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March 01, 2016

Hope at Large - Incentives key in buyers’ market

Condo developers looking at more incentives to retain buyer interest

Marty Hope

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If you’ve been around the Calgary housing market for any length of time, you’ve heard this before from various economists and industry officials.

I’m talking about the old saw: “There is no better time to buy than right now.”

Well, this time around and with Cowtown already knee deep or deeper in economic cattle dung, the housing industry could well find itself stepping on yet another mushy cow patty — that being the possibility mortgage rates could be on the rise later this year.

“Consistent with the view of many Canadian economic forecasters, CMHC expects interest rates to begin to rise moderately from current levels late in 2016, contributing to a modest slowdown in housing markets,” says Canada Mortgage and Housing Corporation’s Richard Cho, principal in market analysis for the Calgary region.

For 2016, the forecast is for one-year mortgages to rise to between three and 3.8 per cent, with five-year money posted at 4.7 to six per cent. It gets even costlier in 2017 with rates moving to between 3.9 and 4.8 per cent for one year and 5.1 to 6.5 per cent for five years.

Getting back to this being a good time to buy, Charron Ungar, president of Avi Urban, says: “For anyone who wanted to get into the housing market over the past 10 years, I would say there has never been a better time to buy.”

Then he talks about the elephant in the room — the energy sector.

Ungar’s “now is the time” statement comes when oil prices have dipped below $30US a barrel, the loonie has fallen below 70 cents in relation to the U.S. greenback, and unemployment has hit highs not seen in several years.

But like most in the housing industry, Ungar is an optimistic sort and sees the volatile energy sector bouncing back — maybe as soon as later this year.

And if you are active in the market you’ll know that most builders are not cutting prices on their homes, but are offering incentives of all kinds to entice buyers into the market or to move ahead in the buying process they’ve started.

So what happens when oil prices start to regain lost ground?

“We will see buyer incentives for new homes start to dissipate,” says Ungar. “The current inventories are thin and it won’t take too long for much of the standing, completed inventory to be absorbed by looking to take advantage of the best pricing.”

In the fall of 2015, Chu had forecast a possible stabilization of oil prices for the second half of this year, but declines are steeper and more long-lasting than expected so housing activity increases might be put on hold.

“If the price of oil declines further or remains very low it may not be until the end of this year or sometime in 2017 when the bouncing market starts to gain some ground,” he says.

Seeing as how Avi Urban operates in the multi-family housing sector, one hard hit by the downturn, it’s not surprising that Ungar — along with other competing builders are offering various incentives that include free upgrades, or reduced price upgrading packages, in an attempt to retain buyer interest.

According to CMHC figures, multi-family starts took a nearly 26-per-cent hit in 2015 after a record-setting performance the previous year. This year the forecast is for a further 24-per-cent decline before a projected 1.7 per cent increase for 2017.

“While multi-family housing types will appeal to first-time buyers, investors, and empty-nesters, the impact of job losses and potentially more layoffs in the energy sector and related sectors will affect consumer confidence and overall housing demand,” says Cho.

Despite all of this, Ungar says: “Incentives, bottom market pricing, low interest rates, inventory not subject to increased city fees and heavy construction costs, make 2016 likely the best year in many to make the move towards home ownership.” CL

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