Holding off the drop
How long can Calgary's housing market hang on?
Since losing his job in the oil patch in April, 2015, Patrick Merz has survived on his severance package, savings and the occasional contract job.
The 58-year-old accountant sold his home in the upscale Calgary neighbourhood of Sienna Hills last year as he and his wife were going through a separation, allowing him to extract some equity and buy a townhouse mortgage-free.
But with few prospects for steady employment on the horizon in recession-weary Alberta, Mr. Merz is now looking to pull up stakes once again and leave the city for better opportunities in British Columbia – for what he hopes will be several more years of work before retirement.
That would mean putting his townhouse on the market at a time when Mr. Merz believes many other Calgarians may be looking to do the same, potentially driving down home prices at a time when few unemployed homeowners can afford yet another financial blow.
"At this stage in your life, you're always trying to maintain equity," he says. "I'm not in a position where I am going to lose my home, or anything like that," he said in debating the decision to sell.
"But I think these decisions have been forced on me a little bit more now."
Even in a city that is used to commodity-price ups and downs, the severity of Alberta's economic downturn – now heading into its third year – has overwhelmed many Calgary residents. The city's unemployment rate has hovered around 10 per cent in recent months – its highest level in 23 years. More than 90,000 people are now looking for a job.
But despite a punishing recession, Calgary's housing market has so far proven to be surprisingly resilient as unemployed homeowners have largely found ways to keep paying their bills.
Home prices have certainly weakened since oil prices began their slide in late 2014. Luxury detached homes and condos have felt the most pain, thanks to early layoffs of both higher-paid oil and gas white-collar workers, and hourly workers who were renting and have since left the province.
But in the core market for single-family homes, realtors have seen few panicked homeowners willing to take deep price cuts. Resale listings have actually been falling for the past four months and were down 18 per cent in January from the previous year, the Calgary Real Estate Board reported.
Detached home prices have fallen 4.9 per cent since their peak in 2014, yet overall home prices remain higher than they were five years ago, according to the Teranet-National Bank House Price Index.
The resilience of Calgary's housing market in the face of Alberta's worst economic downturn in three decades has surprised analysts. "If I told you a few years ago that oil prices would go back down to $30 from $100, you would say that house prices in Calgary and Edmonton would go down by 20 per cent – and they haven't," said Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal.
Real estate watchers point to a series of economic factors that have worked in Calgary homeowners' favour.
The city's resale housing market was exceptionally tight in the year heading into the current recession, leaving enough demand to allow struggling homeowners to sell their homes relatively easily after losing their jobs, said Calgary Real Estate Board chief economist Ann-Marie Lurie.
Like other Canadians, Albertans have benefited from interest rates that have fallen to record lows. "It's a lot easier to manage your mortgage payments when they're at 2 to 4 per cent than it is when they're at 15 to 20 per cent," said Jeffrey Schwartz, executive director of credit counselling agency Consolidated Credit Canada.
While they have become more cautious, Canadian banks have also largely continued lending to Alberta home buyers. Mortgage insurers have been asking more questions about borrowers who work in the energy sector, but none have pulled out of the market, said Dan Eisner, CEO of mortgage brokerage True North Mortgage, which is headquartered in Calgary.
Some laid-off workers have been aided by generous severance packages as well as extended Employment Insurance benefits. Many unemployed homeowners who fell behind on mortgage payments in 2015 seemed to have found new jobs, although not always in the same industry or for the same pay, said Andrew Moor, chief executive officer of alternative mortgage lender Equitable Bank.
"Frankly we've seen almost nothing in the way of losses in Alberta on our mortgage books," said Mr. Moor, who spent time in Calgary last year examining his company's impaired mortgages in the region. "So despite a very tough shock to the economy, it appeared that most people kind of knew what debts they could handle."
Importantly for those who own detached houses in Calgary, it has been the city's rental apartment market that has borne the brunt of the recession so far, putting the pressure mainly on Calgary's condo market and pinching investors and landlords more than homeowners.
