE - ROCKY VIEW COUNTY

NOTE: Due to the diverse nature of properties within the region of Rocky View, trends in the residential resale housing market can vary significantly. This region borders Calgary on the west, north and east, and includes municipalities such as Cochrane, Chestermere, Irricana and Crossfield, as well as rural properties in undefined areas such as Springbank and Bearspaw.

>> The region of Rocky View recorded record levels of sales in 2014, emphasizing the decline in 2015. Year-to-date, the region has recorded 785 sales. This is a 28 per cent decline over last year, but higher than the 10 year average and the second highest figure posted since 2007. However, as absorption rates eased, inventories increased, but remained below the levels recorded in the peak period from 2011 to 2012.

Benchmark price growth also eased in the second quarter but remained positive at 0.30 per cent. Year-to-date, the benchmark price averaged $562,633, five per cent above last year’s annual average benchmark levels of $534,983.

A notable di�erence in the regions activity relative to the city of Calgary is the distribution of sales. While sales have declined in all price categories in the region, the share of sales activity either remained the same or improved for all properties priced above $400,000. This is why both the average price and median prices have also improved over previous year’s levels.

Rockyview Region YTD Comparison Sales, YTD-Jun

0

200

400

600

800

1000

1200

Source: CREB® Detached Apartment Attached 10 yr average

YTD- 2005

YTD- 2006

YTD- 2007

YTD- 2008

YTD- 2009

YTD- 2010 2011

YTD- YTD- 2012

YTD- 2013

YTD- 2014

YTD- 2015

Rockyview Region YTD Sales Share by Price Range

0%

5%

10%

15%

20%

25%

30%

Source: CREB® Year to Date

<$200,000 $200,000- $299,999

$300,000- $399,999

$400,000- $499,999

$500,000- $599,999

$600,000- $699,999

$700,000- $999,999

$1,000,000+

YTD - Jun 2012 YTD - Jun 2013 YTD - Jun 2014 YTD - Jun 2015


0

100

200

300

400

500

600

700

800

900

1,000

YTD- 2005

YTD- 2006

YTD- 2007

YTD- 2008

YTD- 2009

YTD- 2010

YTD- 2011

YTD- 2012

YTD- 2013

YTD- 2014

YTD- 2015

Foothills Region YTD Comparison Sales, YTD-Jun

Source: CREB® Detached Apartment Attached 10 yr average

Foothills Region Benchmark Price and Growth

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Source: CREB® Benchmark Price Benchmark Price Growth

Jan‘07

Jan‘06

Jan‘05

Jan‘04

Jan‘03

Jan‘02

Jan‘01

Jan‘08

Jan‘09

Jan‘10

Jan‘11

Jan‘12

Jan‘13

Jan‘14

Jan‘15

CALGARY & SURROUNDING AREA HOUSING MARKET (CONT.)RESALE - REGION OF FOOTHILLS

>> Similar to the regional make up of Rocky View, the region of Foothills is comprised of a wide range of towns and rural areas.

With 592 sales in the first half of the year, activity in this region was 22 per cent lower than last year and nearly 15 per cent below the 10 year average.

Much like supply levels in other surrounding areas, inventory in Foothills has been on the rise. Interestingly though, while supply has climbed above low levels recorded last year, they remain well below the highs recorded throughout the 2010 to 2011 period. More selection placed some downward pressure on price growth, but overall benchmark prices continue to remain higher than levels recorded last year.

Despite some clear similarities with other jurisdictions, prices in the Foothills region responded di�erently than some of the other regions. Prices declined in the Foothills region for most of 2011 and 2012. It wasn’t until last year that they started to record some improvement. While they remain below record highs recorded in 2010, year-to-date the benchmark price for the region was $400,367, a figure that is just shy of the 2010 annual benchmark price of $400,558.


OUTLOOK RISK>> The overall economic climate in Calgary continues to be plagued with a level of uncertainty. This stems from not knowing how long or severe the energy slowdown will be or what level of impact it will have on other industries in the province. Long-term prospects for the city and province remain optimistic. However, near term expectations point toward a persistently slower economic climate for the rest of this year and into 2016.

Given the expectation of further job losses and declines in net migration in the second half of this year, it’s likely that there will also be some limits on housing demand. However, the risk regarding home prices will ultimately rest with the amount of supply in the market, given the forecast of a slower demand environment.

DOWNSIDE• Increased supply in the rental and

new home markets could outweigh the impact of the current market balance in the resale market. This would increase selection in the overall market and place downward pressure on resale pricing;

• A prolonged period of low energy prices could have a deeper than expected impact on employment, resulting in longer periods of elevated unemployment levels. Not only would demand weaken, but resale new listings could start to rise if replacement employment opportunities become problematic. This could cause steeper than expected price declines;

• If household formation numbers ease relative to the completion of several new home construction projects, it could result in oversupply in the market and downward pressure on prices.

UPSIDE• If supply levels remain balanced

relative to demand, we could see prices hold steady or post a modest improvement compared to annual levels recorded last year;

• Consumer confidence had a significant impact on first quarter results. Positive long-term prospects and reduced concerns about the bottom falling out in the near term could minimize the pullback in demand, keeping market conditions in relatively balanced territory and preventing further aggregate price declines.


FORECAST TABLE

Economic Indicators 2012 2013 2014 2015 (F) Forecaster

Calgary CMA GDP Growth* 3.85% 3.78% 4.37% -1.16% Conference Board of Canada

Calgary CMA Net Migration* 31,504 37,996 36,521 13,695 Conference Board of Canada

Calgary CMA Employment Growth 5.06% 2.95% 2.61% 0.42% Conference Board of Canada

Housing Starts: Single Family Calgary CMA 5,961 6,402 6,494 5,660 Conference Board of Canada

Housing Starts: Multiple Family Calgary CMA 6,880 6,182 10,637 6,020 Conference Board of Canada

Apartment 2 Bedroom Rental Rates April, Calgary CMA** 1,113 1,202 1,267 1,319 CMHC

Apartment 2 Bedroom Vacancy Rates April, Calgary CMA** 2.80% 0.90% 1.70% 4.00% CMHC

WTI Price 94.12 97.98 93.17 55.51 U.S. Energy Information Administration

Henry Hub Price 2.75 3.84 4.52 3.06 U.S. Energy Information Administration

MLS® Resale Market 2012 2013 2014 2015 (F) Forecaster

City of Calgary

Sales 21,104 23,360 25,543 19,798 CREB®

Price Growth 4.26% 7.65% 9.91% -0.20% CREB®

New Listings 31,662 31,998 36,173 34,739 CREB®

City of Calgary Detached

Sales 13,524 14,433 15,094 12,105 CREB®


City of Calgary Attached

Sales 4,029 4,871 5,649 4,237 CREB®

Price Growth 1.07% 6.66% 9.61% 0.10% CREB®

City of Calgary Apartment

Sales 3,551 4,056 4,800 3,456 CREB®



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Any use of the publication’s content must include the source of the information, including statistical data, acknowledged as follows: CREB® 2015 Economic Outlook and Calgary Regional Housing Market Forecast, Mid Year Update.

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