My name is Matt Halladay and I am a local real estate agent in the Calgary area. Calgary has been in a strong seller’s market during 2021. 2022 poises to continue this trend in the Calgary area (known as Census 6 which includes Airdrie, Cochrane, Okotoks, High River, Chestermere, etc.). As a real estate agent, I was able to watch real estate prices over the course of 2021 increase by an average of around 10%. The 2021 statistics show how a number of factors like the pandemic, low interest rates, and economic recovery have grown the value of our real estate. Similar trends may continue in the 2022 markets and the industry outlook is very positive. This past year was one of the strongest years in the real estate industry and has developed an opportunity for individuals and families to create more equity and consider upgrading into a new home, finance new opportunities, and pay down their debts faster.
WHAT HAPPENED IN 2021?
The past year was a wild ride for the real estate industry. I am focusing on the Calgary area where I hold my business. We have seen one of the busiest years on record. In total, home prices were up 10.5% there has been 33,323 home sales in the Census 6 region by the end of November. For reference there were only a little over 20,000 sales in each of the previous three years with static pricing. This is the largest annual number of properties sold in the Census 6 area, and it doesn't include December sales.
WHAT CATALYSTS DID WE SEE?
When the market reacts like this, it's always in accordance with certain key catalysts. Some of those which I thought most influential are displayed in the sections below:
Interest rates
As many of us are aware, interest rates in Canada are historically at extreme lows with the potential for variable rates below 1% (which is mind blowing) and 5 year fixed rates in to sub 2% range.
Recovering Economy
Canadian jobs had reached pre-pandemic levels in 2021, along with recovering oil prices. Oil and Gas was amidst a recovery just before the pandemic hit, which delayed rising oil prices, but in 2021 we saw prices upwards of $85/barrel. Although Calgary is diversifying, this still contributes to a large portion on the local economy.
The above chart shows oil prices since around the start of the pandemic
Consumer Spending
With most of our common activities limited over the past couple years, it has been found that Canadians spent significantly less during the pandemic. This comes from areas like travel, bars, restaurants, family gatherings, and much more. For those fortunate to have reliable work through the pandemic, many grew their financial strength. The chart below shows how consumer spending has grown and was changed during the pandemic.
Increased Cost of Goods
We have seen a large increase in cost of materials over the course of the pandemic. Most of this coming from supply chain issues and inventory of materials. With many essential businesses forced to shut down early on, the backlog of everyday goods began. This meant new builds, renovations, add-ons, etc. all cost extra money, in turn assisting the value increase of all properties.
There are many other factors that play a part in the real estate rise of detached homes. The four I listed above are of the largest contributing factors to prices in our real estate market. The annual growth in Calgary is around 2.2% as compared to Canada’s national average of 1.1%. As a growing city we typically see real estate increase in value and with the above factors, they show continued strength in the Calgary area
2022 – WHAT THE DATA SHOWS
It is impossible to predict the future in any markets, real estate included. But we can take some key indicators and focus on what potential there may be in the upcoming year. A lot of what we saw in early 2021 is repeating.
Inventory
The definition of inventory is the number of listings divided by the number of sales, and this gives a general overview of the sales cycle of a property. Inventory is the lowest we have seen it since 2014. Currently, November inventory was 1.8months for the entire market. The last time inventory was this low was March 2014 when our city was in an economic boom. A balanced market will be around 3-4 months of inventory in Calgary. Detached home inventory are particularly low at 1.39months in November and represents the most desired property type over the last 12 months. The inventory continues to lower which puts upward pressure on prices and encourages more listings to hit the market.
Interest Rates
Interest rates will not stay this low forever. Interest rates will rise from low points in a recovering economy. Historically interest rates don't show much correlation with home prices but with rates projecting to stay low in 2022 as well, this can be inticing to buyers and draw demand before rates increase too much. On a $400,000 mortgage, increasing the interest by 1% will add $200/month in interest to the mortgage payments. Over a 5 year term that will add up to $12,000.
Calgarians Have Gained Lots of Equity!
Housing prices in Calgary peaked in 2014, with an average price of $482,670. The average price in 2020 was $460,560. Housing prices from 2014-2020 saw a decrease of 4.6%.
In 2021 the average price is currently $502,592 which means the average Calgarian gained $40,000 in equity in 2021. This is large growth for many. I myself invest in properties and have lost equity over the past couple of years due to the markets. Finally, owners are seeing equity gains that allow them to upgrade, protect their finances, continue investing in real estate, etc. It has freed up opportunity for more real estate purchases.
New Build Lead Times and Costs are Rising
Lead times for new homes right now are anything from 18-24 months. For reference, my parents built when building timeframes were normal and they had a home ready in 10 months. There is still a global supply shortage (we all know about the way wood process were for a while), and this is majorly affecting new developments. When new builds are taking too long or become too expensive, it forces those looking to build to search for resale properties as well adding to the demand for current real estate.
There is Still Some Downward Pressure on Real Estate
Although a lot of reasons lead to rising home prices, there are always counter points to be made. High inflation can be a danger to the economy. With COVID it was inevitable that we are seeing high inflation. Inflation encompasses a lot of topics but the most important is cost of goods. With cost of goods increasing, the disposable income of the average citizen will drop, and wages have yet to see a relative increase. Historically wages and inflation don’t grow at the same pace, and that can have a ripple effect on the housing market creating downward pressure on prices. Unfortunately, COVID is also a negative factor. We may be close to the end but with shutdowns and lost jobs in our potential future, if this happens again it will slow the real estate industry dramatically as it did in 2020.
I am very optimistic we will see a strong economic recovery continue into 2022 and I can see the optimism when interacting with others in my community. There has been a growing light heartedness and it is wonderful to see.
CALGARY HAS A BRIGHT FUTURE
My strong belief is that Calgary has a great future and is one of the most beautiful cities in the world. The location is second to none (aside from some winter days…) and it’s one of the most upbeat cities I have experienced. The city has been diversifying its economy, has a growing population, and a very strong job market. I love this city an hope I get to represent many of its citizens over the rest of my career.
Thank you for taking the time to read my post and I hope it helps your outlook over the next 12+months with regards to the Calgary area. Feel free to get in touch if you have any questions or concerns regarding the state of the housing market, value of your home, or just have some general inquiries.
Matthew Halladay
REALTOR® | Real Estate Professionals Inc.
Email: halladayrealestate@gmail.com
Cell: (403) 700-3182
#202, 5403 Crowchild Trail N.W
Calgary, Alberta T3B 4Z1
