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The past three years have been anything but normal.
In 2020, central banks in the western world pivoted, brought down borrowing rates and increased the money supply to support the economy and housing. The record-low rates created a buying spree for housing in Canada.
That buying spree created a strong seller’s market. Shortages of building supplies, labour and new land development exasperated this existing shortage of supply, which led to rapidly increasing prices throughout Canada.
In Edmonton, our market peaked in March of 2022 with an extreme shortage of single-family homes and rapidly increasing prices. As most pandemic restrictions were lifted in the spring of 2022, the Bank of Canada increased the borrowing rates in an attempt to control spending and inflation.
The war in Ukraine exasperated inflation by taking two of the world’s largest food and energy exporters mostly offline. Even though monetary policy would have little effect on those supply shortages, the central bank felt they had no choice. They, therefore, had to raise rates more quickly and aggressively to address runaway housing prices in many regions of Canada.
Going from a two per cent mortgage rate to close to six per cent put the brakes on hard as it meant most buyers could not qualify for homes at these higher prices.
Since then, we have seen home values fall in many regions of Ontario and British Columbia. In Edmonton, we lost the gains in value in the first quarter of 2022. In March 2022, the average prices of single-family homes climbed almost 15 per cent in the first three months of the year. Over the balance of the year, those gains were clawed back.
Had that market imbalance remained for eight to 10 months, we would have likely seen prices continue to escalate throughout 2022 in Alberta.
Today, we are back in a strong seller’s market when compared to a more typical year like 2018 or 2019. We are seeing upward price pressure today in single-family homes under $500,000. This would include single-family attached and detached. Townhouse condos, row houses, duplexes and single-family detached are in that grouping. Apartment condos are now in a balanced market.
Where do we go from here? Mortgage rates have settled down and are in the 4.5 per cent range. Historically, that is a good rate. With affordable home prices in Edmonton, it is now, at least somewhat, business as usual.
However, some things are different. And that difference is that demand for housing is building in Alberta. We have our normal organic demand with a young demographic in our province. Added to that is demand from Canadians moving to Alberta, seeking affordable living and housing.
In 2022, Alberta significantly broke net migration records as so many Canadians flocked to Alberta for jobs and affordability.
Further to interprovincial immigration, we see the federal government double Canada’s normal immigration levels, which will put further upward pressure on housing prices in Alberta.
The gap between Calgary and Edmonton has widened. Calgary has less supply than Edmonton. In fact, rents in Calgary are trending upwards, with new leases as much as 20 per cent higher than last year. I often say that what happens in Calgary happens in Edmonton three to six months later.
We must quickly increase the housing supply to protect affordability in Alberta. We can do that quickly in Alberta as much less red tape is required to build housing than in many other Canadian provinces.
Regulations in other provinces designed to protect affordability may, in fact, have contributed to the opposite. Those silly unintended consequences of government policy.
Rent caps and other restrictive policies have likely discouraged investors from building new rental properties as the rent caps may make it impossible to recover rising housing costs. With a shortage of supply, prices of new leases increased sharply.
With rising demand for housing and a simultaneous reduction in mortgage rates, Alberta will likely see a steady increase in home prices over the next five years.
As the western world deals with higher debt servicing costs, an aging baby boom population leaving the workforce and demanding more health services, and increased efforts to mitigate climate change, we could see slower growth as well as more recessions in the west for maybe a generation.
Recessionary pressure could mean that we may see mortgage rates settle into the 3.5 per cent range for 20 years or more. Lower borrowing rates and a surging economy in Alberta mean even more upward price pressure on housing. Having said that, in my opinion, it becomes more difficult to predict anything today as it seems as if anything can and will happen.
Despite that uncertainty, I strongly believe the play in Alberta is to acquire real estate, not sell it. I would say that today we have a window of opportunity as I believe we will see strong appreciation in home values for the foreseeable future.
Dennis Faulkner works as a realtor at Sweetly Real Estate. He can be contacted to answer your real estate questions at [email protected]