The Calgary sun’s article on the state of Calgary’s housing

February 16, 2018

Calgary’s housing market is Goldilocks’ dream — not too hot, not too cold, just comfortably right in between.

That’s the essence of the Canada Mortgage and Housing Corporation’s (CMHC) Housing Market Assessment (HMA) report for the first quarter of 2018.

The HMA is determined by assessing four factors that identify the level of vulnerability of 15 individual housing markets across the country and Canada as a whole.

The factors are: 1: Overheating (when demand outpaces supply); 2: Sustained price acceleration (continual fast-rising prices); 3: Overvaluation (house prices compared to income), and; 4: Overbuilding (the level of rental vacancy rates and inventory of unsold, newly built homes).

Each factor is graded as either high (constantly above accepted thresholds), moderate (accepted thresholds exceeded for only one or two quarters) and low (no problems evident).

CMHC then does an overall assessment, using the four factors, to arrive at the degree of vulnerability in each market.

Calgary has been assessed as having a moderate degree of vulnerability.

The city scored low in overheating, acceleration and overvaluation, but took a hit on the high side for overbuilding, says CMHC.

“House prices of repeat sales in the third quarter of 2017 were relatively stable compared to the previous quarter, with year-over-year gains slightly above the rate of inflation. Growth in employment and in the young adult population have helped support housing demand and price levels in Calgary.

While there was low evidence of overheating, price acceleration, and overvaluation, there continues to be imbalances in the area of overbuilding. Apartment rental vacancy rates and multiple new home inventories remain at elevated levels.”

Inventory in the Calgary census metropolitan area (CMA) stood at 2,030 newly built, unsold homes at the end of 2017, which compares to 1,510 homes at the end of 2016 and 807 at the end of 2015.

At the end of 2017, the inventory included 1,208 apartments, 187 row/townhomes, 182 semi-detached homes and 453 single-family homes (a majority of these are showhomes), but the overall number is very high.

And there’s a bunch more coming.

At the close of 2017, 10,298 homes were under construction, including 5,680 apartments (which will be completed over the next two years or so), 1,209 row/townhomes, 824 semi-detached and 2,585 single-family homes. (Homes in each of these three categories will likely be rolled out by the end of June or July this year).

However, even if 60 to 70 percent of these units are already sold, that’s still a lot of homes heading into inventory.

The MLS system in Calgary also saw increased inventory, but if higher inventories are the only problem with Calgary’s housing market, we’re in good shape.

Lots of choice keeps the market in buyers’ territory because there’s no upward pressure on prices and a good selection of homes from which to choose.
Other markets that earned moderate degrees were Edmonton, Saskatoon and Regina.

“House prices are broadly in line with the price levels supported by fundamentals in Calgary, Edmonton, Saskatoon and Regina,” says CMHC. “But evidence of overbuilding in these CMAs remains high with both the inventory of completed and unsold and rental vacancy rates above the thresholds of overbuilding.”

Cities assessed with low degrees of vulnerability are Winnipeg, Ottawa, Montreal, Quebec City, Moncton, Halifax and St. John’s.

Overall, CMHC gave the country a high degree of vulnerability.

“The rating is a result of the combination of price acceleration and overvaluation,” says the agency. “Some centres in B.C. and Ontario are still highly overvalued with the overall assessment of a high degree of vulnerability.”

And here they are with a summary of CMHC’s assessment of each.

“We continue to detect strong evidence of overvaluation as house prices are elevated compared to fundamentals. Evidence of overbuilding remains weak. The inventory of completed and unsold units relative to population increased slightly in the fourth quarter of 2017. The rental apartment vacancy rate remained low at 0.7% in October 2017. Moderate evidence of overheating is maintained though the sales-to-new listings ratio trended downwards.”

“CMHC’s valuation models continue to signal strong evidence of overvaluation as house prices exceed fundamentals. Builders have responded to growing prices with higher starts, but evidence of overbuilding remains weak. Both the inventory of unabsorbed new homes and apartment rental vacancy rates remain low. Overheating continues to be detected, as demand for multi-family units remains elevated, largely due to their relative affordability compared to single-detached homes. As a result, inventories of both new and resale multi-family units are at or near all-time lows.”

“(The high degree of vulnerability) assessment is primarily due to evidence of overvaluation and price acceleration. Hamilton house prices remained much higher than levels supported by economic and demographic fundamentals, such as average personal disposable income and population growth.”

“While house price growth has slowed, house price levels remained high relative to underlying economic fundamentals such as income and population growth. Therefore, we continue to find strong evidence of overvaluation. We detect low evidence of overbuilding, as the number of completed and unsold units declined close to an all-time low, and well below the threshold. Strong ownership and rental demand, as well as tight construction financing requirements, continue to ensure that there is no excess supply of unsold units at completion.”