CREB, April 2022 - The first quarter of 2022 saw record high sales activity, thanks to an increase in new listings. This provided some choice for buyers in comparison to the previous quarter, where sales exceeded the number of new listings.
Although there was an improvement in new listings, it was not enough to add significant supply to the market. Inventory levels declined over the last quarter of 2021 and were 30 per cent lower than long-term trends, reflecting the lowest quarterly inventory level seen since 2014. “Record sales combined with low inventory levels caused the months of supply to average just over one month in the first quarter,” said CREB® Chief Economist Ann-Marie Lurie.
“Conditions have not been this tight since 2006, which was also the last time that we saw price gains push above 15 per cent.” The persistent sellers’ market conditions weighed on prices in the first quarter of 2022. Driven by strong gains in the detached sector of the market, the total residential benchmark price averaged $496,767. This is a quarterly gain of nearly eight per cent and a year-over-year gain of over 15 per cent.
While sales were expected to be strong in the first quarter, demand continued to exceed expectations. “Expectations on rising rates and further price gains is likely pushing consumers to enter the market as soon as possible,” said Lurie. “However, lack of choice over the past several quarters has created a build up of demand that can only be filled as supply levels improve.”
While economic improvements will continue to support housing demand, this pace of sales is still expected to cool later this year. This will eventually help the market shift to more balanced conditions and slow the upward pressure on prices.
Housing market conditions today are resembling many of the trends seen back in 2006. At the time, sales hit record high levels and supply struggled to keep pace. This resulted in a months of supply that was just over one month. These tight conditions caused benchmark prices to rise by over 45 per cent, for an annual level of $342,375.
Prices rose further in 2007 pushing up to $416,000. At the time, the Alberta economy was experiencing exceptionally strong population growth, thanks to a strong labour market and economic growth driven by the energy sector. 5-year lending rates were also much higher back then at over 5 per cent.
Conditions didn’t shift until the financial crisis which hit at the end of 2007, causing a recession in many countries around the world including Canada. This led to falling energy prices, jobs losses and ultimately a shift in the housing market. While prices did edge down from 2007 prices after the financial crisis, they never went back to 2006 levels.
If we fast forward to today, prices have seen some significant gains leading to speculation of a future price correction. But in Calgary, these price gains come after years of losses. The gains were driven mostly by a surge in demand relative to the supply. This was due to low lending rates bringing people back into the market, as they were either priced out before the COVID-19 pandemic or they were not financially impacted by the pandemic’s restrictions and found themselves with more savings.
As we move forward, higher lending rates are expected to have a dampening impact on housing demand, but the economy along with job growth is expected to improve helping offset some of the impact of higher rates. While we could see some monthly slippage of price gains as rates rise, a full reversal of all gains in home prices is not expected, as long as the economic activity continues to improve as expected. The more likely scenario is that there will be some adjustment to supply and demand, resulting in a slower growth in prices relative to the levels seen today.
Housing Market - Detached
Detached homes have faced the strongest demand in the housing market since the pandemic began. However, it has also demonstrated sellers’ market conditions longer than any other property type. On a quarterly basis, the months of supply dropped below two months in the first quarter of last year and stayed at that level until the first quarter of this year when the months of supply dropped below one month for the first time since the second quarter of 2006. While there have been some signs of improvement on the supply front, it has not been enough based on the level of demand. This has resulted in significant price growth across all districts. In the first quarter, benchmark prices rose by nearlynine per cent compared to the fourth quarter of 2021 and are nearly 18 per cent higher than last year. The price growth in the market has also limited the amount of available supply in the lower price ranges. Prior to the pandemic, detached homes under $500,000 reflected 42 per cent of all the inventory compared to today where they only reflect 23 per cent of the supply.
Housing Market - Semi-Detached
The semi-detached market has also faced tighter market conditions since the pandemic, but to a lesser extent as detached homes. In 2021, the months of supply averaged just over two months. However, at the end of 2021 we started to see the same shift toward strong sellers’ conditions and by the first quarter of this year the months of supply dropped to just over one month, making it the tightest quarterly average since the end of 2006. Like the detached market, the first quarter saw a surge in new listings, but it was not enough to impact inventories due to the strong demand. The persistently tight conditions also weighed on prices, which recorded a quarterly gain of nearly seven per cent and a year-over-year gain of nearly 15 per cent. While this product type still has inventory for homes priced below $500,000, it has also decreased considerably since pre-pandemic. It went from nearly half of the supply priced below $500,000 to 36 per cent of the supply falling in the lower price range of the market.
Housing Market - Row
Thanks to record high new listings, row sales also reached a new all-time record high. With declining supply in the lower price ranges of both the detached and attached sectors, many consumers turned to row properties. The row market has generally been better supplied than both the detached and semi-detached sector, but as of late this is also shifted for this property type. At the start of 2021, the months of supply was nearly three months but had mostly tightened throughout the year. This trend continued into 2022 with the months of supply dropping to one month, something that has not happened since 2006. Sellers’ market conditions have been causing prices to rise throughout 2021 and continued into the first quarter. The exceptionally tight conditions at the start of this year have caused the pace of growth to rise as the benchmark price recorded a quarterly gain of seven per cent and a year-over-year gain of 13 per cent. Price growth in this segment started later than both the detached and semi-detached segment and prices have not yet recovered from previous highs set back in 2015. However, the spread has narrowed to a mere two per cent and we could see price recovery play out this year should sellers’ conditions persist.
Housing Market - Apartment
As affordable options in the detached, semi-detached and row sectors started to ease, we saw a considerable boost in condominium apartment sales. While new listings also rose, the growth in sales was enough to cause inventories to trend down in the first quarter compared to the end of 2021 and currently sit at levels far lower than what we have seen over the past seven years. Strong sales and lower inventories caused the months of supply to push just below two months. This is a significant change relative to last year at this time when months of supply exceeded five months. While tighter conditions in this market are relatively new, it did place some upward pressure on prices. In the first quarter, the benchmark price rose by over two per cent relative to the previous quarter and over four per cent compared to last year. The shift to price growth is welcome news to sellers who faced price declines throughout 2015 to 2020. Despite the gains felt this quarter and last year, prices remain below the previous high and it will still take some time before they fully recover.