As the rental apartment vacancy rates have declined, evidence of overbuilding has eased from high to moderate in both cities

Both Calgary and Edmonton continued to show a moderate degree of overall vulnerability in their housing markets in the third quarter of 2018, according to the latest Housing Market Assessment released Thursday by Canada Mortgage and Housing Corporation.

However, as the rental apartment vacancy rates declined, the evidence of overbuilding has eased from high to moderate in these two centres, added the CMHC.

The report gives an overall degree of vulnerability looking at overheating, overvaluation, price acceleration and overbuilding.

James Cuddy
James Cuddy

“Evidence of overbuilding in Calgary moved from high to moderate as the rental market experienced significantly tighter vacancy rates in 2018. The current economic climate in Calgary has shifted some demand away from ownership and toward rental,” said James Cuddy, senior analyst for the CMHC.

In Edmonton, “while elevated inventories in the ownership market continued to persist, demand for rental units increased and the vacancy rate moved lower in 2018, shifting evidence of overbuilding from high to moderate.”

The CMHC said its HMA framework continued to detect low evidence of overheating in Calgary in the third quarter of 2018.

“Calgary continues to deal with a housing supply and demand imbalance created from the 2014 oil price shock and recent slow economic recovery. An elevated unemployment rate, lower real personal disposable income, and higher interest rates have put downwards pressure on the demand for homeownership . . . Buyers’ market conditions continue to persist, which has put downwards pressure on house prices,” said the report.

It said evidence of price acceleration remained low in the third quarter and there continued to be low evidence of overvaluation in Calgary. Lower home prices have moved valuations closer in line with prevailing economic fundamentals in the market.

“Calgary continued to deal with elevated inventory levels partly because of reduced demand caused by the slow economic recovery and higher interest rates,” said the report. “In the rental market, some shifting demand towards rentals has helped to absorb both purpose-built and investor-owned condominium rental units. Evidence of overbuilding in Calgary moved from high to moderate as the annual purpose-built rental vacancy rate decreased from 6.3 per cent to 3.9 per cent in October 2018, bringing the vacancy rate to below the critical threshold. The second indicator of overbuilding – newly completed and unabsorbed units per capita – continued to remain above the critical threshold, therefore yielding moderate evidence of overbuilding.”

The CMHC said its HMA framework continued to detect low evidence of overheating in Edmonton as the sales-to-new listings ratio remained well below the critical threshold.

“Edmonton continued to face economic challenges due to a slow recovery from the past recession. On a year-over-year basis, sales decreased slightly in the third quarter, keeping the SNLR low and reinforcing buyers’ market conditions. Similar to other markets across Alberta, Edmonton’s unemployment rate continued to remain above pre-recession levels, which has put downwards pressure on sales. Higher interest rates and a lack of growth in real personable disposable income has impacted purchasing power,” said the report.

“A moderation in the demand for housing in the ownership market has kept inventories elevated in both new and resale homes, therefore putting downward pressure on house prices. Evidence of price acceleration remained low . . . While economic conditions in Edmonton remained relatively weak compared to their pre-recession levels, all of the eight selected overvaluation models indicate that current market prices are in line with what is expected by current economic fundamentals such as real personal disposable income, young adult population growth, borrowing rates, and other factors. As a result, the HMA framework continued to detect low evidence of overvaluation in Edmonton.”

The CMHC said elevated unsold inventory in the ownership market remains a persistent challenge for Edmonton but the rental market has begun to buck this trend.

“The annual purpose built rental vacancy rate decreased from 7.0 per cent to 5.3 per cent in October 2018, moving the indicator below the critical threshold of overbuilding. Tightening of the rental market has shifted evidence of overbuilding from strong to moderate. The relatively stronger demand for purpose built rentals and rental condominium units has helped move Edmonton’s rental market towards more balanced conditions. The current economic climate continued to pose a challenge for the absorption of inventories in the new home market.”

– Mario Toneguzzi for Calgary’s Business


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