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January 01, 2018

Hope at Large - Challenging year ahead

Elevated inventories, economic uncertainty dampen condo market

Marty Hope

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Take a look at the number of multi-family projects being developed around the city and in locales in surrounding communities and it’s not difficult to see why construction this year is likely to be reined in a tad.


Almost since the oil price started to fall in 2014, dragging down all the economic factors with it, builders and developers have strengthened their focus on the multi-family sector, providing everything from multi-storey apartment buildings to street-towns.

Because of the more comfortable price point, multi-family housing was — and continues to be — in strong demand.

Problem is, the demand hasn’t kept up to the pace of construction, according to Canada Mortgage and Housing Corporation.

“Multi-family inventories have increased over the last couple of years and peaked in the spring of 2017,” says Richard Cho, the federal housing agency’s Calgary-based principal for market analysis in the Prairies region.

“Although inventories have declined from those peak levels, and are expected to move down, they will continue to be elevated coming into this year.”

And that, he adds, will impact the pace of construction of new projects coming out of the ground not only this year, but in 2019 as well.

CMHC’s forecast for this year is for work to start on between 6,000 and 6,500 multi-family housing units this year, down from somewhere around 7,000 in 2017 but up from the slightly more than 5,700 in 2016. By 2019, the forecast is for 6,300 and 6,700 multi-family starts.

And there is another fly in the new-construction ointment.

New units will be competing with a healthy supply of active listings on the books of the Calgary Real Estate Board.

That, says Cho, gives downsizers, investors, and first-time homebuyers plenty of options.

“The construction of new multiple projects will be scaled back until the excess supply on the market is absorbed,” he adds.

The elephant in the room, though, continues to be the erratic direction of oil prices and the future of the industry as a whole.

Many oil and gas companies in Calgary have been pacing themselves when it comes to hiring new staff and expanding payrolls, but — and it’s a positive but — employment is anticipated to improve more this year and again into 2019, the CMHC numbers suggest.

Good news for those contemplating a new condo or townhouse — or for any home for that matter.

“Higher oil prices and increased investments in the energy industry will contribute to a lift in economic activity and support job growth across various sectors,” says Cho.

More good news — the city will continue to grow, and newcomers will be looking for a home to buy. The rate of in-migration, though, will not be as strong because of the current economic situation.

“Elevated unemployment rates and stronger labour market conditions in other regions of Canada will contribute to a decline in migration, but it is expected to gradually recover over the next couple of years as economic conditions strengthen here,” says Cho.

Calgary could find itself home to more than 1.55 million people at the end of 2019 compared to the nearly 1.5 million when the 2017 books were closed.

Finally, there is the question of mortgage rates, and where they might be headed.

Well, they are going up, according to CMHC — and that’s consistent with the expected improvement in economic conditions in Canada and a predicted high in world interest rates.

The posted rate for five-year money should be in the range of 4.9 to 5.7 per cent this year, then inching up to between 5.2 and 6.2 per cent in 2019.

As or the new stress test rules that were rung in along with the New Year’s celebrations, they will likely make things more difficult for some people, particularly first-timers, to qualify. How much of an impact the test will have will take time to discover.

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