Calgary: Own Housing Bubble or Bright Prospects?

Calgary Houses by DArcy Norman
Calgary Houses by D'Arcy Norman

Calgarians have no reason to be afraid when they read statistics and predictions about their economy. It was called a "hot growth mecca" by a report in Emerging Trends in Real Estate 2012, it has seen strong expansion in recent years, and forecasts show that this is only the beginning. But is Calgary really running at top speed with no danger of a crash?

Calgary’s Statistics: Good Reasons for Optimism

The average house prices in Calgary grew from $176,305 in 2000 to $398,764 by year-end 2010 (an increase of 126 per cent) driven by immigration, population growth, and the vibrant oil and gas sector, says a report released by Re/Max.

“A few reasons I believe Calgary has seen such growth in the last ten years is simple due to our strong economy from natural resources which has been a driving force in migration into Calgary for jobs,” says Tanya Eklund, a realtor with Re/Max Real Estate Central. “This has resulted in growing our population to well over one million, low unemployment rates, a strong GDP and the demand for housing.”

A report in Emerging Trends in Real Estate 2012 goes even further and claims that “if you want to gauge Calgary’s prospects, just keep tabs on energy prices.”

A Housing Market Outlook report by Canada Mortgage and Housing Corp. (CMHC) showed that many factors support resale housing demand in Calgary, including growth in full-time employment, low mortgage rates, and improved net migration.

“However, competing factors such as uncertainty in the global economy has kept some prospective buyers on the fence, and will continue to temper any large increases in sales,” said the CMHC.

Key decision: Keystone XL Pipeline

Pipeline by Ryan McFarland
Pipeline by Ryan McFarland

The approval of Keystone XL pipeline would affect Calgary’s prospects even more. “A go signal could rev up the market to another level,” says a report in Emerging Trends in Real Estate 2012. The proposed 2,736-kilometre pipeline would carry hundreds of thousands of barrels of oil per day from the Athabasca Oil Sands in Alberta through Montana, South Dakota, Kansas, Nebraska, and Oklahoma to Texas Gulf Coast refineries.

Ian Gunn, Alberta leader for the Private Company Services practice, said that if the Keystone pipeline gets the go-ahead, it is “a further strong indicator of continued strength in the Calgary marketplace with respect to demand for office space and potentially residential impact.”

Affordability: the Best in Canada

In the last quarter, Alberta‘s housing market reached its highest levels in more than a year, not only thanks to an expanding energy sector, but also as a result of its most affordable market. Its provincial housing affordability remains the highest in Canada this quarter, according to the latest Housing Trends and Affordability Report released by RBC Economics.

Interestingly, the high level didn’t change, although affordability measures decreased from the previous year. In Calgary, bungalows gained 37.6 per cent (down 0.4 per cent from previous year), two storey houses 38.2 per cent (down 0.7 per cent), and condos 23.2 per cent (down 0.1 per cent).

“Despite some slight deterioration in affordability, Calgary continues to be one of the most affordable major cities in the country,” said Robert Hogue, senior economist with RBC.

Prospects: Hot Growth, Deep Fall?

According to the CMHC’s report, MLS residential sales in Calgary will grow to 22,200 units this year — an increase of 5.7 per cent from 20,996 in 2010. A further increase of 2.3 per cent to 22,700 units is expected next year. The average housing price is forecast to rise 2.2 per cent in 2012.

There is no doubt that Calgary’s prospects are bright, mainly due to its energy sector. Calgary is almost indifferent to the rest of the country since it depends on energy so deeply. However, as the energy sector caused this strong expansion, it could also cause a profound fall. More than 70 per cent of the city’s downtown office space is represented by oil and gas companies or related businesses. Imagine what would happen if there were an unexpected fall in energy demand. The pillar of Calgary’s economy would suddenly find itself in crisis.

Discussions about Canada’s housing bubble don’t mention Calgary because it isn’t connected to the rest of the country so closely. However, Calgary can generate its own housing bubble relying on its strong but not eternal energy demand, and it can burst as quickly as it was created.

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