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April 01, 2019

Real Estate Insider - Economy matters

Calgary’s real estate market not out of the woods yet

Mario Toneguzzi

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The biggest thing that impacts a real estate market is the economy.

And there’s no doubt that the Calgary economy in recent years has pulled the real estate market down with it.

Sales in the existing home market are down substantially from a few years ago and prices have followed while the inventory level of homes for sale is elevated.

Activity for new home construction is also way off the pace it was a few years back.

This is all really not surprising when you consider what has happened to the city’s economy.

The downward spiral began in the latter half of 2014 when oil prices collapsed. And when something of that nature takes place in the city’s bread and butter industry — the oil and gas sector — you can rest assured that there will be a fallout.

That took place in 2015 and 2016 as the economy technically plunged to a recession in both years. Thousands of jobs were lost in the oilpatch, which really is a key driver for the real estate industry. The pace of people moving to the city looking for work fell considerably.

Yes, the economy has rebounded since those dark economic days and actually seen growth in 2017 and 2018 with more on the horizon this year. But we’re definitely not out of the woods yet. The economic recovery is slow and cautious with many issues in the oilpatch, particularly market access, weighing on people’s minds — both for business owners and consumers.

That is one of the key factors impacting the real estate market as it moves forward into 2019.

So what can we expect for the economy? Most experts have predicted continued and cautious growth for the city’s economy in the range of two per cent.

Earlier this year, the Calgary Chamber hosted a panel discussion with several experts talking about the upcoming provincial election in Alberta and the current economic landscape.

The news about the economy was sobering.

“It’s about halfway back roughly to where it was before the recession started,” said Trevor Tombe, Associate Professor in the Department of Economics and Research Fellow in the School of Public Policy at the University of Calgary. “That’s a big gap that still remains. To give a sense of scale, the recession shrank Alberta’s economy by about $75 billion just between 2014 and 2016.
That’s over $20,000 per adult in Alberta.

“The scale of the recession was massive — 130,000 job losses from when the recession started to when it ended in late 2016. So to say that it’s come halfway back from such a big shock, there’s still a long way to go.”

But what’s chilling these days is the mood of people. From people on the street to the corporate offices in the downtown skyscrapers, there is a negativity in the air about the economy — signalling that we’re not out of the woods yet.

Peter Tertzakian, Executive Director of the ARC Energy Research Institute and a well-known expert on the energy sector, was also one of the panelists at the Chamber event and he said the mood in the industry today is one of frustration and anger.

“But I also have the sense now as I bump into people on the Plus 15s and talk to people, it’s a sense of exhaustion — in cases capitulation. These are not healthy symptoms for what has traditionally been an incredibly entrepreneurial (city). By definition, entrepreneurs are resilient. We have a 110-year history here of entrepreneurism in this province. I’ve been in it for more than 30
years and I can tell you this one’s hard. I’ve seen four serious ups and downs. This one is really taking prisoners,” he said.

Want some more sobering thoughts?

The energy industry expert said Calgary has come into 2019 “feeling beaten up” and it’s going to take most of the year “to heal the wounds.”

The Canadian Federation of Independent Business frequently surveys the mood of small business owners through its Business Barometer. Alberta has consistently in recent months been either at the very bottom or near the bottom for optimism levels and small business confidence.

“Considering small business confidence is typically a harbinger of what is happening more broadly in the economy, it is especially worrisome,” said Richard Truscott, vice-president of B.C. and Alberta for the CFIB.

“Weak market demand coupled with rising taxes, higher energy costs, the $15 minimum wage, and a long list of new prescriptive occupational and employment regulations are weighing heavily on Alberta’s small business, and may signal more difficult times ahead for our province.”

That’s the reality that the real estate industry is facing. So it’s going to be another tough year in the market.

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