October 7, 2019

Edmonton Market Analysis Q3 2019

With September behind us, we’re already headed into the last quarter of 2019. How has Edmonton’s Real Estate market fared to date? After near record low sales in the 1st quarter, the following 6 months improved quite reasonably. Healthier sale numbers helped our Year to Date sales catch up to match numbers from the past 2 years. On a more positive note, we’ve brought 7.5% LESS new listings to market than the average of 2017 & ‘18, which had spiked in comparison the years prior, falling back in line with our 5 year average. Despite reduced inventory inflow and similar sale levels, prices continued to decrease. The average sale price in September was $351,526, down 6% from September 2018.

Why is this happening? Though our inventory levels have fluctuated over the year and at times, supply and demand levels were balanced, we currently sit at 7.5 months of inventory. Our aim of balance; where the advantage is neutral between buyer and seller, is to sustain 5 months of inventory. Anything lower and we expect price increases. Anything higher and we can expect sellers to compete for buyers and consequently, prices would decline.

On a deeper level, 3 major factors have affected our market.

1. A Provincial election in the spring and now a Federal election coming to us this month.

 2. Poor weather conditions.

3. New mortgage qualification regulations.

I spoke about how these factors affected us so far in my last blogs of Q1 and Q2 (click for reference). The question now is how will these factors affect us moving forward?

The Provincial election is now behind us. Alberta voted for change and as a result, a new optimism ensued, improving sales in the spring and summer. This wasn’t the sole factor as seasonal timing and weather improvement also played significant roles. With the Federal election now ahead of us, the more cautious buyers are waiting to see the outcome before they make a move. If the election results in no government change, real estate activity should correspond. If the country votes for a change that is congruent with the Alberta vote, optimism should fuel higher buyer activity, just as it did provincially.

Regardless of the electoral outcome, there are several lobbyists working on softening the Mortgage stress test regulations and making home ownership easier to achieve. The new lending criteria put in place at the start of 2019 had a larger effect than I believe was intended (at least for markets outside of Vancouver and Toronto). All buyers must now qualify for a payment with near double the interest rate they are actually paying. In other words, a buyer’s income must support payments based on the posted rates, despite that they remain over 2% higher than what is commonly available. Lobbyists are pushing not to eliminate the stress test, but to revise and soften its criteria. In addition, they are suggesting to extend the maximum amortization from 25 years back to 30. (It’s worth noting that we had eliminated 40 year amortizations 10 years ago). Should the lobbyists succeed, we can expect several buyers who have been pushed out of contention to re-enter the market. This would help not only the entry level market, but all price ranges as there’s a trickle up effect to the move up buyers. Sales in all price ranges are affected by activity from first time buyers.

What’s to expect from the last Quarter of 2019? At this point much is contingent on Election results. For the immediate future, either an increase or decrease in activity would be explained simply as speculative or emotional behavior change. Economic transformation is a slow moving ship and will take time. I suspect our total sales for the year to be within 1% of 2018 figures and sale prices to end up somewhere near a 7% drop from last year.

With this in mind, foreign investment is clearly betting on a prosperous future for Alberta. Multi-Family purchases were up 144% by the end of June this year and several large commercial acquisitions have been made, including a half Billion dollar purchase of our new Stantec Tower, made by a German Investment company. The rental market is strengthening which serves as a leading indicator in the health of the resale market. With more bumps and bruises certainly still possible, several factors would indicate that overall, we’re in the infancy of the recovery segment in the Economic Real Estate Cycle. Unless everything goes right for Alberta in the coming 12 months, we should expect the recovery to be a slow one. However if I’m describing this as worst case scenario, that’s still great news for our market. The theme for the coming months is opportunity.

 

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