CREB and CMHC train their sights on 2020

Monday, January 20, 2020   /   by Sergey Korostensky

CREB and CMHC train their sights on 2020

Over the last six years, every time a light appeared at the end of the tunnel, it turned into another train.
The Calgary Real Estate Board’s (CREB) annual forecast breakfast presentation earlier this week was along the lines of ‘the potential for a light at the end of the tunnel is there,’ but not as bright as it once was.
The presentation recapped the city’s housing market and a look down the road into 2020, with stability being the theme for the year.
Obviously, since oil prices plummeted in late 2014, coupled with aggressive and unfriendly federal government policies related to the energy sector plus restrictive housing policies, Calgary’s housing market sales have declined dramatically, leading to excess supply and city-wide price declines averaging more than 10 percent.
CREB’s main points to ponder for 2020 are:

• A new normal in the market: Supply adjusting to slower sales activity, providing conditions that are more supportive to a stable price environment.

• Market improvements are expected to be driven by gains for lower-priced product, while easing prices and oversupply persist in the upper price ranges.

• Supply adjustments are expected to continue, helping to eventually push the market toward balanced conditions.

• Prices are expected to stabilize over the year, but remain just slightly lower than last year’s annual levels.

• Stable mortgage rates, previous price declines and job growth should support modest improvements in sales, but these will remain at lower levels.

• Employment risk weighs on the market, which could result in further declines in sales and prices.

“Job growth, combined with recent easing in mortgage rates and price declines, is starting to bring some purchasers back into the lower end of the market,” said Ann-Marie Lurie, CREB’s chief economist. “We are seeing more transactions in the $500,000-and-below price point for residential homes.
“The shift in consumers’ preferences toward lower-priced product is expected to continue at the cost of persistent weakness in the higher end of the market. However, as the under-$500,000 market reflects a larger share of total activity, the gains in this sector will outweigh the losses from the higher end, resulting in modest growth in sales and a reduction in downward pressure in prices.”
Lower sales have led to a serious oversupply of homes, new and resale, but that problem is easing, said Lurie.
“Improving sales and easing inventories are expected to help reduce the oversupply. These reductions will help shift the market closer to balanced conditions, but the pace of adjustment is expected to be slow,” she said. “The reductions in oversupply are expected to slow the pace of price declines, as prices are forecasted to ease by less than one percent. Like 2019, divergent trends are expected to remain the theme of 2020. Relatively affordable product is expected to record some improvements, while persistent oversupply will weigh on the higher end of the market.”
While that’s a positive note, there is still a chance of a train in CREB’s outlook.
“If recent job losses in the Calgary market continue into 2020, this will create further uncertainty. It will also impact consumer confidence and housing market activity,” said Lurie. “If new-home construction projects exceed anticipated demand growth, this will slow the downward adjustment in overall housing supply. This will impact price stabilization in the resale market.”
Training our sights on the positive, let’s look at new home starts.
Calgary and area new home builders ended 2019 on a high note in December, starting four times as many homes as they did in December 2018, according to the year-end report from Canada Mortgage and Housing Corporation (CMHC).
All categories of home types recorded December increases, year over year, driven by the apartment sector, which accounted for more than half of last month’s starts.
December’s pace took the year-end total to close to 1,000 more than 2018. In his Fall Housing Market Outlook (HMO) for the Calgary area, CMHC senior analyst, economics, Taylor Pardy expected total starts for 2019 to be less than in 2018, however, the high number of apartment and row/townhome starts in 2019 skewed that expectation.

Here’s a year-over-year comparison of starts

Dec. ’19  Dec ’18  YTD ’19 YTD ‘18
Single-family  352 223 3,535 3,791
Semi-detached 132 70 1,138 1,216
Row  200 124 1,853 1,561
Apartment   1,446 1,113 5,383 4,403
Total   2,130 530 11,909 10,971

Going forward, Pardy expects a slight uptick in starts this year.

“Over the next two years, improving fundamentals are projected to lead to modest increases in new construction as the inventory of unsold homes is drawn down,” says Pardy in the HMO. “In the single-detached segment, new construction is anticipated to pick up modestly over the next two years as stronger population growth and demographics support new household formation.
“The multi-unit segment is also expected to see increases in new construction in order to support demand for lower-priced housing options in favourable locations, particularly as available rental options begin to become less abundant. In this regard, there has already been a pickup in demand for multi-unit housing in the latter half of 2019 in both the resale and new home markets as these represent more affordable options for first-time buyers.”
Pardy is calling for a range of new home starts in 2020 of between 10,100 and 11,900, with between 3,400 and 4,400 single-family homes and from 6,700 to 7,400 multi-family homes.