As you probably know, the real estate market in Calgary has been soft for the past two years. On average, we’ve seen a drop in the benchmark price in Calgary between 4% and 6%. This is exactly why I believe this is the perfect time to buy your next home.
On the demand side, there has been a lot of speculation from buyers as to when we will be hitting rock bottom. No one wants to be the guy who left 5% or 10% on the table when purchasing their new home. The uncertainty about oil prices and the job sector in Calgary have also caused concern for many Calgarians who were impacted by the massive layoffs we’ve seen since the peak of the market in 2014.
Many families and individuals looking to purchase their first home or upgrade to a bigger home are sitting back and waiting for the right time to make a move. This has created a lot of pent-up demand for housing that will be triggered at some point in the future.
On the supply side, builders and developers in Calgary have pulled back significantly on new developments over the past two years. These companies are less likely to start new projects with all the uncertainty in the oil and job markets in Calgary. Secondly, the stringent rules for new developments by the City of Calgary through the “Plan-it-Calgary” program have also contributed to a serious supply crunch in new housing in Calgary. This is the real story that no one is discussing in the media today, as it has been overshadowed by low oil prices and their impact on jobs and the unemployment rate.
When you combine the pent-up demand and the reduction in supply of new housing since 2014, we get the perfect storm for home prices to increase given the right circumstances. The three most important factors that would trigger a buying frenzy in our real estate market are:
- Interest Rates. Currently, we’re seeing record low interest rates for homebuyers. If we consider a $480,000 mortgage, using five-year fixed rates in the low 2.2% to 2.4% range as compared with average historic rates around 5.50% would save a homeowner around $49,000 in interest over a five-year period. These are significant savings for homeowners. These rates will not last forever. The minute oil prices increase and the federal government starts to see tax revenues flowing again from the energy sector you can bet they will increase rates immediately.
- Oil Prices. Oil prices need to go back up close to $60 per barrel. Alberta is known for being a high cost production market, especially when we look at the oil prices. Since 2014, oil producers have had to adjust drastically and have cut their costs significantly, making them more competitive at the $60 per barrel level.
So what’s happening with oil? Yesterday, members of OPEC met in Algeria and for the first time and they committed to cut production levels as a group to the tune of 700,000 barrels per day. The news had an immediate positive impact on oil prices (up 5%) and the Canadian dollar. Analysts are somewhat sceptical and will wait and see if such an agreement goes through in November and actually gets enforced. Regardless of the outcome, this is a good sign for oil prices and Alberta in general. Many of these countries, including Saudi Arabia, are struggling to meet their economic budgets and are seeing serious deficits resulting from plummeting oil revenues. “There is a lot of pent up demand for homes.”Sooner or later the current oil prices will not be sustainable and change will occur. When that happens we will reap the benefits in Alberta and major capital projects will start up again. With that comes job creation and economic stability.
The new tax for non-Canadian residents in Vancouver has created a spillover effect into the rest of British Columbia, especially in the central Okanagan area, and into Alberta and Saskatchewan. We’re now seeing a significant number of investors looking at Calgary as the next best investment housing market. It started in the latter half of the first quarter and investor demand has picked up significantly over the past 60 days in Calgary. I am personally working with over 10 different out-of-town investors looking for buying opportunities in Calgary.
When we combine low supply levels, high pent up demand, high investor demand, and historically low interest rates, we get the perfect storm for home prices to increase in Calgary.
Home buyers can take advantage of the current environment. You can take your time viewing properties, negotiating great terms and prices, and securing some of the lowest financing rates in history. Have we hit bottom? I strongly believe so. But what’s most important is the speed and size of the upswing I expect in the future, giving home buyers very little time to react and get into a home they like. Don’t miss out. Act now.
Give me a call at 403-689-3839 if you are considering buying a home soon, and I’ll give you access to some of the best-priced homes in the best neighborhoods in Calgary today. I look forward to hearing from you.