Calgary Real Estate Forecast – Out of the Woods?

The economic engine in Alberta and Calgary is heavily dependent on the fortunes of oil. When the economy was red hot and oil was over $100, wages skyrocketed, people moved to Calgary in droves, and home prices shot upward.

Between July 2014 and the beginning of 2015, the price of oil dropped to under $50 and by 2016 it was close to $30. The economic turmoil caused by the oil crash led to job losses but surprisingly real estate in Calgary dropped only 3% from its peak in October 2014.

Today the price of oil is around $50 per barrel and Scotiabank recently forecast it would remain relatively unchanged into 2019. Employment in Calgary has stabilized and the city is expected to see population growth in 2018. For the foreseeable future, the Calgary real estate market is expected to be more balanced than before but there are a couple of key risks in this market.

Unsold Condos

A recent Globe and Mail pointed out that in October over 4,000 condos remained unsold. We know from CMHC that construction began on 6,700 Calgary condos in 2017. At some point the mortgage obligations on these empty units may force speculators and developers to accept lower prices in order to close a sale. This would send home prices lower, particularly in the condo market.

Oil Prices

If oil were to take another tumble as a result of Gulf of Mexico supply growing, increased stability of the Venezuelan government, failed NAFTA negotiations, or improvements in Shale Oil extraction, Calgary could suffer a prolonged slump. Alternatively, turmoil in the Middle East could send oil upward.  Oil dependency is woven into Alberta’s economic fabric.

What are the current price forecasts for 2018?

A recent CMHC forecast shows Calgary real estate increasing 2% annually through to 2019 even while mortgage rates climb to 6.2%.

Although the forecast takes higher mortgage rates into account, it is not clear that it factors in the new federally imposed mortgage stress tests which reduce a household’s qualifying mortgage amount.

Below we show the impact of the stress test on a household buying the average priced Calgary home with an income of $90,000.

If the forecast 30,000 new jobs materialize in Calgary and the population grows with the jobs, prices will remain flat. Prices may take a bit of a dip as a result of the stress tests and a glut of new condos.

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