The Affect Slumping Oil Prices have on the Calgary Housing Market
In some parts of Canada, real estate prices are heading up at a swift rate. However, in parts of Canada where the job market is largely dependent on the price of oil, home values are heading the other way. For the majority of consumers, low oil prices are beneficial because they keep the price of petrol lower at the pump. In Calgary, where so many of the employers are in the oil and gas industry, though, lost jobs are having a harmful effect on the local economy — including home prices.
The Calgary Real Estate Board predicted that resale home prices will be 0.2% lower at the end of 2015 than they were at the end of 2014. Home sales overall should be 22% lower than they were in 2014. This doesn’t constitute a bursting of the housing bubble like the one that sent the real estate market into a tailspin during 2007 and 2008, but it does mark a fairly significant shift from January, when real estate experts predicted that the city’s home prices would go up 1.58% over their 2014 levels.
Other sources predict that the home prices in Calgary will drop even further. Toronto-Dominion Bank predicted a drop of 1.7% while Royal LePage predicted a drop of 2.4%. Royal Bank of Canada reported back in June that the home prices in Calgary have already dropped. However, that is not likely to lure many people to buy new homes at this point in time.
Why not? Prevailing oil prices have fallen back under US$50 per barrel and are wreaking havoc on the housing market in Calgary. Since January 2015, more than 12,000 full-time jobs have vanished in the city — quite a few of them positions with high salaries. At the same time, the city has added 24,000 part-time positions. The worst case scenario from the Conference Board of Canada foresees Calgary losing 23,000 more full-time positions. Overall, the Calgary economy is projected to shrink by 1.2% by the end of 2015.
The drop in home prices began in December 2014, when oil prices took their most recent plunge and many homeowners listed their homes so they could escape the market before a major price correction hit. When many of these homes failed to sell, the homeowners pulled them off the market in the spring. When a city undergoes significant job losses, the real estate market often takes a year or more to reflect those changes. This means that many of the homeowners who put their homes on the market in early 2015 were not in a desperate position. However, with a city featuring more than 14,000 new homes under construction and anticipating more job losses, people could become more desperate to sell as they burn through their savings.
While the benchmark prices in Calgary averaged $455,133 in June, that could fall to $448,354 by the end of 2015. However, the downturn in the Calgary economy has affected different parts of the housing market in different ways. Rental vacancies have risen from 1.5% in 2014 to 3.6% in 2015, as many apartment complexes have gone up in Calgary. Because of the increase in supply, the benchmark price for condominiums has dropped by 2% because condo investors and first-time buyers are waiting things out to see how far the prices will fall.
In the detached home market, sales have dropped 25% in 2015 compared to the same time period in 2014, and a great deal of the decrease comes in homes with a list price higher than $600,000. Even so, some buyers are still looking, and some of the detached homes selling for lower prices have inspired bidding wars.
What this means is that there are still deals available for people looking in the lower end of the market — as well as the upper end for those whose employment does not depend on the oil and gas industry. Given the fluid levels of values right now, though, many investors are waiting to see what happens — a posture that does not lend itself to sustained economic growth.
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