The Alberta housing market: A crisis of confidence?

President , Bullpen Consulting
  • Mar. 4, 2015

Ben MyersWithout fail, someone asked me about “the Alberta situation” almost every day in February. How will the drop in oil prices influence the housing market out West, specifically Alberta?

For the longest time, I responded with “I don’t think it will be that bad”, but I certainly wasn’t saying it with conviction. My opinion of the Calgary market has changed drastically since my last RENX article on the subject.

A common theory regarding the oil price decline is that it marks the end of the “commodity supercycle” and value of oil will now stay lower for longer. This decrease in the price per barrel of oil is more about supply and less about demand, so various sources predict the recovery will be much slower than the previous demand-impacted decline in 2009.

I attended a Schulich Real Property event where Bental Kennedy chief economist Carl Gomez said the break-even point for many oil projects in Alberta requires oil to be priced from $70 to $80 per barrel, and we might not see that price for several years.

This gloomy outlook was particularly troubling for us, as we made big investments in high-rise towers with Lamb Development Corporation and single-family housing with Averton Homes last year. So I set about collecting as much data as I could from outside sources for my semi-annual Market Manuscript to get a better sense of the prospects for the Alberta market.

The Market Manuscript forecasting challenge

The Manuscript reports typically summarize the conditions of the national and metropolitan area housing markets in Canada, and I knew I was going to have trouble crafting my forecasts for Calgary and Edmonton this time around.

I supplemented my research by conducting a survey of the top real estate analysts and economists in the country. I came out feeling better about Alberta and Calgary than I did going in.

Calgary was red-hot last year with median single-detached pricing increasing by more than 11 per cent annually, rents jumping nearly eight per cent year-over-year, population growing by 3.6%, and the supply of completed and unabsorbed homes dropping to its lowest level in 25 years.

In the Market Manuscript I reported that many analysts think the Calgary market will simply return to more balanced market conditions coming off the booming real estate environment from 2014.

This current oil price decline looks very much like the situation in 1986 where there was a change in the OPEC policy and an oversupply of oil. Between February 1986 and December 1986, oil prices were down 49% annually on average, but the New Home Price Index was actually up eight per cent annually during that stretch.

However, most people remember the last decline where oil prices were down 50% annually between November 2008 and September 2009, and new house prices were down seven per cent during that same time period.

The difference between 2009 and 2015 is the U.S. economy is much stronger, the Canadian economy is not in a recession, there is no credit crunch, and interest rates are at historic lows. These factors should soften that punch to the gut that has temporarily floored the Alberta housing market.

A crisis of confidence?

I use the word “temporarily” because many analysts think the lack of housing activity is due to a crisis of confidence, as folks sit on the sidelines and wait to see what is really going on. People are going to wait for the dust to settle before making any major decisions like purchasing or selling a home.

In closing, I loved the perspective provided by mortgage brokers Jason Scott and Gord Appel, they compared February 2005 to February 2015. Ten years ago, oil prices were $48 US per barrel, the Canadian dollar was $0.81/US, the overnight rate was 2.5%, a fixed five-year mortgage was 5.6%, and there were 10,000 workers in the Fort McMurray camps. The Alberta market was in a boom.

Fast forward to February 2015: $52 US per barrel oil prices, $0.80/US Canadian dollar, 0.75% overnight rate, 2.8% fixed five-year mortgage, and 44,000 workers in Fort McMurray camps. So the sky is falling in the Alberta market?

As the veil of uncertainty is lifted and oil prices stabilize over the next couple months, look for fear to subside and the crisis of confidence to dissolve. I expect the desire and appeal of a brand new home will take hold of Albertans sooner rather than later.

For more on the data quoted above, please download the Spring 2015 Market Manuscript.

Fortress Real Developments

Fortress Real Developments is a diversified real estate development and investment company that partners with established builders and developers across the country. Fortress sources equity capital for the partnership, in addition to providing value-add services such as market research, structuring of debt, marketing, and other realty services.

Ben assists in evaluating both the market conditions and projects that Fortress is active in. Follow his blog posts and commentary on the Canadian Housing Market at or follow him on twitter at @BenMyers29


Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with land owners, developers, and lenders to better inform them of the current…

Read more

Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with land owners, developers, and lenders to better inform them of the current…

Read more

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