As reported in this space last week, new multi-family home sales in Calgary in the first half of 2019 were down compared to the same time frame in 2018.
On the residential side, the report puts its focus on Calgary’s new multi-family homes market, where townhome sales were brisk, but the overall market was stalled due to slowing new condominium apartment sales, particularly in the inner city.
Inventory in the apartment sector has grown as builders have brought product to market that was planned well before the onslaught of the recession.
It’s not a matter of builders needlessly adding inventory. Typically, an apartment complex will begin construction when 50 percent of the units in a project have conditional sales. An apartment tower can take two or three years to be completed, with builders hoping the remaining units will sell before completion. When sales don’t materialize, those units go into inventory.
Altus Group estimates there are approximately 2,700 unsold units in active new apartment projects, which represents about a two-year supply, based on sales activity over the past year, with the slowest pace of sales being in Calgary’s inner city.
“A total of 37 condominium apartment projects were launched in 2018, for a total of just over 2,900 units (five of these projects were subsequently cancelled). Another 15 projects launched in the first half of 2019 (with two since cancelled),” says Altus Group. “The increase in available supply is the result of a larger number of active projects in the suburban market, with many new low- and mid-rise projects launching the past 12 months.”
While the bulk of the Flash Report covers the first two quarters of 2019, there were some green shoots showing over the summer, says Altus Group’s FIRM survey, as home-buying intentions among first-time home buyers were up compared to summer 2018.
“The overall increase was driven by stronger intentions among current renters, the primary pool for potential first-time buyers,” says Altus. “Fewer Calgary households expressed concerns this year about potential job losses, which along with the more favourable mortgage rate environment, may be starting to revive home-buying intentions — and potentially actual home-buying activity.”
There is a level of home-buying activity and perhaps not surprisingly, mostly in a younger demographic.
“Just over half of recent end-user home buyers in the Calgary market area were under 35 years of age,” says the Altus Group’s FIRM survey. “Most buyers under 35 year were first-time buyers. In Calgary, on average, first-time buyers purchased homes that were about 15 percent below the overall average purchase price, and were on average priced at four times their annual incomes.
“The new First-Time Home Buyer Incentive that came into effect in fall 2019 may provide some moderate stimulus to first-time buyer activity in the months ahead.”
Under the Federal Government’s incentive program, Canada Mortgage and Housing Corporation (CMHC) will contribute five percent or 10 percent for a first-time buyer’s purchase of a new constructed home, five percent for a first-time buyer’s purchase of an existing home or five percent for a first-time buyer’s purchase of a new or resale mobile/manufactured home. The contribution is considered an interest-free loan that must be paid back to CMHC within 25 years or when the home is sold, whichever comes first. To qualify, in most Canadian markets, the home’s sales price cannot be more than four times a household’s income, which CMHC has capped at $120,000 in most markets. CMHC has yet to release any concrete numbers in terms of how many buyers have been accepted into the program.
Many of the first-time buyers in Calgary are getting financial assistance for their downpayment from their parents.
“About half of recent first-time buyers in the Calgary market area had a downpayment of less than 10 percent of the purchase price,” says Altus. “About four in 10 recent first-time buyers in Calgary used assistance from parents/family (gifts, private loans, inheritance) as the primary source for their downpayment. About one in six used RRSP funds and about one in four used non-RRSP savings/investments.”
The Altus Group’s 30,000-foot view of Calgary’s real estate sector is cautiously optimistic.
“Following a year of stronger investment property sales volumes in 2018, the first half of 2019 has been comparatively quiet with a decline in overall activity,” says Altus. “The decline in the residential land sales volumes reflects the lacklustre state of the new home market in Calgary. An increase in 2018 in new project launches within new communities in the suburbs helped to tap demand, but 2019 has seen comparatively fewer launches, and sales, as a result. Townhouse demand remains robust, while appropriately priced wood-frame apartment product in the suburban market continues to find buyers. Inner-city new condominium projects are seeing relatively low demand.”
The roller coaster ride may be over.
“The outlook for the Calgary market remains positive, although the strain of the ongoing slump in energy prices continues to weigh on the real estate sector,” says Altus. “While dollar volumes for investment activity and new home sales are down relative to 2018, the declines are not expected to continue.
“Rather, the outlook is for flat to positive growth on a five-year horizon as the Calgary market continues to see population growth and renewed investment.”