New condo prices in the Calgary area continue to drop as the region unwinds a glut of inventory that hit the market during the oil crash and that, along with ongoing economic pressures, is expected to keep a lid on price growth for the foreseeable future.
Since the first quarter of 2017, new condo prices have fallen by nearly 20 per cent, Statistics Canada said in a recent release. Over that span, new condos are not only the weakest segment of Calgary’s housing market, but also the weakest area in any of the six major markets tracked by Statscan.
In turn, Calgary is bucking a trend that’s seen the condo market stay largely resilient in distressed markets. For instance, although Toronto and Vancouver have struggled through most of the past two years, their condo prices – whether for new builds or existing units – have increased as buyers flocked to the more affordable end of the market.
“The slowdown in the overall economy, combined with all of the product coming onto the market, really caused a downturn and impacted pricing on the condo side," said Ann-Marie Lurie, chief economist at the Calgary Real Estate Board (CREB). "There’s just been too much supply.”
Metro Calgary saw a flurry of condo construction begin while Alberta was riding high with oil prices above US$100 a barrel. This decade, there was a peak of close to 10,000 units under construction in March, 2015, according to Canada Mortgage and Housing Corp. data.
But by then, Calgary was already several months into an oil-price collapse that sent the province into recession, and from which it hasn’t entirely recovered. During the particularly bleak years of 2015 and 2016, more than 12,000 condo units were finished.
This led to a rapid increase in the number of completed and unsold units as demand waned. In the summer of 2014, there were roughly 30 unsold units on the market. By the end of 2017, there were more than 1,300.
Although inventories have since dropped, the overall market is still oversupplied, Ms. Lurie said. In its most recent monthly report, CREB noted that “persistently elevated supply levels continue to place downward pressure on prices."
Within the City of Calgary, the benchmark condo price was a touch over $250,000 in October, or down about 2 per cent from a year ago. It is still “firmly” a buyers’ market, CREB added.
Prices are subdued despite increasing demand, with citywide sales of all home types up nearly 10 per cent in October from a year earlier, and particular improvement for lower-priced homes. So far in 2019, total Calgary sales are slightly higher than at the same point last year, although still well below historical norms.
Ms. Lurie pointed to a variety of other factors weighing on condos. For one, unlike Toronto and Vancouver, Calgary has a range of home types at comparatively affordable prices. Within the city, the benchmark price for a detached home is roughly $485,000. (For homes under $500,000, buyers can make a down payment of as little as 5 per cent of the purchase price.)
Developers have also ramped up construction of purpose-built rentals, while scaling back starts of new condo units. This should alleviate pressure on inventories, Ms. Lurie said.
On the demand-side of the equation, hiring has picked up in 2019, though the region’s unemployment rate is still high by historical standards at slightly more than 7 per cent.
“Any kind of acceleration [in hiring] would definitely help the overall housing market, and specifically the condo market,” said Robert Hogue, senior economist at Royal Bank of Canada.
Mr. Hogue noted that population growth is increasing, helping to shore up demand. Indeed, the adult population grew 2.4 per cent in September from a year ago, up from a low of 1.5 per cent in early 2017, RBC said in a recent report.
“When you have fundamental demand improving, it should help absorb those excess units in the market right now,” Mr. Hogue said.
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Matt Lundy