September 26, 2020

Realtors confident Calgary will dodge downturn


CALGARY – Predictions of a 10 per cent reduction in Canadian house prices won’t happen here, Calgary realtors said Wednesday in response to the latest warning of an approaching market correction.

Scotiabank economists said Canada is due for an imminent housing price correction in a report that suggested average home prices nationally will likely experience a cumulative 10 per cent drop in the next two to three years as demand softens.

Toronto and Vancouver, where average prices are well above the national average, could suffer an even steeper decline as oversupply and affordability issues turn the cities into a buyer’s market, the report stated.

In Calgary, however, realtors say home prices are increasing slowly but steadily, and show no signs of a slowdown.

“I think it’s a little unfair when they (Scotiabank) make a sweeping statement like that,” said Ted Zaharko, of Royal LePage Foothills. “Alberta generally, and Saskatchewan for that matter, are involved in very good economies and I don’t see any signs of price reductions at all.”

Bob Jablonski, president of the Calgary Real Estate Board, said the Calgary market has still not recovered to its 2007 level, when average prices peaked at $472,041 for single-family homes and $316,401 for condos. However, in July 2012, the single family benchmark price for the city of Calgary reached $432,400, a 7.8 per cent increase over 2011. Both the condominium apartment and townhouse market recorded year-over-year benchmark price gains of 2 per cent in July, for respective prices of $247,600 and $277,400. Average resale prices for the Calgary metro area reached $425,895 in July, a 4.39 per cent increase from July 2011.

“We didn’t recover as quickly as the other markets did after the downturn, but we’re slowly getting back to a nice, steady pace,” Jablonski said. “We’ve realized the sky’s not falling in, and in spite of what’s happening in Europe and the States, the economy’s good here — it’s a very stable and confident environment.”

In June, Finance Minister Jim Flaherty cited Toronto and Vancouver’s hot condo market in his reasoning for further tightening rules on government-insured mortgages by reducing the maximum amortization period to 25 years from 30. However, Jablonski said the new rules don’t seem to be deterring Calgary homebuyers.

“Most of the buyers here in Calgary are well-qualified and make good money and they’re very prudent buyers,” he said. “They know about (the new rules).”

The Canadian housing market has been particularly busy in the years since the 2008-2009 recession — after the Bank of Canada moved to lower interest rates to ultra low levels to stimulate domestic spending.

Low lending rates have also encouraged many buyers to find a home before they rise, leading to bidding wars, higher home prices and warnings that some homeowners may find it difficult to service their debts when interest rates inevitably rise.

However, the Scotiabank economists don’t believe Canada is at the same precipice the U.S. faced in 2007 prior to the subprime mortgage debacle, although they warn the “downside risks” are increasing.

They note that despite record household debt at 152 per cent of disposable income, the other metrics of homeowner finances remain in safe territory. Homeowner equity in their real estate holdings averages 67 per cent, compared to 41 per cent in the United States, and mortgage delinquency rates are low and falling.

The most likely outcome, Scotiabank says, is that the housing market will adjust as it has in the past, when booms in the 1970s and 1980s were followed by flat or declining prices that lasted almost a decade. Toronto and Vancouver are most vulnerable to a steep correction.

The Scotiabank projection is the latest of several that have suggested Canadian home prices have climbed too far. Some, such as Capital Economics, have called for a correction as big as 25 per cent.

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