As an economist at ATB Financial, I am a co-contributor of a daily economic newsletter called The Owl. I recently wrote an edition presenting a statistic that isn't covered very often and it garnered some attention and debate.
The statistic I'm referring to is the number of completed but unabsorbed houses. These are houses (single and semi-detached) that are freshly built that don't have a binding, non-conditional agreement made to buy or rent the house. I chose to report on this particular statistic because it can give us a good indication of where homebuilders may be going and gives us a different perspective on the real estate market.
Given the state of the current economy, it's no wonder why this article received attention. For one, many want to know where markets are headed, especially because we're facing a downturn here in Alberta. Second, the statistic is often overlooked -- because house prices and housing starts are more popular.
But, I think the main reason it garnered interest was because, in general, there are worries about Canadian real estate. Household debt is at an all-time high and interest rates are at the lowest levels seen in a generation. And there's also the fact that there are a growing number of newly constructed condos that remain unsold in some of Canada's largest cities (cost of housing in these same centres is also astronomical). There's just a lot of uncertainty in the markets. These worries are legitimate. And what my piece was highlighting was that there may be a growing concern with unsold inventory here in Alberta, too.
Armed with the statistics, I took to writing an article on new, but unsold houses in both Edmonton and Calgary. What exists is a large discrepancy in the amount of new, but vacant homes between Alberta's two largest cities. October's data shows that Calgary (381) has far fewer new but unsold houses than Edmonton (925). This is peculiar, given the jobs losses concentrated in Calgary, particularly in the professional, resource-driven occupations. Is this just a trend due to current economics or has it always been the case?
Well, over the past ten years, the difference in the amount of new housing available in Edmonton and the number of completed but unabsorbed houses in Calgary has been growing. In 2005, Calgary had approximately 166 more new but unsold houses on the market. Since 2006, Edmonton has had more. Why? Are current conditions causing this?
One reason for the discrepancy is employment-related. In other words, it is likely due to higher demand for new housing in the metropolitan region of Calgary because the city has been closer to higher paying, resource-driven, head office jobs. But there are other reasons...
Before I continue, this particular article was released the day before I attended a Canadian Mortgage and Housing Corporation (CMHC) conference in Edmonton. This was not intentional.
During a break at the conference, I checked my email and found a response to my Owl piece. It was from someone who had a different point of view. As the conference wore on, I received another e-mail with a different opinion. And then another. And then another.
In the first e-mail I opened, the writer suggested that I was misrepresenting the statistics. The reason for the discrepancy had nothing to do with demand or employment, they said, the difference was because of the political arena in Calgary. Current planning and land-use policies have stymied developers, causing less new lots and fewer opportunities to build new housing.
The others revealed that they thought the discrepancy says more about market volatility than it does about higher demand - a realtor at my table at the conference echoed this same sentiment.
So, which theory is it? Why does Calgary have fewer new, but unsold homes? And what exactly does this mean?
The truth is, all of the arguments are plausible. Even though I only included one answer in The Owl, this doesn't mean it's the only one. Like a good curry, there isn't one ingredient that defines the dish, it's a blend of all the spices and flavours. Is Edmonton less popular as a place to live than Calgary because of its proximity to higher-paying employment? Yes. Is land easier and less expensive to come by in and around Edmonton? Indeed. Are markets still trying to cope and find their feet in 2015? Certainly, but this may be the weakest argument, given that Edmonton has had more vacant homes than Calgary since 2006.
And so, like a delicious tikka masala or a tasty vindaloo, when all of the theories are tossed into the pan, a deeper, more realistic argument lands on our plate.
Looking into 2016 and into 2017, there are certain variables in place that may cause new inventory to rise, not just in Edmonton, but in Calgary too. Low interest rates (which will eventually rise), increasing unemployment and falling wages are just a couple of reasons. External forces are also at work (higher demand, politics and volatility). What the statistics and the difference of opinions confirm is that there is still a lot of uncertainty in the market and a lot of variables that factor into even sometimes overlooked statistics.
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