Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
National house prices rose again in June, but remain 10% below their peak nationally. The renewed strength in the housing market in recent months shows that buyers have adapted to the sharp rise in interest rates, and could suggest that monetary tightening by the Bank of Canada in 2022 may have less impact on housing activity than initially thought. However, continued low inventories are likely to constrain activity and provide further support to house prices.
In Alberta, housing market activity remained robust by historical standards. However, we note a continued divergence between the metropolitan areas. 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 the weakest new listings since 2002. On the flip side, Edmonton continues to underperform, as inventories remain higher. Strong migration into Alberta is a major supports for activity and prices compared to elsewhere in the country.
Low interest rates have been one of the main drivers of the housing market, supporting affordability. Despite affordability being at its lowest in decades in many cities (see), housing demand is picking up, supported by the strong labour market, potential buyers resetting their expectations of what they can afford and a fear of missing out. It will be interesting to see whether the 50bp increase by the Bank of Canada will have a cooling impact on the housing demand or if the effect will be temporary. The continued lack of supply in many regions and increased immigration will likely continue to support house prices and prevent further correction, with the health of the labour market likely the key to the outlook for the housing market.
Activity in the Canadian housing market increased by 1.5% m-o-m seasonally-adjusted in June, a fifth consecutive monthly increase. As a result, the number of transactions, at 40.4k, is only slightly lower than on average in 2019 (-1.2%) and 5.4% higher than for the same month last year. In May, activity was higher in most provinces except PEI, New Brunswick, and Ontario. Activity increased the most in Nova Scotia, Manitoba, Alberta, and BC. In Alberta, the number of transactions rose (+4.7% m-o-m) in June and activity was almost 50% higher than in 2019.
There continue to be some divergences between provincial markets. Compared to the average level of 2019, the number of transactions is well above its pre-pandemic level in Alberta (+49%), Newfoundland (+33%), Saskatchewan (+31%), and BC (+15%). On the flip side, activity is well below in Quebec (-18%), Ontario (-14%), Nova Scotia (-10%), and New Brunswick (-5%).
New listings rose 5.9% m-o-m seasonally-adjusted in June, a third consecutive month of increase. New listings increased in most provinces, with the biggest gains in PEI, Ontario, BC, and Alberta. New listings declined in Manitoba, Quebec, and New Brunswick.
Despite sales activity being weaker than new listings in most regions, the month-of-supply measure[1] was unchanged at 3.1 nationally, about 1.1 months lower than at the start of year, suggesting a tightening of the housing market. Based on this measure, most provinces have seen a decline in inventories in June, with the exception of Ontario and PEI. Also, inventory levels are still below their 2019 levels in all provinces.
Compared to the highest level of inventory reached during the recent housing market correction, the month-of-supply has decreased the most in BC (2.4 months), Newfoundland (1.6 months), PEI (1.4 months), and Saskatchewan (1.2 months). It has decreased the least in Quebec (0.5 months), Manitoba (0.5 months), and New Brunswick (0.7 months)
With a month-of-supply at 2.79, Alberta’s housing market is at its tightest since 2007, if we exclude the pandemic.
With continued robust sales and low inventories, the MLS House Price Index rose by 2.0% m-o-m. Compared to last year, house prices declined nationally by 4.7% y-o-y. Almost all areas saw higher prices in May, except for Oakvillw-Milton (-0.4% m-o-m). The biggest monthly increases were in Greater Toronto (+2.5% m-o-m), BC Lower Mainland (+2.4% m-o-m), Okanagan (+2.4% m-o-m), Guelph (+2.2% m-o-m), Ottawa (+2.1% m-o-m), and Niagara (+2.1% m-o-m). Prices increased the least in Saskatoon (+0.5% m-o-m), Regina (+0.5% m-o-m), Montreal (+0.5% m-o-m
and Edmonton (+0.7% m-o-m).
On a y-o-y basis, almost all regions have seen lower prices, with the most significant declines in Niagara (-11.3% y-o-y), Barrie (-8.7% y-o-y), Vancouver Island (-7.7% y-o-y), Victora (-7.5% y-o-y), and Edmonton (-7.4%) However, prices are higher compared to last year in Calgary (+4.2% y-o-y) and Saskatoon (+0.4% y-o-y).
Compared to their recent peaks, prices have declined by 10.4% nationally. However, prices are still almost 40% higher than they were in January 2020 on the eve of the pandemic. Compared to their recent peak, prices dropped the most in Niagara (-17%), Hamilton-Burlington (-16%), Barrie (-16%), Guelph (-15%), Oakville-Milton (-13%), and Vancouver Island (-10%).
Prices have corrected the least in Saskatoon (-0.1%), Moncton (-2.8%), Regina (-4.3%), and Montreal (5.6%). Prices have not declined in Calgary.
In Alberta, benchmark prices rose 1.5% m-o-m and are up 4.2% y-o-y in Calgary and by 0.7% m-o-m and -7.4% y-o-y in Edmonton. There continues to be a divergence between the performance in Edmonton and Calgary, likely resulting from continued higher inventories in Edmonton.
In Alberta, the housing market remains robust, with transactions still well above their pre-pandemic level. However, the number of transactions has eased in all regions compared to last year’s same month. (see table below for details). Compared to the average level of transactions in 2019, activity in the province increased by 49%, led by Calgary (+75%), Central Alberta (+57%), Lloydminster (+39%), South Central Alberta (+39%), and Edmonton (+37%).
New listings increased on the month at the provincial level. Compared to the average level of new listings in 2019, new supply in the province decreased by 6.5% and was lower in all regions, except in Calgary and Fort McMurray. New listings declined the most compared to 2019 in South Central Alberta (-35%), Alberta West (-28%), Lloydminster (-23%), Lethbridge (-19%), Central Alberta (-19%), Medicine Hat (-18%), and Grande Prairie (-17%).
With sales stronger than new listings in recent months, many regions have seen a tightening of their housing markets. The primary seller’s markets are Calgary, South Central Alberta, Lethbridge, and Medicine Hat. The main buyer’s markets are Fort McMurray, Grande Prairie, Lloydminster and Alberta West.
Average house prices have increased slightly (+2.0% y-o-y) on a 3-month moving average of the year-on-year in the province, with lower prices in many regions. The biggest house price declines were in Fort McMurray (-16.2%), Lloydminster (-10.1%), Grande Prairie (-4.4%), Edmonton (-3.0%), and South Central Alberta (-1.4%). Prices increased in Alberta West (+9.5%), Calgary (+4.8%), and Lethbridge (+3.1%)
[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.
Independent Opinion
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