Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Housing activity increased in December, after five consecutive months of decline, while national house prices eased for a second month. The rise in housing activity comes as market interest rates declined in recent months, with the 5-year swap rate declining by about 135bp since peaking in October, likely resulting in lower borrowing costs. Nevertheless, house prices continued to decline despite the rebound in activity and the tightening of the market seen in December.
Low interest rates have been one of the main drivers of the housing market until 2022, supporting affordability. The prospect of lower interest rates in 2024, as the Bank of Canada is expected to cut its policy rate and lower borrowing costs from lower market rates, could lead to an increase in housing demand. Moreover, the continued lack of supply in many regions and strong immigration will likely support house prices. It could prevent a big correction, with the health of the labour market likely the key to the outlook for the housing market.
In Alberta, housing market activity remained robust by historical standards. We note some convergence between the metropolitan areas after months of deviation. Prices in Calgary have continued to increase over the past year, and the city remains one of the strongest housing markets in Canada, supported by low inventories and strong population growth. However, activity and price gains in Edmonton have been stronger than in Calgary in December. Strong migration into Alberta and affordability are significant supports for activity and prices compared to elsewhere in the country.
Activity in the Canadian housing market increased by 8.7% m-o-m seasonally-adjusted in December, the first increase since June. As a result, the number of transactions, at 38.1k, is 9.4% higher than for the same month last year. In December, activity rose in every province, except in New Brunswick where it declined 6.9% m-o-m. Activity increased the most in Ontario (+16.6% m-o-m), Manitoba (+11.5% m-o-m), BC (+7.0% m-o-m), and Alberta (+5.7% m-o-m). Sales increased the least in Newfoundland
Compared to the average level of 2019, the number of transactions continues to be well above its pre-pandemic level in Alberta (+56%), Saskatchewan (+42%), and Newfoundland (+36%). On the flip side, activity is well below in Quebec (-21%), Ontario BC (-19%), and BC (-11%).
New listings fell 5.1% m-o-m seasonally-adjusted in December. New listings decreased in many provinces, with the biggest losses in Ontario (-11.1 m-o-m), Bc (-5.7% m-o-m), New Brunswick (-4.4% m-o-m), and Nova Scotia (-4.2% m-o-m). New listings increased in Saskatchewan (+5.7% m-o-m), PEI (+4.4% m-o-m), Manitoba (+4.0% m-o-m), and Quebec (+2.2% m-o-m).
With sales activity being stronger than new listings in many regions, the month-of-supply measure[1] declined to 3.8 nationally, well below where it was at the start of the pandemic. Based on this measure, most provinces saw a decline in inventories, led by Ontario, Newfoundland, Saskatchewan, BC and Alberta, while inventories increased in New Brunswick and Quebec.
Inventories are the lowest in Alberta (2.6 months), Ontario (3.0 months), Manitoba (3.1 months), and New Brunswick (3.3 months) and the highest in PEI (6.0 months), Newfoundland (5.7 months), Quebec (5.6 months), and BC (5.4 months).
With a month-of-supply at 2.6, Alberta’s housing market remains close to its tightest since 2007 if we exclude the pandemic.
Despite higher sales and reduced inventories, the MLS House Price Index eased by 0.8% m-o-m, the fourth consecutive monthly decline. Compared to last year, house prices nationally have increased by 0.8% y-o-y.
The biggest monthly price decreases were in Niagara (-2.1% m-o-m), Barrie (-1.8% m-o-m), Okanagan (-1.5% m-o-m) and Toronto (-1.3% m-o-m). Prices increased the most in Moncton (+1.9% m-o-m), Edmonton (+0.6% m-o-m), Guelph (+0.4% m-o-m), Calgary (+0.3% m-o-m), and Oakville-Milton (+0.3% m-o-m).
On a y-o-y basis, most regions have seen higher prices, with the most significant increases in Moncton (+12.6% y-o-y), Calgary (+10.5% y-o-y), Saskatoon (+5.7% y-o-y), BC Lower Mainland (+4.9% y-o-y), and Vancouver Island (+4.1% m-o-m). Prices declined the most compared to last year in Regina (-4.0% y-o-y), Oakville-Milton (-3.4% y-o-y), Niagara (-2.0% y-o-y), and Barrie (-1.1% y-o-y).
Compared to their recent peaks, prices have declined by 12.9% nationally. However, prices are still about 35% higher than they were in January 2020 on the eve of the pandemic. Compared to their recent peak, prices dropped the most in Hamilton-Burlington (-21%), Niagara (-20%), Oakville-Milton (-20%), Barrie (-19%), Guelph (-18%), and Toronto (-15%). Prices have corrected the least in Saskatoon (-0.8%), Montreal (-3.3%), and Edmonton (-4.9%). In contrast, prices have continued to increase in Calgary (+11.9%) and Moncton (+11.7%).
In Alberta, benchmark prices rose 0.3% m-o-m and are up 10.5% y-o-y in Calgary, 0.6% m-o-m, and +2.3 % y-o-y in Edmonton. It is the first time since 2022 that price gains in Edmonton significantly outperform gains in Calgary. The gap between both cities continues to narrow, as Edmonton is benefitting from strong population growth, while higher prices in Calgary may be affecting demand.
In Alberta, the housing market remains robust, with transactions still well above their pre-pandemic level. The number of transactions has increased in all regions compared to the same month last year. (see table below for details). On a 3-month moving average of the year-on-year, transactions increased the most in Grande Prairie (+36%), South Central Alberta (+29%), Fort McMurray (+25%), and Lloydminster (+25%). It increased the least in Lethbridge (+4%), Calgary (+12%), and Alberta West (+18%). Compared to the average level of transactions in 2019, activity in the province increased by 56%, led by Central Alberta (+69%), Calgary (+66%), Edmonton (56%), Grande Prairie (+37%), and Lloydminster (+36%).
New listings decreased in December but remained higher compared to the same month last year at the provincial level (+12%). However, there were some declines in new listings on a 3-month moving average of the year-on-year in Grande Prairie (-7%) and Lethbridge (-1%). Inventories rose the most in Central Alberta (+22%), South Central Alberta (+17%), Lloydminster (+17%), and Calgary (+17%). It grew the least in Fort McMurray (+1%), and Medicine Hat (+4%).
With sales stronger than new listings in December, many regions have seen a tightening of their housing markets. The primary seller’s markets are Grande Prairie, South Central Alberta, Lethbridge, Medicine Hat, Central Alberta, and Calgary. The main buyer’s markets are Lloydminster, Fort McMurray, Alberta West, and Edmonton.
Average house prices increased by 5.3% on a 3-month moving average of the year-on-year in the province. Prices increased in almost all regions, led by Central Alberta (+17.6%), South Central Alberta (+16.3%), Lloydminster (+9.5%), Alberta West (+14.5%), and Medicine Hat (+10.7%). However, prices declined over the same period in Grande Prairie (-5.9%) and Fort McMurray (-2.8%).
[1] The month of supply measures how many months is would take at current sales volume and without an increase in listings to bring inventories to 0.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.