Why is Real Estate Inventory so tight in Calgary?
When any consumer asks the question, most answers you will get is. “Well, it is complicated”, or the basic reply of “it is a matter of supply and demand”. Both those answers are true, but let’s look below the surface a little to get a better understanding of what is going on. Knowledge helps us position ourselves when making real estate decisions.
Let’s look at Canada first, because the big picture is affecting us now. 75% of Canadian population live in urban areas and around 25% of our total population live in the Greater Toronto Area or Vancouver. That is a lot of people. Our largest urban areas are heavily zoned towards single family housing with an understandable reticence to develop existing green space. Urban areas with heavy population concentration are out of space and have local zoning issues. Prices in those areas have doubled in the last 10 years while wages are lagging behind with a 24% increase over the same decade. If you lived in those areas and saw the inviting prices in Calgary with the average house price of 1.4 million dollars in your city. Would you go to Calgary? Many are saying yes, and continue to say yes.
Now for the interest rates. With rates so low over the last 10 years (due to the government trying to ease any Real Estate Market crash after the sub prime debacle in the U.S.) there was really no place for investors to put their money to have any return on their investments. So where did the investment dollars go? Into Real Estate is the answer. Both national and international investment flowed into Canadian Real Estate. At one point we reached one fifth of all real estate in Ontario, B.C., New Brunswick and Nova Scotia owned by investors. (as much as 42% in some subdivisions) 14.9% of that investor ownership in Canada is non-resident (foreign) ownership. So, our hope as the interest rates rise is that investor ownership of real estate will ease due to there being more lucrative investment elsewhere.
Immigration effects on Real Estate are a strain, but an economic necessity. For the first time Canada grew by over 1 million people last year. With our lack of skilled labor, this was a true blessing to Canada. (currently with 80,000 vacancies in the trades) The difficulty is now, where do we put everybody? There are 1000 people to every 424 housing units in Canada. We would have to build 5.8 million homes by 2030 to tackle affordability caused by the lack of supply. That is more than double what we are on track for. “Just build more”, is the public outcry, but realistically it takes 8 to 10 years from land acquisition to buyers picking up their keys. This is going to take time.
Where’s the Crash, isn’t this a bubble? I’m timing the market. When I hear these common questions and phrases from buyers and sellers, I try to explain why this is not a ‘bubble’ and with record low mortgage delinquencies (0.15%) the industry does not really see a ‘crash’ coming and that the Canadian housing risk is still quite low. The disbelief is evident. I am hoping that with this brief article, our clients will have a better understanding of what is going on and how to make their personal real estate decisions.
How do we fix this? The solutions that are being implemented now are slowly turning a big ship. Policy changes are needed and are happening at every level in government. There is the FHSA (tax shelter for first time home buyer’s savings), the ban of foreign buyers, the vacancy tax, incentives for builders, local zoning changes, interest rate increases that encourage investment outside of Real Estate, and increasing the work force through immigration. All this will work to change the supply crunch as will time. In the meantime (or the long time) our approach to how we buy/sell is going to change. Like other major cities in the world, you put your name in with your agent and you wait for your home to come up. It will not be, “let’s look at 80 homes and maybe pick one”.
What we can do personally. As Canadians we are the highest personally indebted G7 nation, which makes us one of the highest indebted people in the world. Our personal finances need to be more accountable to our spending and housing decisions. Yes, inflation is hitting us, no question, but many Canadians can do better at curbing debt load acceptance. We were great during Covid and saved record-breaking amounts. Some of those savings are buoying us up now and seeing many of the mortgagees through these tough rate hikes. We are also seeing more and more credit scores way over 600! We are catching on. Personal fiscal efforts work as much as our government programs.
If you have space, rent it out. Perhaps you have a basement you do not use, maybe you only use that spare bedroom for storage. Whether you rent a room to a student or develop your basement to a suite, you will be easing the housing shortage and creating household income at the same time.
What to remember when buying real estate. Every buyer should be focused on their own affordability, their personal wants (within reason), risk management with good financial planning. DO NOT focus on fear of missing out, or trying to ‘time’ the market, or maximizing short term profit. Keep your emotions as ‘in check’ as you can, (cause it’s a roller coaster!) and seek professional advice.
The Big questions when selling are, “do I weather the interest rate hikes, or is it time to get out?” This question is for the folks renewing at rates that double their mortgage payments. I let sellers know that rents are doing no-one any favors at the moment and working hard to stay in the housing market is a worthy endeavor. Also historically speaking interest rates are still relatively low. It is only at the point of no return that I advise selling. The second big question is “how will I find another home in a low inventory market?”. That is easier, houses are like buses, there is always one coming along. Even in this market, houses come on every day and sell every day. Real Estate Professionals will help you with the logistics and the search. Right now, the rainbow is, the great sale prices and reduced listing time.
It is time to use professionals. Whether you are renewing a mortgage, getting a new mortgage, trying to reduce debt or save, there are experts out there that can help. Financial planners, mortgage brokers, debt consolidation advisors, trustees, real estate agents and brokers. Consumers should not expect to have all the answers. Seek out the pros, there are good people out there with vast experience and good information that you may need. Call on us, we’re here.