Overall, a low degree of vulnerability was detected in Calgary’s housing market in the third quarter of 2019, lowered from the previous assessment, says the new Housing Market Assessment report released Thursday by Canada Mortgage and Housing Corporation.

The federal agency said there is still moderate evidence of overbuilding in the market as new home inventories remained elevated. But buyers’ market conditions have kept downwards pressure on home prices, resulting in low evidence of overheating and price acceleration. And low evidence of overvaluation remained as home prices are in line with current market fundamentals.

The CMHC said the HMA is an analytical framework that provides a comprehensive view of housing market vulnerabilities. It considers four main factors: overheating, price acceleration, overvaluation and overbuilding. Overheating is detected when sales greatly outpace new listings in the market for existing homes. Price acceleration is signaled when the growth rate of house prices increases rapidly. Overvaluation indicates that house prices are elevated compared to price levels supported by personal disposable income, population, interest rates, and other housing market fundamentals. Overbuilding is flagged when the rental apartment vacancy rate and/or inventory of newly built and unsold housing units are significantly above normal levels. 

“The HMA framework continued to detect low evidence of overheating in Calgary as the seasonally adjusted sales-to-new listings (SNL) ratio remained below the 85% threshold for overheating. Adjusting for seasonality, resale transactions increased 3.8% in the third quarter of 2019 compared to the previous quarter while new listings rose at a slightly slower pace (3.1%). This caused the seasonally adjusted SNL ratio to edge higher to 55.4%,” said the report.

“While the resale market has been operating below historical levels of activity, market conditions are now firmer than in previous quarters, setting a path towards a more balanced state.”

The report said persistent buyer’s market conditions have limited the growth in average MLS prices and as of the third quarter of 2019, the average MLS price was $440,659, which was a 4.3 per cent decrease from the same quarter in 2018. 

“Compositionally, all housing types have felt downwards pressure in average prices. The CREA Benchmark Price for single-family homes decreased 2.7% in the third quarter of 2019 compared to the same quarter a year earlier. Over the same time period, benchmark prices for row and apartment units decreased 3.8% and 3.0% respectively.”

CMHC said economic fundamentals are in line with current house prices. In the labour market, while the unemployment rate continued moving lower to 7.1 per cent in the third quarter of 2019, real personal disposable income gave up some of the gains from earlier in the year and slid three per cent between the second and third quarters of 2019. Also, slow population growth among first time homebuyers, or individuals aged 25 to 34, continued to limit housing demand. This cohort has had declining growth year-over-year since the third quarter of 2017, which has contributed to some of the softening in housing demand added the CMHC.

“Moderate evidence of overbuilding continued to be detected as the inventory of completed and unsold units per 10,000 population moved higher. Total inventories, at 2,077 units, were essentially unchanged in the third quarter of 2019 from the same quarter last year. Increases in both the number of absorbed units and the number of newly completed units contributed to keeping inventories steady,” said the report.

“At 738 units in the third quarter of 2019, the number of condominium apartment units in inventory, which has been slowly increasing over the course of 2019, remained 300 units below the level in the same period in 2018. Meanwhile, inventories of more expensive home types, such as single- detached, semi-detached, and row houses, now make up a greater share (65%) of the total. New homes could face additional absorption challenges going forward due to increased competition from homes with lower average prices in the resale market.

“In the rental market, the vacancy rate, at 3.9% in October 2019, was both unchanged compared with a year earlier and below the threshold for overbuilding. This stability has supported an increase in new rental construction, with 2,215 purpose- built rental apartments under construction as of the third quarter of 2019.”

Mario Toneguzzi is a business reporter in Calgary.

© Calgary’s Business


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