Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud
Housing resale activity stabilizes at a high level
Bottom line
After some moderation, the level of activity in the housing market seems to be stabilizing at a level 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, albeit at a slower pace.
In Alberta, the housing market remains strong, with the number of transactions still close to a record. However, the province’s price increases continue to be weaker than in the rest of the country due to already poor housing market conditions before the pandemic, a higher unemployment rate and a bigger increase in inventories. 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.
It is clear that low interest rates are now the main driver of the housing market and it raises questions as to what impact a normalization in interest rate will have. However, continued lack of supply in many regions and increased immigration are expected to provide support.
Activity in the Canadian housing market rose by 0.9% month-over-month in September. This is the first monthly increase in five months, as the level of activity normalizes after reaching a record in March. Despite the moderation earlier this year, the number of transactions remained elevated, about 20% 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. The monthly decrease in activity was led by Ontario, Quebec, New Brunswick and Newfoundland, while sales activity eased in BC, Saskatchewan, Manitoba and Nova Scotia. In Alberta, the number of transactions rose 0.8% month-over-month and is about 45% 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 19.9% in Canada, led by Newfoundland (+74%), Alberta (+46%), New Brunswick (+40%), BC (+36%), and Saskatchewan (+35%).
New listings eased by 1.6% month-over-month in September. Almost all provinces saw a decline in new listing, except for Quebec and PEI. The most significant decrease in new listings were in Newfoundland (-16.2% month-over-month), Nova Scotia (-5.6% month-over-month), New Brunswick (-5.1% month-over-month) and Manitoba (-4.4% month-over-month). In Alberta, new listings edged lower by 0.9% month-over-month.
With listing activity stronger than sales in many regions, the month-of-supply measure1 eased to 2.1 nationally, well below historical norms. Based on this measure, all provinces are seller’s markets in Canada, led by New Brunswick, Quebec, Nova Scotia and Ontario. With a monthly supply at 3.5, Alberta’s housing market is close to its tightest since 2014.
With the continued solid sales performances and the low month-of-inventory, we see further upside pressures on house prices. The pace of appreciation accelerated in September with the MLS House Price Index increasing by 1.7% month-over-month in September. Compared to last year, house prices rose nationally by 21.6. The biggest monthly changes were in Oakville-Milton (+3.5% month-over-month), Barrie (+2.7% month-over-month), Greater Toronto (+2.6% month-over-month), Hamilton-Burlington (+2.4% month-over-month), and Fraser Valley (+2.1% month-over-month). On a year-over-year basis, the most significant increases were in Moncton (+35% year-over-year), Barrie (+34% year-over-year), Niagara (+34% year-over-year) and Vancouver Island (+32% year-over-year).
In Alberta, benchmark prices were essentially flat in September, with price in Calgary unchanged (9.2% year-over-year) and a marginal decline of -0.1% m-o-m in Edmonton (+5.1% year-over-year). Both cities continue to have some of the weakest price increases in the country and have yet to surpass their previous peaks reached in 2015.
In Alberta, the housing market remained solid in September, with the level of transactions still well above their pre-pandemic level and close to the peak seen in 2015. As well, the number of transactions is higher than the same month last year in most regions. Compared to the average level of transactions in 2019, activity in the province increased by 46%, led by Lethbridge (+118%), Calgary (61%), Central Alberta (+55%), and Edmonton (+33%). Activity is the weakest in Fort McMurray (-3%), Grande Prairie (+5%), and Medicine Hat.
New listings are mixed in the provinces but are generally lagging the increase in sales. Compared to the average level of new listings in 2019, new supply in the province increased by 6%, led by Lethbridge (+60%), North Eastern Alberta (+14%), Edmonton (+8%), and Calgary (6%). New supply is the weakest in Western Alberta (-16%), Fort McMurray (-12%), South Central Alberta (-12%), and Lloydminster (-10%). With sales stronger faster than new listings, many areas have seen a tightening of their housing markets. The primary seller’s markets are South Central Alberta, Lethbridge, Calgary and Medicine Hat, while the main buyer’s market are Lloydminster, Grande Prairie, Fort McMurray and Edmonton.
With the further tightening of the housing markets, average house prices have risen in some regions on a 3-month moving average. Central Alberta, South Central Alberta and Fort McMurray saw the biggest average price improvements over the period. On the flip side, Western Alberta, Lloydminster and Grande Prairie saw declines in house prices over the same period.
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.