April 2022 Market Update and Breakdown
"We are starting to see significant drops in some communities of more than 20 percent for single-detached homes in the Greater Toronto Area (GTA)” said Michael Carney, the director of business development at HouseSigma.
Now you might read that headline from a few days ago and think to yourself the end is here. If you are a buyer, you are hoping and pleading for this news to be true to give you some kind of breathing room in a market that is significantly stacked against you.
And for you sellers, maybe the boat has sailed and your chance to get on has come and gone.
Whether this statement is going to be verified by the GTA real estate board or not is yet to be seen, but the sentiment around it has hit real estate across the country.
Why is this important to Calgary?
Our latest sales data is in for the month of April, and much of the same mentioned above is happening here.
Let's get into the details.
To start off, let's take a look at the market as an aggregate and the current absorption rates.
Now I know what you are thinking. If that's not a definition of a cliff, I don't know what is.
The market as a whole dropped 21% month over month in terms of sales of active listings in the month of April. Driven predominantly by buyers and the significant drop in the number of sales in the month.
In the month of April, we saw the number of listings increase by 9%, while the number of sales decline by 17%.
This is a significant change bringing our current absorption rate to 67%, which in comparison is slightly better than our 61% back in December 2021, prior to the take-off of the market in January this year.
In terms of pricing, we have median prices change slightly.
For apartment condominiums, we are carrying the same story forward.
The current absorption rate for apartment condominiums is 49%, which has dropped 14% from the previous month. This decline is also driven by lower demand, with sales dropping 17% while new listings increased 8%.
This segment of the market is still performing significantly better than any time in the last two years and still can be an opportunity for sellers that are wanting to move up or offload an investment.
As we have seen there has been a significant shift in the sentiment in the market and buyers are either feeling a pinch to slow their activity in the greater Calgary market.
Why that is is what we will dive into next.
So maybe that headline above wasn't so far-fetched. In Calgary, we are no stranger to swings in the market and this might be a time when we are starting to see the boom of real estate investment in Calgary start to slow.
So what changed so significantly in April that completely halted all the headlines of a red hot market in Canada?
It's the same thing any news outline you turn on will be speaking about.
Inflation and the Interest Rates!
Housing in Calgary is like any other good or service in our economy, which is also subject to inflation. Just like fuel, groceries, and other consumable goods. The past 4 months have been significant increases in the inflation of the price of housing in our country, and despite not much changing in Calgary, we were also caught in this wave.
But what deters inflation is hikes in interest rates. Particularly the Bank of Canada's rate to increase to 1.0%. This increased the prime rates for most lenders to 3.2%. Making your variable interest rate more expensive, but still lower than current fixed rates.
The media frenzy about these increases is what stirred up a lot of interest in our housing market in the first quarter of the year because those with pre-approved fixed rates needed to take action before that rate holds expired.
The part the public seems to miss is that fixed rates are determined on the free market and are based on the 5-year Canada bond yield market. So if this market has sentiment about increasing rates, what happens to the rate? They increase.
The increase in both the fixed and variable rates reduces new buyers' purchasing power, making their approvals come lower than what they need. Particularly those that want a fixed rate, since they have to qualify at the contract rate + 2%, not the benchmark of 5.25%.
So what happens when purchasing power declines? The waiting game starts.
And this is where most buyers are. They might decide to stay in their rental another year to see what happens with prices and might start looking at lower-cost homes like townhomes (which saw an increase this past month).
Or, and this is where I'd like you to keep an eye on, the interest rate changes from the Bank of Canada.
They have already put out feels to the media advising of a 1% increase to their rate come June. Now whether they actually do this or not is yet to be seen. But to put this increase out there has already changed sentiment in the market.
And maybe that is their goal. Slow the market with a rumour before actually making that big of a change.
The BOC has tried for years to increase rates but has not been able to do so. There is also evidence that when they increase too fast, they have had to claw it back because it triggers a recession in the economy.
If this is the case, the variable rate option is the way to go.
As we see more and more management of inflation measures in the economy we will see less free and accessible money in the economy that can be used for all kinds of items, housing included.
This will make new buyers second guess whether now is the best time to purchase their next home.
I hope this breakdown and market update was useful for you to navigate the waters of our real estate market. If you have questions about real estate or mortgages, feel free to email me (link is below) or reach out by phone at (403) 354-5664 or on social media. I'd love to help.
Here are some of the services I can now provide:
Buying and selling real estate
Refinancing and debt consolidation mortgages
New purchase mortgages
Have a wonderful month ahead!