Buyer strains
still above historical norm
A home i n Calgary has become a bit more affordable, according to a report released Thursday by RBC Economics.

That’s attributed to a declining housing market along with a slumping provincial economy since the fall, the report says.

“Alberta’s affordability conditions have been improving since mid-2007 and continued to do so in the fourth quarter of 2008,” said Robert Hogue, senior economist at RBC.

The RBC affordability measure for Alberta, which captures the proportion of pre-tax household income needed to service the costs of owning a home, improved across all home segments.
Affordability in the fourth quarter of 2008 for detached bungalows in the province dropped to 39.3 per cent of pre-tax income from 42.9 per cent in the third quarter, the standard townhouse to 29.8 per cent from 32.1 per cent, the standard condo to 25.9 per cent from 28.2 per cent, and the standard two-storey home to 44 per cent from 46.4 per cent.

For the Calgary market, affordability of detached bungalows fell to 42.7 per cent from 47.2 per cent in the third quarter, the standard two storey to 44.5 per cent from 47.9 per cent, the standard townhouse to 33.8 per cent from 36.1 per cent and the standard condo to 27.2 per cent from 29.3 per cent.

The report said provincial home resale activity dropped to a 12-year low at the end of 2008, rebounding modestly early this year.

“In sharp contrast to the very tight conditions that have prevailed for years, there are now plenty of properties available on the market, causing sellers to further ratchet down prices. Despite this shift, affordability in the province has yet to return to historical averages and will remain an issue in the shortterm,” said RBC Economics.

The economic slump that ensued from the “sudden and precipitous” drop in oil and gas prices has thrown “more cold water” on Alberta’s top two housing markets: Calgary and in Edmonton.

“Already in correction mode since late 2007, housing market activity in Calgary and Edmonton contracted sharply during the second half of 2008 as the cancellation of major capital projects in the province’s energy sector and rising unemployment upset confidence, further cooling demand for housing,” said the report.

“Sales of existing homes tumbled in both cities starting early fall after showing some signs of stabilizing mid-year. This caused price declines to accelerate. At the end of 2008, prices in Calgary had dropped 12 per cent to 14 per cent from their peak and eight per cent to 20 per cent in Edmonton. With low sales-to-newlistings ratios giving the upper hand to buyers, further price erosion is likely to take place.”

On a brighter note, the report added, the correction is helping to restore some degree of affordability in both cities, although RBC’s measures still have a fair distance to go before returning to long-term averages.
The housing affordability measure has been compiled since 1985. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.

According to the Calgary Real Estate Board, average sale prices for single-family homes in Calgary metro peaked at $505,920 in July 2007 and for condos at $332,237 in May 2007, but have declined since then. The latest numbers showed single-family home sales averaged $420,354 in March while condos averaged $284,056 — both up from the previous month.

“Buyers will continue to have choice and affordability in this market,” said Bonnie Wegerich, real estate board president. “Competitive pricing will remain a reality of this market, but I think pricing is now showing some signs of stability.”

“Undoubtedly job insecurity might keep some potential homebuyers on the fence. But we should keep in mind that nearly 96 per cent of Calgarians are still working — one of the lowest jobless rates in Canada. Those who are confident in their job security can benefit from great affordability and record low mortgage rates,” she added.