Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud
After some moderation earlier in 2021, the level of activity in the housing market has rebounded in recent months to 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.
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 higher 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.
Low interest rates are now the main driver of the housing market. 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 continue to provide support.
Activity in the Canadian housing market rose by 0.6% month-on-month in November. Despite the 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. The monthly increase in activity was led by Saskatchewan, PEI, Alberta and Newfoundland, while sales activity eased in Nova Scotia, Manitoba, Quebec, Ontario and New Brunswick. In Alberta, the number of transactions rose 6.0% month-on-month and is about 70% 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 Saskatchewan (+76%), Alberta (+70%), Newfoundland (+64%), and BC (+53%).
New listings rose by 3.3% month-on-month in November. About half of the provinces saw a rise in new listing, led by Ontario (+7%), BC (+5%), Nova Scotia (+5%) and Quebec (+4%). New listings declined the most in Manitoba (-13% month-on-month), Newfoundland (-8% month-on-month), New Brunswick (-6% month-on-month), and Saskatchewan (-3% month-on-month). In Alberta, new listings eased by 2% in November.
With listing activity stronger than sales in many regions, the month-of-supply measure eased to 1.8 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 2.8, 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. The pace of appreciation accelerated in September with the MLS House Price Index increasing by 2.7% month-on-month in November. Compared to last year, house prices rose nationally by 25.3%, its strongest on record. The biggest monthly changes were in Greater Toronto (+3.9% month-on-month), Fraser Valley (+3.6% month-on-month), Barrie (+3.4% month-on-month), and Guelph (+3.3% month-on-month). On a year-on-year basis, the most significant increases were in Barrie (+37%), Oakville-Milton (+36%), Moncton (+36% year-on-year), and Niagara (+35%).
In Alberta, benchmark prices rose by 0.5% m-o-m in November in Calgary (+9.3% year-on-year) but eased by 0.8% month-on-month in Edmonton (+4.0% year-on-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, as stronger inventories than elsewhere in the country continue to hold back prices.
In Alberta, the housing market remained solid in November, with the level of transactions still well above their pre-pandemic level and close to the peak seen in 2015. The number of transactions is higher than the same month last year in most regions. (see table below for details). Compared to the average level of transactions in 2019, activity in the province increased by 70%, led by Lethbridge (+131%), Calgary (87%), South Central Alberta (+62%), and Central Alberta (+60%). Activity is the weakest in Lloydminster (+29%).
New listings declined on the month at the provincial level and continue to generally lag the increase in sales. Compared to the average level of new listings in 2019, new supply in the province increased by 8%, led by Lethbridge (+68%), Lloydminster (+16%), Central Alberta (+10%) and Calgary (+8%). New supply is the weakest in South Central Alberta (-24%), Fort McMurray (-15%), Alberta West (-12%), and Medicine Hat (-4%).
With sales stronger faster 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 Alberta West, while the main buyer’s markets are Lloydminster, Fort McMurray and Medicine Hat.
With the further tightening of the housing markets, average house prices have risen in some regions on a 3-month moving average, with the most significant increase in South Central Alberta, Central Alberta, Lethbridge, and Grande Prairie. 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 weaker sales at the top-end of the market. 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. It is a good measure of the amount of “slack” in the housing market and of pressures on prices.
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