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

Bottom line

Housing activity has rebounded over the past two months, but national house prices continued to ease. The rise in housing activity comes as market interest rates reach a 7-month low at the end of December, with the 5-year swap rate declining by about 135bp since peaking in October, likely resulting in lower borrowing costs. Nevertheless, house prices continued to decline despite the rebound in activity and the tightening of the market in recent months, as affordability remains an issue and buyers are unwilling to overstretch themselves.

The prospect of lower interest rates in 2024 and its impact on affordability, albeit marginal, could lead to an increase in housing demand. The Bank of Canada is expected to cut its policy rate mid-year and lower borrowing costs from lower market rates could provide strong support to demand. Moreover, the continued lack of supply in many regions and strong immigration will likely support house prices. This situation could prevent a correction, with the health of the labour market likely being the key to the outlook for the housing market.

As we have shown recently (see), restoring housing affordability in most Canadian cities will require some big adjustments and sacrifices and 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 to 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 3.7% m-o-m seasonally-adjusted in January, the second consecutive month of increase. As a result, the number of transactions, at 39.1k, is 17.7% higher than for the same month last year. In January, activity rose in every province except in Manitoba (-1.6% m-o-m), Nova Scotia (-3.0% m-o-m), Saskatchewan (-4.9% m-o-m), and PEI (-8.0% m-o-m). Activity increased the most in Ontario (+6.9% m-o-m), Bc (+4.5% m-o-m), and Quebec (+4.3% m-o-m).

Compared to the average level of 2019, the number of transactions is about 3.7% lower nationally but continues to be well above its pre-pandemic level in Alberta (+56%), Newfoundland (+37%), and Saskatchewan (+34). On the flip side, activity is well below in Quebec (-18%), Ontario BC (14%), and Nova Scotia (14%).

New listings increased 1.5% m-o-m seasonally-adjusted in January. The rise in new listings was mainly seen in PEI (+17.3% m-o-m), Nova Scotia (+9.3% m-o-m), BC (+7.9% m-o-m), and Ontario (+5.5% m-o-m). New listings fell in Saskatchewan (-14.2% m-o-m), Alberta (-11.9% m-o-m), and Newfoundland (-6.8% m-o-m).

With sales activity being stronger than new listings in many regions, the month-of-supply measure[1] declined to 3.7 nationally, well below where it was at the start of the pandemic. Based on this measure, most provinces saw a decline in inventories, led by Ontario, BC, Newfoundland, Alberta, and New Brunswick, while inventories increased in PEI, Nova Scotia, and Saskatchewan.

Inventories are the lowest in Alberta (2.4 months), Ontario (2.8 months), Manitoba (3.0 months), and New Brunswick (3.4 months) and the highest in PEI (6.6 months), Newfoundland (5.6 months), Quebec (5.6 months), and BC (4.9 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.

Despite higher sales and reduced inventories, the MLS House Price Index eased by 1.2% m-o-m, the fourth consecutive monthly decline. Compared to last year, house prices nationally have increased by 0.5% y-o-y.

The biggest monthly price decreases were in Guelph (-3.1% m-o-m), Oakvill-Milton (-2.5% m-o-m), Hamilton-Burlington (-1.6% m-o-m), Niagara (-1.5% m-o-m), and Victoria (-1.4% m-o-m). Prices increased only in Regina (+0.8% m-o-m) and Calgary (+0.2% m-o-m), while they were flat in Edmonton.

On a y-o-y basis, most regions have seen higher prices, with the most significant increases in Moncton (+10.5% y-o-y), Calgary (+10.1% y-o-y), BC Lower Mainland (+4.7% y-o-y), Vancouver Island (+4.7% y-o-y), and Ottawa (+3.45% y-o-y). Prices declined the most compared to last year in Regina (-2.1% y-o-y), Guelph (-1.5% y-o-y), and Niagara (-1.4% y-o-y).

Compared to their recent peaks in early 2022, prices have declined by 14.2% 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 Hamilton-Burlington (-22%), Oakville-Milton (-22%), Niagara (-22%), Guelph (-21%), Barrie (-20%), and Toronto (-16%). In contrast, prices have continued to increase in Calgary (+12.1%), Moncton (+9.6%), and Saskatoon (+3.6%).

In Alberta, benchmark prices rose 0.3% m-o-m and are up 10.1% y-o-y in Calgary, while they were flat m-o-m in Edmonton (+2.7% 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, but we note that Lethbridge has not seen the same strength as in the rest of the province. (see table below for details). On a 3-month moving average of the year-on-year, transactions increased the most in Edmonton (+31% y-o-y), Grande Prairie (+28%), Central Alberta (+27% y-o-y), Lloydminster (+26% y-o-y), and Fort McMurray (+22% y-o-y). It increased the least in Lethbridge (+1.5%), Alberta West (+14%), and Calgary (+19% y-o-y).

Compared to the average level of transactions in 2019, activity in the province increased by 56%, led by Calgary (+75%), Edmonton (59%), Central Alberta (+49%), and Lethbridge (+27%). However, the level of transactions is below its 2019 level in Fort McMurray (-22%) and Alberta West (-9%).

New listings decreased in January and was slightly lower compared to the same month last year at the provincial level (-0.6%). However, there were some declines in new listings on a 3-month moving average of the year-on-year in Grande Prairie (-7%) and Lethbridge (-0.3%). Inventories rose the most in South Central Alberta (+31%), Central Alberta (+22%), Lloydminster (+14%), and Calgary (+13%).

With sales stronger than new listings in January, many regions have seen a tightening of their housing markets. The primary seller’s markets are Lethbridge, Central Alberta, Calgary, Medicine Hat, and Grande Prairie. The main buyer’s markets are Fort McMurray, Lloydminster, Alberta West, and Edmonton.

Average house prices in the province increased by 7.8% on a 3-month moving average of the year-on-year in the province. Prices improved in almost all regions, led by South Central Alberta (+19.7%), Alberta West (+17.8%), Central Alberta (+17.1%), Lloydminster (+16.3%), and Calgary (+10.1%). However, prices declined over the same period in Grande Prairie (-6.7%).

[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.