Saturday, December 5, 2020 / by Sergey Korostensky
“The frothiness we see in sales and construction are reflecting the much shorter term pandemic-related factors,” says Peter Norman, chief economist with Altus Group.
Speaking about Altus’s recent quarterly national report, Norman says the busy season this year — typically spring — got put on hold until summer, and pent up demand kept fuelling sales into the fall.
But Norman suggests demand will likely wane in the new year as the impact of the virus and the energy patch slump will again weigh heavily on the real estate market.
Overall, the report forecasts housing starts will trend downward nationally — though single-family home starts are expected to increase. The trend is somewhat similar in Alberta with sales and starts “suppressed” by COVID-19’s second wave. The difference here, however, is low oil prices are an added challenge, the report notes.
Specific to Calgary, Altus forecasts continuing weakness in home prices with declining sales and slowing starts next year.
Condominium resales are expected to be the biggest drag on the market. But single-family homes should continue to show strength. In particular single-family starts are expected to pick up as economic conditions improve later in 2021.
Buyers, eventually drawn back to the market by lower prices, will also drive the market in the second half of the year, the report notes.
That demand, of course, will spur construction. Altus forecasts starts for Calgary will be higher next: 9,375 new units compared with 8,350 in 2020 (forecast).
Despite the gloomy forecast for condos, one Calgary developer sees opportunity.
Ocgrow Group of Companies recently launched a high-rise condominium project, called Sola, near the city’s centre with an eye on future demand.
“What’s happened in the Calgary condo market recently is a number of condo projects have been converted to rental,” says Harish Consul, president of Ocgrow.
“That’s reducing the new supply of condominium product.”
He adds this positions projects like Sola well for sales next year as demand picks up as the pandemic’s impact diminishes through 2021.
Still the city will face challenges in the near-term as unemployment is forecast to remain elevated. Already low job growth has hurt interprovincial migration. At the same time international migration, another driver of housing, will remain almost non-existent until normal air travel resumes.“It’s myopic to say that if you have just one year of a pause in the pace of migration that it’s not going to have a spillover effect.” Norman points to the second quarter of this year seeing negative migration in Alberta for the first time in decades.
Challenges aside, Norman did say demand should remain strong for single-family homes with more buyers seeking more floor space.
Even more important for this segment’s demand are millennials, now the key demographic driving the single-family homes market in Calgary. Norman says the trend is similar across Canada, but more pronounced in cities like Calgary where prices are more affordable.
“The bulk of millennials have moved their way through the early stages of the housing system,” Norman adds. “And now they’re in their move-up phase and looking at slightly less dense parts of the city.”