The residential real estate market in central Alberta continue to languish with the number of sales in the first two months of 2019 down 15% compared to the same period in 2018. In fairness, 2018 started out with optimism for a pipeline approval that didn’t happen.
We are always looking for reasons to be optimistic our hopes for 2019 are based on potential outcomes for two, very important elections. With the right outcomes, consumer confidence in Alberta could take a big jump which would have immediate, short term benefit. A strong and growing economy is necessary for long term recovery.
Another potential positive outcome of both the provincial and federal elections might be the easing of crippling mortgage rules that have removed first time buyers from the market and hampered owners wanting to move up. Those measures had the desired effect in Toronto and Vancouver and unintended consequences in the rest of the country. Opposition parties have promised to provide relief if elected which would provide an immediate and substantial boost to our local market.
One year ago the federal government finalized the last step in a two year process that requires homebuyers to qualify at a mortgage rate 2% higher than the actual rate they can borrow at. The policy was put in place to help cool heated real estate markets in Toronto and Vancouver. Unfortunately, it was a blanket policy applied to the entire country when there certainly weren’t (and still aren’t), any heated markets in Alberta or most of the rest of Canada for that matter.
That policy has severely impacted the average Albertan’s ability to purchase a home. A large number of first time homebuyers no longer qualify and those that do have had their borrowing capacity reduced by as much as $80,000. And it’s not only buyers that have been impacted negatively. Slower markets caused by government manipulation drive prices down, effectively stripping homeowners of their equity. After all, their mortgage balances don’t drop when prices go down, only their equity does.
The government tells us it knows what’s best for us and is keeping us from getting too far into debt. Of all consumer debt, isn’t mortgage debt the very best kind? Home ownership is many Canadian’s sole savings vehicle and when they aren’t making mortgage payments, they are paying rent, and paying down their landlord’s mortgages instead. That’s a funny way to help out “average” Canadians. It’s time governments stop meddling and let free markets find their way.
It’s human nature to want to start the new year off full of hope and optimism and we believe 2019 certainly has the potential to be better than 2018 in many ways. Alberta’s economy has been struggling since January 2015 when oil prices crashed, finally recovered, and then crashed again because of the crippling price differential we experienced this past year.
What can change in 2019? No one can argue that Alberta’s economy is energy based and any energy related improvements are good for our economy. The Line 9 pipeline to the U.S. should be completed. The Trans Mountain pipeline could be approved. And, there will be provincial and federal elections that could have an impact on a number of energy projects. Any of these events will have a positive impact on our economy and more importantly on consumer confidence which is the precursor to a better economy.
Finally, the punishing mortgage rules inflicted on all of Canada as a solution for heated housing markets in Toronto and Vancouver have piled on top of the energy crisis to create a perfect storm for our housing market. Alberta homebuyers have lost tens of thousands of dollars of borrowing power as a result. The federal government could easily create regional policies that apply only to the markets that need them. A move like that would immediately have a positive impact on our housing market. Here’s hoping!