The Truth About Our Inventory Shortage in 5 minutes!

Updated: Jan 8

December 2021 Market Update and Forecast


As I'm writing this post this morning on the 4th of January, I'm still sitting in a bit of shock on what some of the results I've seen this past month in our market.


My honest first reaction to these numbers was literally, "holy crap!" (with a bit more profanity 🤐).


My second reaction was what am I supposed to share with you the reader in terms of the breakdown of this and how we can see a change in the market to make it favourable once again for the activity in the market to become balanced.


But here is my take on what we are seeing this past month and where we might be heading depending on a number of different factors.


Aggregated Residential Absorption Rate

The chart above illustrates how our market has been performing in terms of supply and demand for the last three years through the line representations. In December 2021, we have hit the highest peak in the Calgary market in the last 3 years.


The current absorption rate for Calgary, for all residential segments, is 61%. At this time last year, our market was around 30%, and in 2019 was 17%.


We are now at a point where our listing inventory is behind the demand for buyers, creating a shortage in the market. Nearly 2 in every 3 homes in Calgary is being sold.


And the alarming part of this trend is that this isn't due to low-interest rates, which are now hovering around 2.7% for a fixed 5-year term. This is a very different activity than what we saw in the early part of 2021 (March and April) where the interest rates were at historic lows.


What Is Driving The Demand?


The Bank of Canada (BOC) is of course in need of increasing the interest rates this year to manage the cost of inflation. That is no secret. However, the sentiment is that this increase will happen much soon than has been forecasted.


From recent reports out of the US, the Federal Reserve is looking to increase the rates within the next two months. Now, this doesn't mean our BOC will do the same since our inflation issues aren't as severe as in the US, but it is an indicator of things to come.


For our housing market, this means benchmark lending rates set by the BOC will increase, which will then be passed along to the consumer through the lending rates issued by mortgage providers. This potential of an increase has buyers currently trying to take advantage of the purchasing power they have right now to get into a home that fits their needs. If that is not possible, they may be forced to look at other segments outside of single-family homes. But this option might be better now than paying significantly more in compound interest.


Omnicron has also created issues for certain areas in our country. Ontario is currently heading into lockdowns and school closures and if that is the case, I'm sure here in Alberta we might not be far behind from that.


COVID is still a significant hindrance to our market. It affects our ability to increase supply to the market. Home sellers will not list their homes if cases and hospital rates are increasing. And those that are planning to sell their home during this time to take advantage of the market need to have a clear plan on what they will do when it sells so that they aren't faced with the issue of not having a place to go.


What Is Q1 Of 2022 Going To Look Like?


Ideally, if we are looking at the market in a bubble we would be seeing in the first quarter of this year more supply, a higher demand as buyers would like to have more selection to choose their next home, and the weather will be warmer to allow more activity in the market.


But that bubble doesn't exist. Rather we have increasing case counts, staggering low inventory right now and the potential for higher rates. I would suspect that buyers that are waiting to find that perfect home may be out of luck in the springtime as the supply issues will remain. From my experience with the buyers I'm working with, the sentiment is that waiting for the spring market will solve supply issues. All indications right do not lean to this being the case. Builders are having labour and land issues and also have an extreme shortage of lots available.


If I were to estimate the market heading into this quarter, I would expect the trickle-down effect of the hot single-family market to make an impact on townhome and apartment condos. I would expect as buyers run into barriers such as completing offers for single-family homes they may start turning towards townhomes or apartments for their short-term housing needs. We have already seen an increase in the absorption rates for apartment condos (as illustrated below)


Calgary Apartment Condos Absorption Rates

I would suspect this trend to continue into next year.


I would also estimate that unless there is a significant change in the supply issues we have here in Calgary whether it be through new development, government policy, or other forms, there will not be a significant change in how our market is currently operating.


We could see an increase in the supply of resale homes if Omnicron is under control and more and more sellers are open to selling their homes during this time. But for this, time will have to tell how that will develop.


If you have questions or would like to learn more about the market, your buying or selling needs. Reach out to me via email at aly@calgaryareahomes.ca or give me a call at (403) 354-5664.


Finally, if you'd like to get instant updates in your email for when we post our latest breakdowns to stay ahead of the market, join our network by clicking here.


As always, thank you for your time. I truly appreciate it and it's a privilege for me to be your real estate resource. Stay warm.


Aly

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