Pace of construction still below 2014 levels: CMHC

A slight jump in single-detached and multi-family construction in Calgary last month fueled a month-over-month increase in housing starts, according to Canada Mortgage and Housing Corp. (CMHC).

Housing starts in the city were trending at 13,780 units in October compared to 13,050 in September. The trend is a six month moving average of the monthly seasonally adjusted annual rates (SAAR) of total housing starts.

"Housing starts trended higher in October as both single-detached and multi-family construction rose from the previous month," said Richard Cho, CMHC's principal of market analysis for Calgary. "Despite the increase from a month earlier, the pace of construction through most of this year has been below 2014 levels due to a rise in supply and a slowdown in migration and employment growth."

Will an increase in vacancy rates push down housing demand? 

Calgary has long had a reputation as a difficult place to rent – a reputation confirmed for much of last year when the city's vacancy rate hovered below one per cent.

Yet market uncertainty brought upon by oil patch woes have painted a much different picture in 2015, with Canada Mortgage and Housing Corp. (CMHC) reporting vacancy rates in the city as high as 3.2 per cent.

While good news for renters, it poses as potential bad news for home sellers, notes ATB Financial chief economist Todd Hirsch.

As Canada Mortgage and Housing Corp.'s market analyst for Calgary, Richard Cho is tasked with keeping tabs on the housing market in one of Canada's most dynamic cities.

CREB®Now caught up with Cho to talk about the economy, what's in store for Calgary's real estate sector and why he enjoys calling the city home.

CREB®Now: ?How are current energy prices affecting the city of Calgary?

CHO: A large part of Calgary's economy is tied to the performance of the energy industry. The decline in oil prices has posed some challenges for many oil companies, resulting in reductions to capital expenditures, hiring freezes, and layoffs. This has also impacted many other industries, from large companies to small business owners, that either directly or indirectly benefit from the energy sector. While there are still areas of Calgary's economy that are holding steady and creating jobs, overall economic activity is expected to slow down this year.

CMHC change will allow buyers to use more rental revenue as qualifying income

A rule change from Canada's Crown housing corporation may provide more fuel for Calgary's long-running debate on secondary suites.

Set to take effect Sept. 28, the change will allow homeowners to count 100 per cent of rental income from legal secondary suites as qualifying income applying for a mortgage.

Up from the current level of 50 per cent, Canada Mortgage and Housing Corp. said the changes were made after a review of the corporation's policy for treatment of rental income.

"It appears as though CMHC is making these changes to assist with affordable housing," said Nolan Matthias, broker at Calgary's Mortgage360.

Several factors contributing to more favourable conditions

Calgary's rental market is emerging as an early winner this year as the result of improved vacancy rates, added inventory and a more conservative appetite among buyers in the resale housing sector.

CREB®'s mid-year forecast update, released earlier this week, notes more choice and less upward pressure on rents has, and will continue to, impact the resale market as more consumers choose to keep renting.

An April report from the Canadian Mortgage and Housing Corp. (CMHC) showed two-bedroom apartment and row vacancy rates rose to 3.6 per cent in 2015 – the highest level since 2010 – from 1.5 per cent the year prior.

Several reports have sounded the alarm our real estate market is grossly overvalued, but industry watchers contend Calgary isn't poised for the big crash some are forecasting

Reports suggesting Calgary's housing market is over-valued, supported by recent price corrections, are missing many of the obvious indicators saying otherwise, say experts.

The metrics used to measure affordability simply do not back up the argument that Calgary's real estate market is highly overvalued and ready for a precipitous drop in home values, said Robert Kavcic, a senior economist with Economic Research BMO Capital Markets in Toronto.

"One of the (metrics) we look at is the average mortgage payment as a share of income, and right now that's a little bit above the long-run norm of 27 per cent at about 29 per cent," he said.

Dissecting the detached category

Sales activity declines in Calgary's detached resale housing segment over the first half of 2015 resembled that posted during the global economic crisis in 2009, according to CREB®'s mid-year forecast update.

Yet experts warn aggregate prices in Calgary's largest housing segment, which have started to fall, are being skewed by higher-priced markets, which experienced a more dramatic drop during the first half of the year.

"This year, we have seen sales decline in all price ranges. However, the decline in the luxury home market has been larger compared to lower-priced homes," said Richard Cho, principal of market analysis for Canada Mortgage and Housing Corp. (CMHC).

Detached sales totaled 6,203 units, a 25 per cent decline relative to the previous year, noted CREB®.

Calgary seniors have a new option for affordable living in the historic community of Inglewood.

Inglewood House is a three-story, 43-unit complex, said a release from Canada Mortgage and Housing Corporation (CMHC), complete with 10 studio and 33 one-bedroom apartments, five of which are barrier free. The project was a joint effort of the Governments of Canada and Alberta.