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Overbuilding, especially condo apartments, is still a problem in Calgary: CMHC

Calgary remains at a moderate level of vulnerability to its housing market, the latest Canada Mortgage and Housing Corporation (CMHC) housing market assessment (HMA) found on Thursday.

Calgary continues to show low evidence of market overheating, price acceleration and overvaluation. But the CMHC notes that overbuilding in Calgary moved from high in Oct. 2018 to moderate due to a drop in the annual purpose-built rental vacancy — to 3.9 per cent from 6.3 per cent — and a persistently-high number of finished yet unsold units.

“In the home ownership market, inventory levels remain elevated in Calgary. The bulk of this inventory is in condo apartments — roughly 43 per cent of it,” CMHC senior analyst James Cuddy told Global News.

“What’s interesting is inventory in apartments is the only segment of the market where inventory levels are coming down. With that being said, they still remain high.”

The high number of units for sale are affecting house prices.

“It puts downward pressure on prices, which is exactly what we’re seeing in Calgary.”

The CMHC said fewer people are buying homes due to high unemployment and low disposable income as the city and province work to recover from the 2014 recession.

But Cuddy said the housing corporation is seeing some positive signs in Calgary.

“Right across Alberta we’ve seen migration return to positive growth, in particular interprovincial migration,” the CMHC senior analyst said.

“This has definitely contributed to higher demand for rentals.”

The lower rental vacancy rates — 3.9 per cent in purpose-built rentals and 2.7 per cent in condo rentals — are directly connected to the challenges individuals are facing when trying to enter home ownership.

“[Vacancy rates] flows from the home ownership conversation, because right now in Calgary we’re seeing a shift away from home ownership towards the rental market partly because of these affordability challenges,” Cuddy said.

Cuddy also said increased migration to Alberta is driving up demand on the rental market in Calgary.

Impact of the mortage stress test

While some political figures have called for mortage stress tests to be modified from their current form — two per cent above the mortgage interest rate — Cuddy said OSFI’s B20 guidelines aren’t the only thing preventing people from home ownership.

“I don’t disagree that the stress test has had an impact on some borrowers. But given the way that they were implemented, they are particularly focused on reducing the share of borrowers who are highly-indebted — those borrowers who are seeking high loan of value mortgages.

“And there’s evidence to show that the share of mortgages going toward highly-indebted individuals is declining in Calgary and Edmonton.

“It’s very difficult to disentangle the individual effects when looking at an environment in Calgary and Edmonton where we have some real challenges in the economy and higher interest rates as well. Understanding the magnitude of the stress tests in terms of impact is difficult to assess.”

Calgary joins Edmonton, Saskatoon, Regina and Winnipeg as Canadian cities with a moderate degree of vulnerability in those markets.

“The HMA continues to indicate a high degree of overall vulnerability at the national level,” said Bob Dugan, CMHC chief economist.

“The degree of overall vulnerability remains high for Vancouver, Victoria, Toronto and Hamilton.”

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