Alberta sales in the first half of June are up slightly compared to the same
time in May. While the Red Deer numbers are disappointing, there are
currently 40 reported pending sales which suggests the month could end strong.
number of active listings compared to this time last month is up in a little
Red Deer, Sylvan Lake and Ponoka and down in Lacombe, Blackfalds, Penhold and
Rocky. When compared to last year at this time, the active listing count
is down significantly in almost every market. That brings the sales to
listing ratio and the market closer to balance and suggests the days of
declining prices may be over.
are eagerly waiting for an announcement on June 18 about the Trans Mountain
Pipeline. A positive result will surely contribute to improved consumer
confidence. In the meantime, mortgage rates have dropped with 5 year
terms available as low as 2.97%. It’s still the perfect time to buy, but
the window may be closing a little.
It’s hard to
accurately calculate how much house prices are down since they last peaked in
2014, but we believe the average drop is 10% – 12% depending on a number of
factors – location, age, price range etc.
For those who purchased homes in 2014 and paid those higher prices,
there is some good news. If you borrowed
$400,000 over 25 years at 3.5%, 5 years ago, you will have now paid that
mortgage down about $55,000 to $345,000.
The value of your home may be down, but you should now have your
original equity (or more) back.
That leaves people who
had no options in 2016, ’17 and ’18 with equity and the ability to move on if
they wish. The house they buy after they
sell their current home has been price adjusted too. The biggest obstacle holding back the housing
market now is the, irrational for Alberta, mortgage stress test that CMHC and
the federal government continue to defend and are likely to maintain. Hopefully the
Provincial Government’s promised solution is coming soon.
Central Alberta sales in the first two weeks of May
kept pace with the same period in April, but Red Deer sales didn’t. The
number of active listings is up in every market we track except Blackfalds
which remained steady. Generally, inventories in central Alberta are well
below last year’s levels. Lower inventory levels means movement toward a
balanced market and less choice for homebuyers, although it is still a buyer’s
market in most price ranges.
We have noticed more activity and a higher confidence level
in the last few weeks and are hoping it will translate into firm sales going
forward. Recent decisions by the Senate on Bills C69 and C48 have the
potential to further boost confidence in Alberta. On a gloomier note, the
Bank of Canada seems convinced the mortgage stress test is still appropriate
for the whole country which probably means the federal government will leave it
in place. That makes it more important than ever for the Alberta
government to see what they can do here.
After a good start to the month, the trend continued, and April MLS
sales in central Alberta finished up 44% compared to March. Our prediction that the election would
trigger a surge of confidence appears to have been accurate as we are seeing
evidence of an improving market on a daily basis.
The large banks are now starting to put public pressure on the federal
government to remove or at least adjust the mortgage stress test. They have admitted that the unintended
consequences are massive withdrawals of first time buyers from the market as
well as a dangerous trend from conventional mortgage funding sources to
alternate lenders who charge higher rates but don’t follow the stress test
rules. That pressure just before an
election may encourage some consideration for the rest of Canada that didn’t
need the rule in the first place.
What we need now is for the new Alberta government to full-fill its promise to work with Alberta financial institutions to remove that massive stumbling block as well. Every real estate transaction contributes about $55,000 to the local economy. Fixing the inequities in the mortgage process could provide a very quick and effective boost to an Alberta economy that still badly needs help.
March sales improved compared to February’s in most central Alberta
markets while year to date sales are up in some markets and down in
others. The majority of sales in March
were at the lower end of the price spectrum.
On the supply side, active listing counts are below last year’s levels
in most markets. Activity in the past
few weeks has been encouraging and it feels like the market could finally be
within sight of turning the corner.
In order to see real improvement, we need a couple of things to
happen. First, the provincial government
needs to instruct the Alberta Treasury Branch to remove the stress test from
their mortgage lending criteria. It’s
critical that we have an Alberta solution since the federal government refuses
to fix their mistake. Second, we need an
announcement that construction will finally begin on at least one, but
hopefully all three pipelines – Line 3, Keystone and Trans Mountain.
These two measures would transform the Alberta economy and housing market in very short order. The winner of the April 16th election must immediately change mortgage rules for Albertans. Obviously getting pipelines constructed is more difficult and requires cooperation from other governments but we believe it will happen in the next year.
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
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.