Calgary's condo market has taken a major hit as a result of diminished consumer confidence, say the analysts closely watching its vital signs.
Condos are often hit hardest in a downturn because it's a market fuelled by investors. Because of the strong rental market, a condo investment in Calgary is an attractive choice. But investors will unload those condos if tenants lose their jobs and move away, or if they simply get nervous about prices falling. The owner of a single-family house, on the other hand, is more likely to ride out the storm.
In February, the number of condo sales dropped almost 40 per cent compared with the same time last year, and active condo listings went up 105 per cent, according to Calgary Real Estate Board stats. The benchmark price for February is down 4.34 per cent compared with the same time last year. For the first week of March, condo sales are down 67 per cent compared with the same time last year.
It all points to a drop in consumer confidence, says Matthew Boukall, director of residential research for Altus Group, which does housing market analysis.
"The short-term effect has been obviously that sales are slower than last year. And the longevity of that slowdown will come down to consumer confidence, " he says. "But from a purely metrics standpoint, the motivation to buy should be roughly the same [as last year].
"Some of the more immediate impact is that investor activity has started to dry up – which isn't a bad thing," he adds. "That's the responsible reaction to the weakening economy, that investors exit the market."
Calgary is coming off several years of record-setting growth in its condo market, because of a population boom and a tight rental market. In 2013, there were about 5,200 new-condo sales, and 4,800 in 2014, according to Mr. Boukall. Lack of supply and overwhelming demand pushed condo prices in 2013 by as much as $40,000, according to an Altus report.
Those highs make the current climate seem dull by comparison, says Paul Simpson, chief financial officer for developer United Communities.
"So the market is soft, and how could we not expect it to be?" he asks. "We are coming off 2014, and whether it's the city of Calgary or Edmonton or the province, we were at the top in terms of pricing and volume. So we are going from one extreme to another.
"In some cases, it's just back to what I would say is, over the long term, a normal market. If you've been driving at 100 miles an hour, when you slow down to 60, it feels slow."
Ann Marie Lurie, the real estate board's chief economist, says conditions have already changed since January, when the outlook for oil prices was more positive.
"I don't think anybody has a clear sense of what is going to happen in the market this year," Ms. Lurie says. "But if energy prices do stay low, we are already seeing the downward pressure on sales and demand activity, and this could persist. That impacts across all sectors."
The housing market is most affected by jobs, she says. Unless there are significant job losses, there's no reason for prices to tumble.
"If you look at 2009 or 2010, we did have two consecutive years of job losses, and during that time we saw prices fall," Ms. Lurie says. "You need to see those real changes happen over a prolonged period before there's a significant downward push."
Economists have forecasted that overall Calgary house prices could drop anywhere between 10 to 20 per cent, and even more for the condo market.
Ms. Lurie isn't seeing the situation as so bleak.
"I don't see that in this market yet. I don't see any significant price gains this year – maybe in certain pockets – but at the same time, I don't see a dramatic fall, either, unless conditions change. And if I look at recent indicators for Alberta, yes, growth will slow, but employment isn't expected to slow this year."
She will also be watching for new condo supply that comes onto the market as construction completes. An oversupply of condos will bring prices further in line. In the last couple of years, condo sales were brisk business, particularly those in suburban areas priced under $400,000.
Ms. Lurie says buyers looking for product under that price point have been driving the condo market. A little more than 40 per cent of the Calgary market is comprised of multifamily housing product, which includes condos.
"It comes down to how much is absorbed, the total supply, and ultimately, how market conditions are doing when that supply comes on."
The upside is, an oversupply will make for a buyer's market, especially for first-time homebuyers who were previously shut out, Mr. Boukall says.
"If there is more inventory in the market, or better pricing, they have an advantage."
There is a risk, however, if banks get nervous about financing buyers in a weak market.
"Without approval, you're not part of the market. But we haven't seen that yet," he adds.
Real estate agent John McDonald has seen a bank appraisal already affect a recent sale. In January, he found a condo for a client that was listed at $500,000. The buyer offered $488,000, but the bank refused financing based on an appraisal of $475,000. The seller came down to that amount in order to complete the sale. The condo had been on the market for 45 days.
"This was a purchaser, a guy in his 20s, who saw the place, loved it, and he wanted that property."
However, other buyers are already expecting hefty discounts, and the market isn't there yet. Some of his clients have lost out on purchases because they came in with lowball offers or held off on an offer for too long. Most homeowners aren't at that need-to-sell point yet. A lowball offer is often a turnoff.
"Some people are looking at an unrealistic offer, and it's too low," Mr. McDonald says.
"They are expecting a little bit more deal wise. There is some downward movement, but nothing like some buyers expect."