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Calgary may have been devastated by floods this summer, but it is increasingly looking like the high ground of the Canadian economy. While the Bank of Canada continues to maintain loose monetary policy in the face of "significant slack" overall, in Calgary things are tight as a drum.
Remember the housing slowdown that started in the second half of 2012 and continued well into 2013? That was a rest-of-Canada story. In Calgary, home sales increased by 8 per cent or more year over year in seven of the last 13 months, and only briefly dipped, by low single digits, in February and March. Last month, home sales were up by 27.5 per cent over the previous 12 months.
According to reports, more $1-million-plus homes sold in a single day last Friday – 12 – than ever before. Average prices in the month were up nearly 9 per cent. New listings were up, average days on the market fell sharply, and competing offers are driving prices as much as $100,000 over asking
Concerns about the dreaded "bitumen bubble" now seem like distant memories, and had little impact on Calgary home prices, which have consistently outpaced the composite MLS home price index since the start of 2005.
It's a seller's market, with sparse listings, a steady flow of newcomers to Calgary (which averaged more than 12,000 incoming citizens each year since 1987, more than twice the rate of Edmonton) and employers two years into a hiring spree and facing labour shortages everywhere. The city's rental vacancy rate is well below 2 per cent and likely to drop further after the displacement of thousands of people following the floods. Furthermore, sizable salary increases are coming to the oil patch next year, according to a recent Mercer compensation report.
That reflects firming dynamics across the oil patch. Opposition to new pipelines that would ship Alberta crude oil to Asia and the southern U.S. may not bode well for long-term growth, but $100 (U.S.)-plus-per-barrel oil and a declining discount on the price of Alberta oil to international benchmarks (causing the aforementioned bitumen bubble) means the sector is on track for one of its best years ever.
Warren Buffett's Berkshire Hathaway Inc. recently bought 17.7 million shares of Suncor Energy Inc. – a large vote of confidence by the world's best-known value investor in the oil patch. Meanwhile, Brookfield Office Properties is about to start building a 247-metre tower in the heart of Calgary, with Cenovus Energy Inc. serving as anchor tenant. That's a reminder that Calgary's status as a head office haven is secure – particularly after the federal government sent out the message late last year it will largely protect the patch from large-scale foreign takeovers.
Calgary has held up well in the wake of the great recession, softening prices for other commodities and the bitumen bubble. But that shouldn't fool anyone into forgetting that the city's success is fragile and ever at the mercy of a sharp, sustained drop in oil prices. Add in other challenges, including a chronic infrastructure deficit, a provincial government with a dubious record for fiscal management and a lack of economic diversification, and don't be surprised if Calgarians are just a little less cocky about their good fortunes compared with the rest of Canadians. Many remember well when the shoe was on the other foot.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.
Sean Silcoff