Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Housing activity improved in March, but national house prices declined, a sixth decline in seven months. 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 when market rates, as measured by the 5-year swap rates, peaked in October and declined in December and January, lowering borrowing costs. However, when the 5-year swap rate increased in February, activity stalled.
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 amount of 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 increased by 0.4% m-o-m seasonally-adjusted in March. As a result, the number of transactions, at 39.0k, is 12.7% higher than for the same month last year. The rise in activity in March was mainly the result of stronger activity in PEI (+9.9% m-o-m), Manitoba (+5.8% m-o-m), and Alberta (+3.6% m-o-m). On the flip side, activity declined in New Brunswick (-8.7% m-o-m), Newfoundland (-8.0% m-o-m), Saskatchewan (-2.2% m-o-m), and Ontario (-1.6% m-o-m)
Compared to the average level of 2019, the number of transactions is about 4.8% lower nationally but continues to be well above its pre-pandemic level in Alberta (+61%), Saskatchewan (+31%), and Newfoundland (+26%). On the flip side, activity is well below in Ontario (-21%), Nova Scotia (-11%), New Brunswick (-11%), Quebec (-10%), and BC (-9%).
New listings decreased 1.9% m-o-m seasonally-adjusted in March. The decline in new listings was mainly seen in Alberta (-7.7% m-o-m), New Brunswick (-7.0% m-o-m), Nova Scotia (-5.1% m-o-m), and Manitoba (-4.6% m-o-m). New listings rose in PEI (+26.3% m-o-m), Saskatchewan (+5.7% m-o-m), and Newfoundland (+2.7% m-o-m).
Despite sales activity being stronger than new listings in many regions, the month-of-supply measure[1] remained unchanged at 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 New Brunswick, BC, Newfoundland and Ontario, while they declined in PEI, Alberta, Manitoba, and Nova Scotia.
Inventories are the lowest in Alberta (2.3 months), Manitoba (2.7 months), Ontario (3.1 months), Nova Scotia (3.8 months), and New Brunswick (3.9 months) and the highest in PEI (6.2 months), Newfoundland (6.2 months), BC (5.6 months), and Quebec (5.2 months).
With a month-of-supply at 2.3, Alberta’s housing market remains close to its tightest since 2007 if we exclude the pandemic.
Despite higher sales and a decline in inventories, the MLS House Price Index declined 0.3% m-o-m. Compared to last year, house prices nationally have increased by 1.1% y-o-y.
The biggest monthly price decreases were in the Okanagan (-1.6% m-o-m), Regina (-1.4% m-o-m), and Vancouver Island (-0.4% m-o-m). Prices increased the most in Moncton (+5.0% m-o-m), Montreal (+0.9% m-o-m), Niagara (+0.8% m-o-m), Hamilton-Burlington (+0.8% m-o-m), and Barrie (+0.8% m-o-m).
On a y-o-y basis, most regions have seen higher prices, except for the Okanagan (-0.9% y-o-y), Oakville-Milton (-0.9% y-o-y), Niagara (-0.7% y-o-y), and Guelph (-0.4% y-o-y). Prices have increased the most in Moncton (+14.9% y-o-y), Calgary (+11.2% y-o-y), Winnipeg (+5.6% y-o-y), and Saskatoon (+5.2% y-o-y).
Compared to their recent peaks in early 2022, prices have declined by 14.1% 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 (-21%), Guelph (-21%), Hamilton-Burlington (-20%), Oakville-Milton (-20%), Barrie (-19%) and Toronto (-15%). In contrast, prices have continued to increase in Moncton (+14.2%), Calgary (+13.3%), and Saskatoon (+7.1%).
In Alberta, benchmark prices rose 0.5% m-o-m and are up 11.2% y-o-y in Calgary, while they rose 0.4% m-o-m in Edmonton (+4.5% 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 most regions compared to the same month last year, except in South Central Alberta and Alberta West. (see table below for details). On a 3-month moving average of the year-on-year, transactions increased the most in Edmonton (+42% y-o-y), Lloydminster (+28% y-o-y), Central Alberta (+26% y-o-y), and Calgary (+23% y-o-y).
Compared to the average level of transactions in 2019, activity in the province increased by 61%, led by Lloydminster (+73%), Calgary (+71%), Edmonton (68%), and Central Alberta (+67%). However, the level of transactions is below its 2019 level in Alberta West (-5%).
New listings decreased in March, but were higher than last year at the provincial level (+4.7%). 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 (+7.7%), Edmonton (+5.9%), South Central Alberta (+5.4%), and Calgary (+4.6%). New listings declined the most over the same period in Alberta West (-13.3%), Medicine Hat (-10.5%), Lloydminster (-9.9%) and Grande Prairie (-8.4%).
With sales stronger than new listings in March, many regions have seen a slight tightening of their housing markets. The primary seller’s markets are Lethbridge, South Central Alberta, Calgary, Central Alberta, and Lloydminster. The main buyer’s markets is only Fort McMurray.
Average house prices in the province increased by 11.7% on a 3-month moving average of the year-on-year in the province. Prices are higher in all regions, with prices increasing the most in South Central Alberta (+28.1%), Lloydminster (+21.2%), Central Alberta (+18.8%), and Medicine Hat (+13.6%).
[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.