CALGARY — Firm oil prices should keep Calgary’s economy and housing market healthy this year and next, although risks remain, according to a housing market report released Thursday by the Conference Board of Canada.
“The main risk to Calgary’s economy and, in turn, its housing market is the prospect of a global economic slowdown,” said Robin Wiebe, senior economist with the Centre for Municipal Studies with the board, who authored the report. “Oil prices move closely with International Monetary Fund estimates of world economic GDP. IMF forecasts of decent global growth are positive for Calgary’s economy and housing markets, but U.S. recession, greater-than expected slowing in China or an economic meltdown in Europe could rapidly sour this outlook. For now, though, this oil-greased market is sliding decently.”
Wiebe said Calgary’s oil-fuelled economy and housing market are recovering from the 2008-2009 recession that featured a short-term plunge in oil prices.
In June 2008, the price of a barrel of West Texas Intermediate, a benchmark oil grade, exceeded US$ 130, twice its year-earlier level and a tenfold increase from a decade earlier. In line with this rapid expansion in oil prices, Calgary’s Gross Domestic Product expanded 24 per cent between 2003 and 2008, said the report.
“For most of this timeframe, the unemployment rate was unsustainably low, hovering around three to 3.5 per cent. The population surged 16 per cent between 2003 and 2008, roughly three per cent annually, as newcomers flocked to benefit from Calgary’s beckoning job market. Demand for accommodation soared. Housing starts exceeded 17,000 units in 2006, almost twice the 20-year average, and resale prices roughly doubled between 2003 and 2007,” added the report.
But the global recession hit and the oil boom ended dropping the price of oil to below US$ 40 a barrel by February 2009.
“Fallout from this collapse included sagging employment in 2009 and 2010, a five per cent drop in real personal income per capita in 2009 and a record 4.1 per cent drop in Calgary’s GDP that same year. Slowing population growth slashed residential demand. The housing market’s exuberant fiesta left a nasty hangover. Monthly average resale prices fell an average of 10 per cent on a year-over-year basis in the six months ending May 2009 and the level of housing starts in 2009 was barely a third of the 2006 peak,” explained the report.
But Wiebe said the energy sector has rebounded and oil prices are expected to increase in 2013.
“As should be expected, the rebound in oil prices brought new life to the Calgary economy. Its GDP rose five per cent last year, spurring a three per cent employment gain after two years of losses. Population growth is forecast to hit a three-year high of 2.5 per cent in 2012 after dropping to a 16-year low in 2010,” he said.
“Still, the recovery in housing markets has been fitful. Weighed down by high inventories, both new and resale markets struggled in 2009 and 2010. But both markets have since shown signs of improvements. Resale transactions rose seven per cent last year and appear set for a double-digit gain this year, although the level of activity will not be anywhere near boom-era levels.
“This strong increase in sales has lifted the sales-to-active listing ratio significantly, a sign that the existing home market has become tighter. For now, it remains in a balanced position, with year-over-year price growth averaging a modest two per cent over the past six months. But we expect price growth to accelerate, in line with our anticipation of continued increases in sales.”
The report said the market for new homes is also looking up, driven by surging starts of multi-family units.
“Through July 2012, multiple starts were already triple their 2009 trough but still well off the 2008 peak. Single starts have been more uneven, rising in both 2009 and 2010, before pulling back in 2011. Still, year-to June volumes were up a healthy 20 per cent from a year earlier,” it said.
“The new construction market is demographically secure, thanks to healthy population advances. The ratio of total housing starts to population growth has been near its 20-year average in each of the last two years, after trailing it in both 2008 and 2009. The tighter resale market also bodes well for housing starts next year.”
Meanwhile, new home prices in the Calgary census metropolitan area in August rose by 2.4 per cent compared with a year ago, reported Statistics Canada on Thursday.
The federal agency said the New Housing Price Index also increased by 0.3 per cent from July in the Calgary region.
At the national level, the NHPI was up 0.2 per cent on a monthly basis and by 2.4 per cent year-over-year.