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December 16, 2016

What will Happen in the Calgary Real Estate Market in 2017?

When evaluating the trends and data in the Calgary real estate market you can easily get bogged down by vast amounts of information. The thing to remember is to keep it simple. You can properly identify where the market is coming from, where it currently sits, and where it may be going.

It is as simple as Supply and Demand. High inventory and Low demand will put strong pressure on prices downward leading to sinking property values. Low inventory and High demand will force prices up and create big increases in property values. These two scenarios are not the only ones to play out in our real estate market.

When oil prices started declining in the summer of 2014 we were experiencing Low inventory levels and High demand. It was a sellers market and prices were increasing rapidly. As oil prices declined so did the demand in the real estate market which was also experiencing a high point in the market cycle for inventory due to strong price growth. Everyone wanted to get in on the action. As demand weakened, sales slowed and inventory levels began to shrink.  This did not happen in the last boom & bust market cycle from 2006-2008. Inventory levels stayed very high for a while as a lot of speculators were in the market and lenders had very lax rules in that environment. Anyone with a pulse and hot breath could get multiple mortgages with as little as 5% down. Today for any secondary property buyers are required to put down 20% or more.

As prices and sales have declined in the back half of 2014-present, so have inventory levels. This is a third scenario that must be understood to properly assess the market. Yes we have seen some big decreases in home values in certain sectors like the million dollar plus market, which has trickled down to some affect to the lower markets. The condo market, specifically downtown has also seen steep value declines in the last couple of years. We saw some price stability in the last half of this year but will prices decline further? Possibly a little more, but do not expect another round of steep declines.

This is where you need to look at the above graph and look at Supply vs Demand. The year hasn’t ended yet but I expect inventory levels to be at the lowest point in the last 10 years by January 1st, 2017. We currently sit at 4,600 active listings in Calgary, but this time of year you can expect a large number of listings to expire from now until January 1st which should place the overall inventory level under 4,000 active listings. Inventory levels marked on the graph above show the active listings as of January 1st of the following year.

Buyers looking for the right time to strike in the market to get the best deal should be getting serious right now. By the time we hit spring we should be looking at higher oil prices, a slightly stronger economy, low inventory levels, and rising demand. The notion I hear from time to time is that we haven’t seen the worst yet. From severances running out, to sellers being forced into foreclosure, to doom and gloom we always have brought into the mix by some people.

I want to address the severance issue first. This assumption is that the majority of laid off workers who received severances are in a situation where they cannot maintain their current lifestyle and home once the severance runs out and will immediately have to sell their home. This also makes the assumption that the majority of workers were laid off at once, and are all in dire straights. False. I am not saying that some people are not in this situation, but this is clearly a misleading assumption. Layoffs have been happening since the back end of 2014 and have been spread out. A lot of sellers did what they had to do and got in front of their situation and sold their home. Also, a lot of laid off workers are in a situation where they are getting by with one income and can continue to do so until the Alberta economy rebounds, which it will, it always does. We are a lot closer to this rebound than most think.

Now lets look at the foreclosure issue. As of this minute were currently have 125 foreclosures on the market for sale in Calgary with a total inventory of 4,600 listings. That is 0.027% of the active listings. This number in the last peak of the market cycle in 2014 was around 65 (I know because I track this on a daily basis and have been for years). The number has doubled but it essentially plays no impact on our market in terms of dictating property values. So this assumption is false as well.

Now that we have looked at the key metrics in detail for our real estate market what does it mean for the future? This means we will start 2017 with the lowest inventory level in the last 10 years. Demand will increase which will balance out the market and prices will stabilize. The single family detached home market will be the first to show pressure on prices to increase, followed by the semi-detached market, followed by the townhouse condo market and lagging behind will be the apartment condo market. This will not all happen in 2017 but it will be the start. Exactly when and how fast is unknown, but I believe it will happen sooner rather than later.

With the energy sector showing signs of improved confidence and recovery due multiple positive signs, we can expect the economy to get a little better leading to increased consumer confidence. If you are looking for a deal in the real estate market, you better get serious and be ready to pounce when the time is right for you. There are a lot of savvy real estate investors and buyers out there already scooping up properties because they know a key and vital fact. To ensure you buy near the bottom of the market you must do so before it hits. You only know the bottom has hit when the market has rebounded and prices are on the rise.