Average rents fell 7.5 per cent last year amid rising vacancy rates. Condo prices have plunged 11.5 per cent since 2014 and the local real estate board predicts they will fall another 2 per cent this year. True North Mortgage's Mr. Eisner owns a condo that he used to rent out for $1,850 a month. It is now vacant and similar units in the building are renting for closer to $1,250 today.
The downturn in the rental market has been an unexpected benefit for some of the region's workers who have been able to negotiate deep discounts from landlords.
After she was laid off from her job with Cenovus Energy Inc., Kendall Titchener and her boyfriend moved in together. They now pay $2,200 a month for a townhouse that likely would have rented closer to $3,000 during the boom years.
"It's almost kind of like a Boxing Day blowout in the rental market," she said. The move has also helped Ms. Titchener to cut costs as she launched her own business, Pixelated Pinto, a digital marketing agency specializing in health and wellness companies.
Equitable Bank's Mr. Moor attributes the market's comparative strength to the fact that home sales in recent years were being fuelled more by buyers looking to purchase homes for their families than by the investors and property speculators commonplace during the real estate boom of the early 2000s.
"If you were at a dinner party in Calgary in 2005, the chat was about how many rentals you owned," he says. "You weren't a player in Calgary unless you owned a couple of rental properties."
And burned after being caught with a lot of unsold inventory from the building boom leading up to 2008, developers were far more conservative in recent years, said Allan Klassen, chairman of the Canadian Home Builders' Association in Calgary – and a senior vice-president at Brookfield Residential (Alberta) LP.
Fewer of today's sellers seem to have racked up debt equivalent to the equity they hold in their home compared with the last downturn, said Calgary realtor Colin Kehler. He thinks more Calgarians have learned from the devastating housing collapse south of the border by taking on less debt and saving more heading into the current recession. "I think people realized that bubbles could burst," he said
Lately however, many have been encouraged by positive signs emerging from Alberta's energy sector.
Oil prices have improved significantly since they hit a 12-year-low a year ago, while federal government approvals for two new pipeline projects and U.S. President Donald Trump's support for TransCanada Corp.'s Keystone XL have brought some optimism to the battered oil and gas sector.
Economists expect Alberta's economy to finally emerge from recession in 2017. The province's job market is already showing some signs of a recovery. But no one in Calgary believes higher crude prices will result in a massive surge in hiring this year, and for those homeowners struggling to keep their head above water, as severance packages and unemployment insurance run out, that could mean Calgary's housing market gets worse before it gets better.
Even those in the housing industry are predicting a tough year ahead. Canadian Home Builders' Mr. Klassen is concerned about a spike in listings in the next few months because he believes the people who were laid off are running out of severance and other savings.
"We don't believe that we're really seeing a true picture yet of what is yet to come," he said.
First National Financial Corp. reported a 34-per-cent drop in new mortgages out of its Calgary office in the third quarter – "the largest single drop in mortgage demand so far," CEO Stephen Smith said in an analysts call in October.
Both government-owned mortgage insurer Canada Mortgage and Housing Corp. and private-sector counterpart Genworth saw increased mortgage delinquencies from oil-sensitive regions in the third quarter. Genworth has predicted Alberta home prices could fall another 5 to 10 per cent.
While Equitable Bank's Mr. Moor believes the Calgary market in particular is set to improve this year, he has seen a shift in the types of homeowners who are struggling to make their mortgage payments. In the early period after oil prices began to fall, many were hourly oil and gas workers who had been downsized.
Over the past year, however, the bank has seen more self-employed borrowers and small-business owners struggling amid the broader economic recession. Mr. Moor has also seen more relationships break up because of the financial stress, causing some formerly two-income households to be driven into arrears.
"One of the biggest things that can impact mortgage payments is when the husband and wife aren't both working together to try and help pay the bills," he said.
The local real estate board predicts stabilizing oil prices should spell an end to future rounds of significant layoffs, convincing some employed Calgarians to jump back into the housing market.
Yet despite some positive signs in the market as new listings dropped in January, many expect the recovery will take time. "The transition in the housing market is going to be a slow process," Ms. Lurie said.