After a surprising performance in 2020, Calgary's housing market is expected to make modest gains this year — but some factors could temper its growth, the Calgary Real Estate Board reported Tuesday in its annual forecast.
In spite of widespread job losses and spiking unemployment rates that led to a "roller-coaster" for housing markets across Canada last year, they defied expectations and rebounded in the second half of 2020, the CREB said.
Calgary's sales were strong enough to nearly offset the initial losses it suffered due to the COVID-19 pandemic shutdown, though it didn't break records for sales or prices.
The market's momentum in 2020 was driven by low lending rates and pent-up demand, said CREB's chief economist, Ann-Marie Lurie, at the board's annual fiscal conference on Tuesday.
That momentum is expected to be carried into 2021, Lurie said, but she cautioned that market growth will likely be limited by ongoing fiscal hurdles.
"While sales are expected to rise by nearly five per cent on an annual basis in 2021, persistent economic challenges are expected to prevent stronger growth in our housing market," Lurie said.
What happened in 2020
After strong sales in January and February of last year, activity slowed to a crawl in the second-quarter — the first full quarter after COVID-19 began to weigh on the economy, the CREB said in its second quarterly report for 2020.
However, sales started to resume in 2020's third-quarter. As initial fears about the pandemic eased, people seemed to become more comfortable listing their houses again, Lurie said.
And by the fourth quarter, a surprising amount of growth led to the strongest sales the market has seen since 2014.
But that recovery was not reflected evenly across all property types.
According to Lurie, sales activity fell for apartment-style condominiums, while the gains were primarily driven by the detached market.
"One thing to keep in mind, despite the fact that we had those strong gains in the second portion of the year, it wasn't quite enough to offset those losses in Q2," Lurie said. "So levels of sales stayed relatively flat compared to ."
Supply and demand
Calgary has also struggled with too much supply relative to demand in the housing market since the price of oil crashed in 2014, Lurie said, which has caused prices to trend downward.
The third and fourth quarters of 2020 changed that: new listings fell by nine per cent, and the decline in supply moved the market toward more balanced conditions, the board reported.
Midway through the year, prices began to improve — driven by the detached sector, and not enough for a year-over-year gain when compared with 2019.
But in the context of 2020, Lurie said this is still notable.
"In some ways, it's very remarkable to see price gains when you're facing things like the worst recession that we've had in history, as well as double-digit unemployment rates. So the question becomes, what happened?" Lurie said.
Sales started to get traction toward the end of 2019 as mortgage lending rates began to fall, Lurie said.
And in 2020, spurred by COVID-19, the Bank of Canada made dramatic moves to reduce its overnight target rate to 0.25 per cent — a rate not seen since the 2008 financial crisis — and signalled it would be held there for several years.
It led to the release of pent-up demand, Lurie said.
"We feel that these lower rates are really bringing a lot of people back in the market."
Considerations and risks
These factors — a balanced inventory, lower lending rates and pent-up demand — helped spur the surprising performance of 2020's housing market, and the board expects those trends to continue with restraint.
But looking ahead, there are considerations and risks that Lurie acknowledges could destabilize the coming year.
Though the CREB is optimistic that prices are set to increase by over one per cent, and sales may rise by nearly five per cent, Lurie also expects factors to temper some of that growth — including employment challenges, the energy industry downturn and COVID-related uncertainty.
"The expectation is that our economy is not going to come back to levels that we had prior to the pandemic for at least another couple of years," Lurie said.
"So you'll probably have another roller-coaster year [in 2021] in terms of what's happening in sales, but overall we do expect that progression and some improvements."