Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Housing activity eased in July, but national house prices showed a small gain for a second consecutive month. High interest rates continue to have a big impact on the housing market despite the recent cuts by the Bank of Canada.
The housing market hasn’t yet reacted to the lower interest rates. While there is likely a sizeable amount of pent-up demand waiting for lower interest rates to jump back into the housing market, expectations that further rate cuts are likely over the next year may be delaying the impact of lower rates on housing activity. It will be interesting to observe how stimulative the rate cuts by the Bank of Canada will be on activity in the housing market. As we mentioned recently, a sharp rebound in activity in the housing market could be a source of concern for the central bank (see).
As we have shown recently (see), restoring housing affordability in most Canadian cities will require some sizeable adjustments in terms of prices and/or income, and sacrifices. It will come at a cost for the whole economy.
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. Activity and price gains in Edmonton are catching up with those in Calgary after months of underperformance. Strong migration into Alberta and affordability are significant supports for housing activity and prices compared to elsewhere in the country.
Activity in the Canadian housing market decreased by 0.7% m-o-m seasonally-adjusted in July. As a result, the number of transactions, at 38.6k, is 3.5% lower than for the same month last year. The declines in activity in July were mainly the result of weaker activity in Manitoba (-1.7% m-o-m), BC (-1.3% m-o-m), Saskatchewan (-1.3% m-o-m), Quebec (-1.1% m-o-m), and New Brunswick (-1.1% m-o-m). On the flip side, activity increased PEI (+27.9% m-o-m), Newfoundland (+4.8% m-o-m), and Nova Scotia (+0.9% m-o-m).
Compared to the average level of 2019, the number of transactions is about 5.6% lower nationally but continues to be well above its pre-pandemic level in Alberta (+56%), Saskatchewan (+41%), and Newfoundland (+35%). On the flip side, activity is well below in Ontario (-23%), Nova Scotia (-12%), Quebec (-11%), and BC (-5%).
New listings rose 0.9% m-o-m seasonally-adjusted in July. The increase in new listings was mainly seen in Alberta (+6.8% m-o-m), Saskatchewan (+2.3% m-o-m), Ontario (+0.6% m-o-m), Nova Scotia (+0.3% m-o-m), and Newfoundland (+0.3% m-o-m). New listings declined the most in New Brunswick (-5.7% m-o-m), Manitoba (-3.2% m-o-m), PEI (-1.1% m-o-m), and Quebec (-0.9% m-o-m).
Despite sales activity being weaker while new listings increased in many regions, the month-of-supply measure[1] was unchanged at 4.2 nationally, roughly where it was at the start of the pandemic. Based on this measure, the change inventories at the provincial level were mixed. Inventories rose in BC, Alberta, Quebec, and Nova Scotia, but declined in PEI and Newfoundland.
Inventories are the lowest in Alberta (2.5 months), Manitoba (2.6 months), New Brunswick (3.7 months), Saskatchewan (3.9 months), and Ontario (3.9 months) and the highest in PEI (6.3 months), BC (5.9 months), Newfoundland (5.7 months), and Quebec (5.4 months).
With a month-of-supply at 2.5, Alberta’s housing market remains close to its tightest since 2007 if we exclude the pandemic.
With lower sales and higher inventories, the MLS House Price Index rose 0.2% m-o-m. Compared to last year, house prices nationally have eased by 4.2% y-o-y.
The price decreased on the month only in Moncton (-0.7% mo-m) and Vancouver Island (-0.1% m-o-m). Prices increased the most in the Okanagan (+2.0% m-o-m), Oakville-Milton (+1.3% m-o-m), Ottawa (+1.0% m-o-m), and Hamilton-Burlington (+0.7% m-o-m).
On a y-o-y basis, the performance is mixed. The regions to have seen the biggest decline in prices are Toronto (-5.4% y-o-y), Oakville-Milton (-5.3% y-o-y), Guelph (-4.6% y-o-y), Niagara (-3.7% y-o-y), and Hamilton-Burlington (-3.5% y-o-y). Prices have increased the most in Calgary (+8.0% y-o-y), Moncton (+7.7% y-o-y), Edmonton (+7.3% y-o-y), Saskatoon (+7.2% y-o-y), and Winnipeg (+4.3% y-o-y).
Compared to their recent peaks in early 2022, when the Bank of Canada started increasing its policy rate, prices have declined by 13.9% nationally. However, prices are still about 34% higher than in January 2020 on the eve of the pandemic. Compared to their recent peak, prices dropped the most in Niagara (-20%), Oakville-Milton (-19%), Guelph (-19%), Hamilton-Burlington (-18%), Barrie (-17%), and Toronto (-15%). In contrast, prices have continued to increase in Calgary (+15%), Moncton (+13%), and Saskatoon (+10%).
In Alberta, benchmark prices rose 0.3% m-o-m and are up 8.0% y-o-y in Calgary, while they rose 0.4% m-o-m in Edmonton (+7.3% y-o-y). Edmonton is no longer underperforming compared to Calgary. As a result, the gap between both cities is narrowing, 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 most 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 Fort McMurray (+21.7%), Edmonton (+16.8%), Alberta West (+16.6%), and Central Alberta (+5.5%). The number of transactions declined in South Central Alberta (-9.8%), Calgary (-7.9%), and Medicine Hat (-0.2%).
Compared to the average level of transactions in 2019, activity in the province increased by 56%, led by Edmonton (68%), Central Alberta (+62%), Calgary (+56%), and South Central Alberta (+49%). However, the level of transactions is the least above its 2019 level in Alberta West (+17%).
New listings increased in July and are higher than last year at the provincial level (+7.8%). However, there are some significant differences regionally. On a 3-month moving average of the year-on-year, new listings increased the most in Fort McMurray (+11.0%), Calgary (+10.7%), Edmonton (+8.7%), and Central Alberta (+4.8%). New listings declined the most over the same period in Grande Prairie (-6.6%), Lloydminster (-3.6%), and Medicine Hat (-1.9%).
With sales weaker than new listings in July, many regions have seen a slight loosening of their housing markets. The primary seller’s markets are Lethbridge, Medicine Hat, Central Alberta, and Calgary. The main buyer’s market is only Fort McMurray.
Average house prices in the province rose by 8.5% on a 3-month moving average of the year-on-year in the province. Prices are higher in all regions, with the biggest gains in South Central Alberta (+28.6%), Calgary (+12.7%), Lethbridge (+12.0%), and Edmonton (+11.9%). Prices increased the least in Fort McMurray (+2.1%), Alberta West (+4.3%), Lloydminster (+6.4%), and Edmonton (+6.6%).
[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.