Calgary housing market 'overvalued'

CMHC assessment unchanged from April

Calgary's housing market continues to exhibit signs of over-valuation as economic and demographic fundamentals have altered demand, says a new report.

In its housing market assessment released this week, Canada Mortgage and Housing Corp. (CMHC) noted moderate signs of over-valuation tag due to labour market conditions that have been weak and the seasonally adjusted unemployment rate averaged 8.3 per cent, up considerably from the preceding 10-year monthly average of five per cent.

It's the second time this year that CMHC has noted problematic conditions in Calgary's housing market, the last time being in April.

The October report noted several sectors of Calgary's economy have been impacted by low oil prices and reduced demand for labour. At mid-year, total employment was down over 24,000 jobs from the corresponding period in 2015, with all of the jobs losses in full-time positions.

"This along with slower growth in population and income has moderated demand for housing," said report author Richard Cho, principal of market analysis for Calgary for CMHC.

Calgary was among 10 of the 16 markets analyzed that CMHC said showed either moderate or strong signs of overvaluation.

When combined with other indicators such as overheating, price acceleration and over-building, Calgary was also among 11 other markets in displaying either moderate or strong evidence of overall problematic conditions.

Meanwhile, CMHC detected weak evidence of overheating in Calgary, pointing to the sales-to-new listings ratio being below the threshold of 85 per cent.

"While the ratio has been below the threshold for overheating conditions, it has increased from the previous quarter," cautioned Cho.

"Calgary's labour market has deteriorated following the decline in oil prices."

On a seasonally adjusted basis, sales rose nine per cent from the first to the second quarter of 2016 while new listings declined six per cent. Sales in the second quarter were still below historical averages, and down from the same period in 2015, despite the rise from a quarter earlier. Apartment units had the lowest sales-to-new listings compared single-detached, semi-detached, and row units.

CMHC also detected moderate evidence of overbuilding due to a rise in the apartment vacancy rate. In October 2015, the apartment vacancy rate increased to 5.3 per cent, up from 1.4 per cent in October 2014.

A combination of weaker rental demand and an increase in supply pushed up the vacancy rate.

"Calgary's labour market has deteriorated following the decline in oil prices. The unemployment rate in Calgary has not only increased to elevated," said Cho."

Not surprisingly, CMHC found weak evidence of price acceleration in Calgary. It noted growth in house prices has been modest thus far in 2016. In the second quarter, the average MLS® price rose 1.2 per cent year-over-year to $468,116, following an increase of only 0.5 per cent in the first quarter.