The Organisation for Economic Co-operation and Development raised real estate hackles across Canada when it issued a report in early 2013 in which it stated Canada’s housing market is about 30 per cent overvalued when measured by affordability (price-to-income ratio) and 60 per cent overvalued based on the profitability of owning a house (price-to-rent ratio).
Canadian banks, mortgage specialists and house-speculating economists retaliated with studies of their own refuting the accusation of a Canadian housing bubble. The final word will belong, of course, to history. In the interim, let’s give it to the Conference Board of Canada, which is sanguine about the Canadian market in general and downright bullish on the Western Canadian, and specifically Calgarian, market. It expects Calgary condo sales and prices (as well as those in Edmonton and Vancouver) to rise over 2014 and 2015.
As Robin Wiebe, senior economist at the Centre for Municipal Studies at the Conference Board of Canada, put it when the report was released, “We think [the Canadian condo market] is only slightly overheated and enjoys sound economic underpinnings.”
Still, another characteristic of Calgary is its boundless optimism and inability to learn from busts of the past. With the scars of 2008 not yet wholly erased from either the city’s landscape nor its memory, even the market’s most-ardent cheerleaders offer some caution.
“Not all of the projects planned for downtown Calgary will go ahead,” says Susan Veres, vice-president, marketing and communications, Calgary Municipal Land Corporation.
And she’s right: that’s the nature of the game. Even without a bust under way, the market is already claiming victims such as 3 Eau Claire, which was to have featured two mixed-use towers and the new home of Shaw Communications, but which is now insolvent and looking for a new owner/venture partner.
But there are key economic, legal and psychological differences between now and 2008. Curse the new mortgage rules if you’ve been negatively affected by them, if you must – they are saving people who shouldn’t be buying houses from their own ill-judgment. And they’re keeping an excess of speculators, who snap up too much product and drive up prices, out of the market.
“The adjustments made to the mortgage rules have not had an impact on the high-end market,” says realtor Sue Anne Valentine. “And they have been terrific in reducing the number of people leveraging one property against another, or using one property as an ATM in order to engage in short-term speculation.”
First-time buyers may still be a little too “house horny,” to use seniors real estate specialist Leo Aucoin’s phrase, but that means they’re settling for a 400-sq.-ft. shoebox rather than taking on a mortgage for a 2,000-sq.-ft. house they are doomed to default on. Seasoned buyers may have been burned in 2008 and are more cautious – and, in any case, prices, especially on condos, are just now coming back to peak levels. The product is being built for existing demand by (generally) well-backed, experienced devel-opers, in a city with a continuing influx of population and virtually nil vacancy rates in rental space.
Above all, the macroeconomic backdrop is one of growth tempered by uncertainty. No one is predicting $200 oil anytime soon. In fact, everyone is predicting underwhelming gas prices and continued transportation woes and potential pricing differentials for oilsands crude.
Developers willing to bring product to market against that backdrop – and buyers able to buy at high prices with that psychology – are going to be all right.
Probably. Well, most of them.