Have you gotten your city property assessment notice yet? I got mine, and the news is not great.
My property in Calgary, like most of yours, saw another year of erosion – a trend that started in the wake of the 2014 crash in oil prices and subsequent tsunami of job losses.
The aggregate home price in Calgary decreased 2.3 per cent year-over-year to $469,916 in the fourth quarter of 2019, RBC reported in the past week. The decline in the median price of a condominium was even worse: down 6.9 per cent year-over-year to $265,488.
The crash in property values, combined with the hollowing out of office space in downtown Calgary, has played havoc with city taxes. Council has been so slow to respond, their inaction triggered an uprising of small businesses in the downtown area when tax bills went through the roof last year.
This year, even as our properties continue to slip in value, taxes on houses are going up way more than the rate of inflation. Why? Because there aren’t as many head offices downtown to do the heavy lifting on property taxes.
But whither us poor homeowners across the city? When are our houses ever going to up in value at a rate that matches our tax increases?
The answer might surprise you, because it’s not – at least not exclusively – the economy.
House values are just as much influenced by the law of supply and demand. When there is more stock than there is demand, then it’s a buyers market. Buyers can, and do, expect lower prices, and those who must sell are forced to eat a loss of five or even six figures. When the supply is more limited, then buyers can hold out for better offers.
It should not come as a great shock to anyone that Calgary has an oversupply of houses for sale.
The trick – the fine balance – is to try to control the number of houses that come on the market. If a bunch of new homes with shiny new features flood onto the market just as I’m trying to sell my 20-year-old suburban home, then guess who will be the loser. Both of us, really – the used home seller and the builder, who may have to cut prices or add incentives to move their product.
The problem is that home builders cannot turn production on a dime. Developing a subdivision or condo complex takes years of planning and navigation through a labyrinthine city approval process. Simply put, you cannot order up a thousand new homes and have them on the market as fast as a Big Mac.
So if you want to know what’s going to happen to your property values, sure, watch the economy. But keep in mind the economy drives home values, because when the economy is healthy then a lot of people want to move here. In other words, the supply has trouble keeping up with demand.
But also watch housing inventories. CREB, the local real estate board, measures “months of supply.” Simply put, that means, at current sales rates, how many months would it take to sell out the supply of homes? The news in 2019 was slightly better than the year before – they are 4.09 months of supply in detached homes compared to 4.44 months of supply the year before.
What I don’t understand, however, is what’s happening in the condo market. CREB calls them “apartments” and it noted their supply is 6.69 month’s supply this year – a great deal more oversupplied than single family homes.
And yet we’re building more of them – a lot more. The Canada Mortgage and Housing Corporation reported in the past week that single-detached starts of 352 in the Calgary census metropolitan area were up by 58 per cent from December 2018. In the ‘all other’ category, which includes condominiums, the increase was 479 per cent to 1,778 starts.
So, in defiance of the law of supply and demand, builders are bringing a lot more units onto the market, even as we struggle with oversupply and demand. Meanwhile, sales are hampered by both a sluggish economy and rigid mortgage stress test criteria which make it tough for young buyers to get into the market.
There are forecasters out there that predict Calgary and all of Alberta will see the beginnings of an economic rebound this year. It’s hard to imagine, however, how the house market will fare until we stop building more housing units than we need.
– Doug Firby is Editor-in-Chief of Calgary’s Business