Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Housing activity eased in May and national house prices declined for a ninth consecutive month. High interest rates continue to have a big impact on the housing market. Moreover, we note that activity in the housing markets has been sensitive to changes in interest rates in recent months because of its impact on affordability.
The sensitivity to interest rates suggests that small changes in interest rates could have a big impact on the housing market and that a tremendous amount of pent-up demand is waiting for lower interest rates to jump back into the housing market. It will be interesting to observe whether the recent rate cut by the Bank of Canada will stimulate 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 slightly 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 0.6% m-o-m seasonally-adjusted in May. As a result, the number of transactions, at 37.4k, is 6.4% lower than for the same month last year. The decline in activity in March was mainly the result of stronger activity in New Brunswick (-9.4% m-o-m), Saskatchewan (-4.7% m-o-m), Quebec (-2.4% m-o-m), and Ontario (-2.0% m-o-m). On the flip side, activity increased Manitoba (+4.5% m-o-m), PEI (+3.0% m-o-m), Nova Scotia (+2.9% m-o-m), Alberta (+2.5% m-o-m), and BC (+1.9% m-o-m).
Compared to the average level of 2019, the number of transactions is about 8.6% lower nationally but continues to be well above its pre-pandemic level in Alberta (+55%), Saskatchewan (+41%), and Newfoundland (+35%). On the flip side, activity is well below in Ontario (-27%), Nova Scotia (-16%), Quebec (-15%), New Brunswick (-8.5%), and BC (-7%).
New listings rose 0.5% m-o-m seasonally-adjusted in May. The increase in new listings was mainly seen in Alberta (+8.0% m-o-m), Nova Scotia (+2.3% m-o-m), Ontario (+1.6% m-o-m), and New Brunswick (+1.3% m-o-m). New listings declined the most in PEI (-9.8% m-o-m), Newfoundland (-6.4% m-o-m), Manitoba (-7.3% m-o-m), and BC (-4.0% m-o-m).
With sales activity weaker and new listings increasing in many regions, the month-of-supply measure[1] increases to 4.4 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 New Brunswick, Ontario, Quebec, and Saskatchewan, Newfoundland and Manitoba.
Inventories are the lowest in Alberta (2.4 months), Manitoba (2.9 months), Saskatchewan (3.9 months), New Brunswick (4.1 months), and Ontario (4.1months) and the highest in PEI (6.6 months), BC (5.9 months), Newfoundland (5.8 months), and Quebec (5.7 months).
With a month-of-supply at 2.4, 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 declined 0.2% m-o-m. Compared to last year, house prices nationally have eased by 2.4% y-o-y.
The biggest monthly price decreases were in Oakville-Milton (-0.8% m-o-m), Toronto (-0.4% m-o-m), Regina (-0.4% m-o-m), and Saskatoon (-0.3% m-o-m). Prices increased the most in Hamilton-Burlington (+1.0% m-o-m), Calgary (+0.9% m-o-m), Niagara (+0.7% m-o-m), Ottawa (+0.5% m-o-m), Edmonton (+0.5% m-o-m), and Victoria (+0.5% m-o-m).
On a y-o-y basis, the performance is mixed. The regions to have seen the biggest decline in prices are Oakvill-Milton (-7.2% y-o-y), Toronto (-3.6% y-o-y), Guelph (-2.6% y-o-y), Okanagan (-2.4% y-o-y), and Barrie (-1.9% y-o-y). Prices have increased the most in Moncton (+13.5% y-o-y), Calgary (+10.0% y-o-y), Edmonton (+6.3% y-o-y), Montreal (+3.7% y-o-y), and Vancouver Island (+3.4% y-o-y).
Compared to their recent peaks in early 2022, prices have declined by 14.4% nationally. However, prices are still about 33% 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 (-20%), Guelph (-19%), Barrie (-19%), Hamilton-Burlington (-18%), and Toronto (-16%). In contrast, prices have continued to increase in Calgary (+14.8%), Moncton (+14.6%), and Saskatoon (+7.8%).
In Alberta, benchmark prices rose 0.9% m-o-m and are up 10.0% y-o-y in Calgary, while they rose 0.5% m-o-m in Edmonton (+3.6% y-o-y). Edmonton continues to underperform relative to Calgary. However, 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 half of the 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 Edmonton (+35.1%), Lloydminster (+25.9%), Fort McMurray (+16.6%), Grande Prairie (+14.3%), and Central Alberta (13.9). The number of transactions declined in South Central Alberta (-11.2%)
Compared to the average level of transactions in 2019, activity in the province increased by 55%, led by Calgary (+64%), Central Alberta (+63%), Edmonton (60%) and Lloydminster (+39%).
Lloydminster (+73%), Calgary (+71%), Edmonton (68%), and Central Alberta (+67%). However, the level of transactions is the least above its 2019 level in Fort McMurray (+7%) and Medicine Hat (+9%).
New listings increased in May and higher than last year at the provincial level (+13.0%). However, there are some significant differences regionally. On a 3-month moving average of the year-on-year, new listings increased the most in South Central Alberta (+25.7%), Edmonton (+13.4%), Calgary (+11.1%), and Alberta West (+6.2%). New listings declined the most over the same period in Lloydminster (-13.7%), Grande Prairie (-6.2%), Medicine Hat (-3.0%), and Fort McMurray (-2.8%).
With sales weaker than new listings in May, many regions have seen a slight loosening of their housing markets. The primary seller’s markets are Lethbridge, Calgary, Medicine Hat, Lloydminster, and Central Alberta. The main buyer’s markets is only Fort McMurray.
Average house prices in the province increased by 8.8% on a 3-month moving average of the year-on-year in the province. Prices are higher in all regions, except in Fort McMurray (-1.7%). Prices increased the most in South Central Alberta (+21.8%), Central Alberta (+16.4%), Calgary (+12.8%), and Lloydminster (+10.6%).
[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.
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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.