Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud

Bottom line

The housing market activity level remains well above its pre-pandemic one, supported by changes in housing preferences and historically low interest rates. The latter is likely the main driver of demand. Moreover, historically low inventory levels in many markets continue to push house prices higher across the country.

In Alberta, housing market activity is marginally lower than the record set in April of last year. However, the province’s price increases continue to be weaker than in the rest of the country due to higher inventories, poor housing market conditions before the pandemic and a higher unemployment rate. However, the continued improvement in the oil sector, with the value of oil production reaching records in recent months, will be a tailwind on household income and the recovery, providing some support to the housing market in the coming months.

Low interest rates are one of the main drivers of the housing market. It raises questions as to what impact a normalization in interest rate will have (see Rising interest rates to make many Canadian cities unaffordable. However, continued lack of supply in many regions and increased immigration are expected to continue to provide support.

Activity in the Canadian housing market inched higher by 0.2% month-on-month in November. Despite a moderation earlier this year, the number of transactions remained elevated, about 33% higher than on average in 2019. It is important to note that all the year-on-year comparisons are distorted by the sharp boom in activity a year ago and, as a result, we will focus on the changes compared to pre-COVID in February 2020. Newfoundland, Alberta, Manitoba, and Ontario led the monthly increase in activity while sales activity eased in Saskatchewan, BC and PEI. We note that the decline in sales in BC is likely the result of the severe floods experienced in late November. In Alberta, the number of transactions rose 65.0% month-on-month and is about 77% higher than in 2019.

The level of activity in every provincial market remains well above the level seen pre-pandemic, as pent-up demand, changing housing preferences and low interest rates continue to support sales activity. Compared to the average level of 2019, the number of transactions is above its pre-pandemic level by 32.8% in Canada, led by Alberta (+77%), Newfoundland (+77%), Saskatchewan (+76%), BC (+48%), Saskatchewan (+43%) and New Brunswick (+40%).

New listings declined by 3.2% month-on-month in December. All provinces except for Ontario saw lower new listings, led by Quebec (-20%), Newfoundland (-10%), Nova Scotia (-9.5%) and BC (-4%). New listings increased by 3% in Ontario. In Alberta, new listings eased by 0.4% in November.

With sales activity stronger than listing in most regions, the month-of-supply measure[1] eased to 1.6 nationally, its lowest on record. Based on this measure, all provinces are seller’s markets in Canada, led by New Brunswick, Quebec, Nova Scotia and Ontario. With a month-of-supply at 2.5, Alberta’s housing market is close to its tightest since 2007.

With the continued solid sales performances and the low month-of-inventory, we continue to see upside pressures on house prices, with the MLS House Price Index increasing by 2.5% month-on-month in December. Compared to last year, house prices rose nationally by 26.6%, the strongest on record. The biggest monthly changes were in Fraser Valley (+3.7% month-on-month), Greater Toronto (+3.2% month-on-month), Barrie (+3.0% month-on-month) and Greater Moncton (+3.0% month-on-month). On a year-on-year basis, the most significant increases were in Barrie (+39%), Moncton (+38% year-on-year), Oakville-Milton (+36%) and Niagara (+35%).

In Alberta, benchmark prices rose by 0.8% month-on-month in December in Calgary (+9.6% year-on-year) and by 0.4% month-on-month in Edmonton (+4.0% year-on-year). Both cities continue to have some of the weakest price increases in the country, as stronger inventories than elsewhere in the country continue to hold back prices. However, prices in Calgary are now slightly above their 2015 peak, but are still below in Edmonton.

In Alberta, the housing market remained solid in December,  with the level of transactions still well above their pre-pandemic level and close to the record seen in spring 2021. The number of transactions is higher than last year’s same month in almost all regions. (see table below for details). Compared to the average level of transactions in 2019, activity in the province increased by 77%, led by Calgary (105%), Central Alberta (+92%), Edmonton (+60%), and Lloydminster (+53%). Activity is the weakest in Fort McMurray (+28%) but still well above its pre-pandemic level.

New listings eased on the month at the provincial level and continue to lag the increase in sales generally. Compared to the average level of new listings in 2019, new supply in the province increased by 5%, Fort McMurray (+17%), Calgary (+12%), and Edmonton (+8%). New supply is the weakest in Alberta West (-21%), South Central Alberta (-21%), Lloydminster (-14%), and Lethbridge (-11%).

With sales stronger than new listings, many areas have seen a tightening of their housing markets. The primary seller’s markets are Calgary, Lethbridge, South Central Alberta, and Medicine Hat, while the main buyer’s markets are Lloydminster, Fort McMurray and Grande Prairie.

With the further tightening of the housing markets, average house prices have risen in some regions on a three-month moving average, with the most significant increase in Grande Prairie, Central Alberta, Lethbridge, and Calgary. On the flip side, Western Alberta and Lloydminster saw declines in average house prices over the same period. The decline in Alberta West seems to be the result of continue weak sales at the top-end of the market.

[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.


Independent Opinion

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