Little Evidence of a Housing Bubble in Calgary

Calgary Herald -- There is not much cause for alarm about a housing bubble in Calgary despite the sharp growth in prices for the city’s resale market, says a new report released Monday by the Conference Board of Canada.

The board’s initial Housing Briefing: Bubble Fears Overblown report said improvements in energy markets have boosted sales in Calgary’s resale market, and the market is approaching sellers’ conditions. Sales have not fallen on a year-over-year basis since April 2011 and price growth accelerated sharply last year.


“Fears of a housing bubble hinge on the ratio of house prices to apartment rents and house prices to incomes,” said the report. “The Conference Board’s view is that while these ratios are high, they are also misleading. Better indicators of affordability are the ratio of mortgage payments to rents and mortgage payments to incomes, and neither presents much cause for alarm about a housing bubble.”

A recent report by RBC Economics Research said Calgary is one of the few markets in Canada where affordability conditions look better than their historical norms, despite continued price growth, and it’s keeping housing in the city attractive relative to other major centres in the country. The Housing Trends and Affordability Report said homebuyer demand in Calgary continues to benefit from attractive affordability levels, a hot labour market, a fast-rising population and a booming provincial economy.

The RBC affordability measures show the proportion of median pre-tax household income that would be required to service the cost of mortgage payments, property taxes and utilities.

In the fourth quarter, RBC measures for Calgary eased by 0.3 percentage points to 34.2 per cent for two-storey homes and by 0.2 percentage points to 33.8 per cent for bungalows. The measure for condominium apartments inched slightly higher by 0.1 percentage points to 20.0 per cent.

According to the Calgary Real Estate Board, month-to-date from March 1-20, the average MLS sale price in the city was $484,711, up five per cent from the same time last year while the median price has increased by 7.5 per cent to $430,000.

The conference board’s report said the ratio of housing starts to population growth in Calgary has been below its 20-year average in four of the past five years. Relatively high incomes have sustained demand for single-detached units in Calgary. But multiple starts are rebounding solidly.

“Although the 2013 flood hampered starts, skewing historical comparisons, developers enjoy decent prospects,” it said.

The board’s initial report assessed six major Canadian markets - Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montreal.
The report said that nationally, and in some local markets, Canadian house prices may be headed for a modest decline, but fears of a housing bubble are exaggerated.

“Mortgage costs, not just house prices, are the principal deciding factor for potential homebuyers,” said Robin Wiebe, senior economist with the board’s Centre for Municipal Studies. “Mortgage rates are expected to rise this year, but not dramatically, because the Canadian economy remains in a slow-growth mode.

“The housing market may be undergoing a correction in some regions and market segments, but it is more likely to be a soft landing than a bubble bursting.”