Trickle-down effect

How economic indicators actually drive the housing market

What do unemployment, migration and oil prices have in common? Apart from being touchy subjects at a party, they all influence the Calgary housing market to some extent. Understanding how and why that happens could provide an advantage when planning a home sale or purchase.

"In many cases the impact is indirect," said Ann-Marie Lurie, chief economist for CREB®.

One part of that impact relates to demand.

"The energy sector is important to the Calgary economy," said Lurie. "When oil prices fall, this can cause job losses and impact the number of people coming to our city, all of which reduces the demand for homes."

Housing supply is another consideration, and how it's affected by these factors depends on the time period in question.

"It often takes time for supply to adjust to unexpected changes in demand, resulting in a period of oversupply," said Lurie. "Existing sellers may not be able to delay selling their home and new construction projects are planned based on previous expectations of growth."

The supply/demand relationship might seem like a simple one, but like most things related to the economy, looks can be deceiving.

"In the first year of the latest recession we saw a 20-per-cent drop in sales and people associated that with a 20-per-cent drop in price, but it's not the same thing," said Lurie. "It comes down to how those sales measure up relative to supply – you can't just look at one side of the equation."

As well, prices can be "sticky" on the way down, as people don't want to sell at a loss if they can avoid it.
Lending rates also come into play when it comes to the housing market, but they can't be viewed in isolation.

"In the first year of the latest recession we saw a 20-per-cent drop in sales and people associated that with a 20-per-cent drop in price, but it's not the same thing." - Ann-Marie Lurie, CREB® chief economist

"It's not just lending rates that matter – it is also about qualification and availability of credit," said Lurie. "Not many people buy homes with cash, so we have to consider lending rules and how rates are rising in relation to incomes and home prices."

Lack of wage growth and rising rates, combined with more stringent mortgage qualification rules, could cause some people to lower their price range when it comes to buying a home, or even push them completely out of the ownership market.

However, from a price standpoint, the market appears to be stabilizing, thanks in part to the latest economic numbers.

"At the moment, we are seeing a bit more stability in prices as the economy gradually improves," said Richard Cho, principal market analyst for Calgary with Canada Mortgage and Housing Corp.

"Unemployment is slowly moving down, income growth is holding its ground and we're seeing some population growth. All of these things support prices and more balance in the market."

When weighing these factors in relation to the housing market, it's necessary to dig a bit deeper than the surface numbers to determine their full impact.

"Looking at employment, we have to consider if the jobs being created are full-time or part-time and in which sectors they're being created," said Cho.

"Then there's the element of net migration. While our population growth in 2016 was over two per cent, which age group was responsible for that? Was it youths, young adults or seniors? We have to dig deeper to understand how the various elements affect the housing market."