CREB forecasts persistent buyers’ market with oversupply of homes pressing on pricing

Sunny days aren’t in the cards for the city’s real estate market, a recently released report on Calgary and surrounding region forecasts.

The 2019 Calgary Economic and Housing Outlook by the Calgary Real Estate Board predicts the housing market in the city will continue to struggle this year as uncertainty over the economy weighs on demand, along with oversupply across all segments.

“There’s just nothing happening that is really going to support sales growth,” says CREB’s chief economist Ann-Marie Lurie.

She points to continued high unemployment as a key driver that — as it did in 2018 — will negatively affect demand, sales and prices.

The outlook forecasts prices will decline about 2.34 per cent across the board with the attached sector expected to see the largest dip at 2.49 per cent. By comparison the overall benchmark resale price for a home in the city fell from $438,025 in 2017 to $431,218 in 2018—a drop of about 1.6 per cent.

This year, the benchmark is expected to be $421,218.

Total sales are also forecast to fall this year to 15,882 from 16,144 in 2018.

A major issue for the marketplace continues to be oversupply in large part driven by the new home segment that saw inventory and product under construction rise in 2018. CREB predicts, however, that a continuation in rising interest rates and lukewarm economic growth should lead to slower starts this year.

What’s more is job growth is expected to pick up toward the end of 2019. Lurie notes, however, the areas of expansion are not in the city’s traditional, high-paying areas like manufacturing, construction and finance. Rather job growth is expected in occupations that typically do not pay as high wages. These include accommodation and food services, public administration and wholesale trade.

Lurie adds any job growth linked to the energy industry will likely remain tepid, much like in 2018, a year in which wage growth in the city was actually negative.

Furthermore she expects wages will struggle to grow again this year.

“But there is now a risk of a growing lack of economic confidence that will negatively impact the housing market moving forward” even as the economy improves toward the end of the year.

Additionally, energy prices remain a concern. While low oil prices are not the only headwind, she points to billions of investment dollars missing from the province’s energy industry today versus just before the recession.

“In 2014, $34 billion was invested in the oil sands sector,” Lurie says. “In 2018, the spending is estimated to be at about $12 billion, and while that still sounds like a big investment, it’s also a big adjustment economically.”

Although those numbers reflect energy investment largely in the north of the province, she notes the sector still makes up about 40 per cent of the city’s economic activity directly and indirectly.

“To this day, there are 20,000 jobs that haven’t come back here compared with what we had before the recession,” and about half of those are directly tied to the oil and gas sector, Lurie adds.

What’s more is slumping energy prices have a psychological impact on the housing market.

“People are aware of how important the energy sector is to our economy, so those (oil) prices really are an indication of confidence,” she says.

Still, Lurie points to a few positives, including the rental market, buoyed partly by positive migration numbers. As vacancies fall, rents often increase. In turn more renters are more likely to consider buying a home, particularly as prices soften — as they’re expected to do this year.

Yet any tangible growth in demand is likely not to lead to significant improvements for the real estate market in 2019 — though it is a sign better days may be ahead, Lurie says.

“If these improvements play out, we could find ourselves in a better situation as we move into 2020.”

from Calgary Herald

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