Nothing to Fear, There’s no Bubble in the Calgary Housing Market, says CMHC.
If you had money in the real estate market back in 2007 and 2008, then you know how devastating it can be when a housing bubble bursts. Although the damage was much worse south of the border, when it became clear that Canadian banks had been giving out mortgages to people who had no business applying for that much financing — and had no shot at paying for the loans they had taken out — then the air flew out of the balloon, and home values plummeted. People who had been paying for years on their mortgages found they were upside-down anyway because their equity wasn’t enough to compensate for the drop in value.
There are some real estate markets in Canada that are at risk of a fairly sharp correction in real estate prices — Canada Mortgage and Housing Corp. has identified Winnipeg, Regina and Toronto as being in danger. However, Calgary is on the “low risk” list that CMHC has released. The agency considered four factors: overbuilding, overvaluation, overheating and swift growth in housing prices.
Why are different parts of the country reacting differently to the economy? The key has to do with the low price of oil. Because oil prices remain low, fewer people are moving into the Calgary area. While that has depressed other areas of the economy, it has also kept housing prices from climbing out of control, as they are a danger to do in several other parts of Canada. So while prices are going up, they are doing so at a rate that is more likely to remain stable. Also, builders are not putting up housing that is likely to go unused. While CMHC chief economist is seeing “a modest amount of overvaluation” in the Calgary market, there has not been the sort of “economic event [that would] cause the fundamentals to change dramatically” in the Calgary economy as of yet.
Winnipeg and Regina have been in the list of “high-risk” real estate markets in terms of a price correction since April, while Toronto just joined that list. In the case of Winnipeg, overbuilding and overvaluation of home prices have been the two dominant factors. In Regina, the problems are similar — and the condo market there has been particularly ripe for overbuilding.
One city in Canada where prices continue to spiral upward but where a correction is still not seen as likely is Vancouver. In July, the benchmark value of a detached home was $1.1 million. This represents a 16.2 percent increase from July 2014, according to the Real Estate Board of Greater Vancouver.
Could a continued drop in the price of oil make a correction in the Calgary market a possibly? For now, it seems as though the price would have to drop significantly further. One factor maintaining stability is the fairly low number of available rental properties in the middle range of price and size. This is keeping people from selling their homes from the time being, according to Don Campbell, a senior analyst for the Real Estate Investing Network. If oil and gas companies continue to suffer, many more people could have to sell their homes. Right now, land prices are going up, but builders are bringing their prices down — which led to the fact that Calgary home prices only rose 0.1 percent in the month of June.
According to the Calgary Real Estate Board, in July, the average sale price in MLS was $476,446. This represents a 1 percent drop from July 2014. However, the median price was $435,000, which represents a 2 percent increase from July 2014. The benchmark price (the transaction price for a typical market property) was $455,400, which was virtually the same.
If you are considering investing in the Calgary real estate market, talk to one of our specialists at Amansad Financial to find the right sort of mortgage for your needs.