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

Bottom line

Housing activity eased after two consecutive months of stronger activity, but national house prices remained little changed. Activity in the housing markets has been very sensitive to changes in interest rates in recent months because of its impact on affordability. Housing activity rebounded in December and January after market rates, as measured by the 5-year swap rates, peaked in October and declined about 165bp by the end of December, lowering borrowing costs. However, the 5-year swap rate has increased by about 65bp since the beginning of the year, likely halting the improvement in borrowing costs. House prices were mostly unchanged over the period, as affordability remains an issue and buyers are unwilling to overstretch themselves.

The sensitivity to interest rates suggests that small changes in interest rates can have a big impact on the housing market and that a tremendous pent-up demand is waiting for lower interest rates to jump back into the housing market. As we mentioned recently, this situation could be of concern for the Bank of Canada (see).

As we have shown recently (see), restoring housing affordability in most Canadian cities will require some big 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 activity and prices compared to elsewhere in the country.

Activity in the Canadian housing market decreased by 3.1% m-o-m seasonally-adjusted in February. As a result, the number of transactions, at 38.4k, is 13.8% higher than for the same month last year. The decline in activity in February was mainly the result of weaker activity in Ontario (-7.2% m-o-m), BC, -7.2% m-o-m), Alberta  (-2.1% m-o-m), and Saskatchewan (-0.7% m-o-m). On the flip side, activity rose in Quebec (+6.3% m-o-m), Manitoba (+1.9% m-o-m), New Brunswick (+1.6% m-o-m), and Newfoundland (+1.3% m-o-m).

Compared to the average level of 2019, the number of transactions is about 6.0% lower nationally but continues to be well above its pre-pandemic level in Alberta (+53%), Newfoundland (+39%), and Saskatchewan (+34%). On the flip side, activity is well below in Ontario (-20%), Nova Scotia (-13%), Quebec (-12%), and BC (-11%).

New listings increased 1.6% m-o-m seasonally-adjusted in February. The rise in new listings was mainly seen in New Brunswick (+7.3% m-o-m), BC (+5.2% m-o-m), Quebec (+3.2% m-o-m), and Alberta (+2.7% m-o-m). New listings fell in Newfoundland (-8.4% m-o-m), PEI (-6.9% m-o-m), Nova Scotia (-6.0% m-o-m), and Manitoba (-0.7% m-o-m).

With sales activity being weaker than new listings in many regions, the month-of-supply measure[1] edged higher to 3.8 nationally, well below 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, Ontario, and PEI, while they declined in Newfoundland, Saskatchewan, Quebec, and Nova Scotia.

Inventories are the lowest in Alberta (2.5 months), Ontario (3.0 months), Manitoba (3.0 months), and New Brunswick (3.4 months) and the highest in PEI (6.6 months), Newfoundland (5.6 months), BC (5.6 months), and Quebec (5.3 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 a rise in inventories, the MLS House Price Index declined very marginally -0.0% m-o-m, the sixth consecutive monthly decline. Compared to last year, house prices nationally have increased by 1.2% y-o-y.

The biggest monthly price decreases were in Niagara (-1.7% m-o-m), Vicotria (-0.9% m-o-m), Barrie (-0.7% m-o-m), Moncton (-0.6% m-o-m), Okanagan (-0.5% m-o-m), and Vancouver Island (0.5% m-o-m). Prices increased the most in Regina (+2.6% m-o-m), Saskatoon (+2.5% m-o-m), Oakville-Milton (+1.2% m-o-m), Hamilton-Burlington (+0.4% m-o-m), and Montreal (+0.4% m-o-m).

On a y-o-y basis, most regions have seen higher prices, except for Niagara (-2.0% y-o-y), Guelph (-0.7% y-o-y), and Okanagan (-0.4% y-o-y). Prices have increased the most in Calgary (+10.1% y-o-y), Moncton (+10.1% m-o-m), Saskatoon (+5.6% y-o-y), BC Lower Mainland (+4.9% y-o-y), and Winnipeg (+4.8% y-o-y).

Compared to their recent peaks in early 2022, prices have declined by 14.0% 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 (-23%), Hamilton-Burlington (-21%), Guelph (-21%), Oakville-Milton (-21%), Barrie (-21%) and Toronto (-16%). In contrast, prices have continued to increase in Calgary (+12.8%), Moncton (+8.9%), and Saskatoon (+6.3%).

In Alberta, benchmark prices rose 0.3% m-o-m and are up 10.1% y-o-y in Calgary, while they rose 0.1% 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 all regions compared to the same month last year, except in Medicine Hat. (see table below for details). On a 3-month moving average of the year-on-year, transactions increased the most in Edmonton (+36% y-o-y), Alberta West (+32%), Central Alberta (+32%), Lloydminster (+27% y-o-y), and Grande Prairie (+26%). It increased the least in Lethbridge (+7.9%), South Central Alberta (+10.2%), and Calgary (+19.7% y-o-y).

Compared to the average level of transactions in 2019, activity in the province increased by 33%, led by Calgary (+63%), Edmonton (60%), South Central Alberta (+59%), and Lloydminster (+36%). However, the level of transactions is below its 2019 level in Medicine Hat (-4%).

New listings increased in February and were higher than last year at the provincial level (+5.8%). However, there are some significant differences regionally. On a 3-month moving average of the year-on-year, new listings increased the most in Central Alberta (+20.0%), Calgary (+9.4%), and Lloydminster (+9.4%). Inventories declined the most over the same period in Grande Prairie (-12.0%), Alberta West (-7.4%), and South e\central Alberta (-5.8%).

With sales weaker than new listings in February, many regions have seen a slight loosening of their housing markets. The primary seller’s markets are Lethbridge, South Central Alberta, Calgary, Central Alberta, and Grande Prairie. The main buyer’s markets are Fort McMurray, Lloydminster, and Edmonton.

Average house prices in the province increased by 9.6% on a 3-month moving average of the year-on-year in the province. Prices improved in almost all regions except in Grande Prairie (-4.3%). Prices increased the most in South Central Alberta (+31.2%), Central Alberta (+18.2%), Lloydminster (+15.7%), and Alberta West (+13.1%).

[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.