Calgary House Prices Continue to Climb in 2014
Calgary’s housing market continues to be the hottest in Canada, which itself weathered the economic downturn better than most, and has come out of it with record growth. Calgary is coming off a record-breaking 2013 in which its luxury real estate market was the hottest in Canada according to a Sotheby’s International Realty Canada report.
Sales of luxury homes valued at $1 million or more soared 33% to 722, easily outpacing Toronto and Vancouver, whose luxury home sales increased 12% and 19% respectively. Montreal meanwhile actually saw a decrease of 8% in luxury home sales. Sales of ultra-luxury homes valued at $4 million or more also jumped in Calgary from 2 to 7.
"Rising international immigration and inter-provincial migration along with foreign investment in Alberta’s resource sector has put Calgary in an enviable economic position," the report said.
Average Home Prices Rising Fast
The report expected the trend to continue into 2014, with prices buoyed even further by a low inventory of luxury homes on the market, and first quarter results have certainly borne that out.
According to the Calgary Real Estate Board, the average MLS sale price of homes in the city rose 6.94% in February from a year ago, to $485,085, while the median price also climbed 7.80% to $425,000. The rates and increases for single-family homes were even greater. Average sale price was up 8.16% to $553,077, with the median sale price jumping 10.98% to $485,000.
According to a recent Financial Post study, the average home price in Calgary of $400,000 places it as the 6th highest average price among 20 North American markets analyzed. 
Calgary was surpassed only by Vancouver, Toronto, San Francisco, Los Angeles, and San Diego, while boasting higher average home prices than New York City, Boston, Seattle, Washington D.C, and Orlando, among others.
Meanwhile, sales in the Calgary luxury housing market continued at a record pace in 2014, with 79 luxury homes sold in March of this year, a new record for the month, and 186 total for the first quarter of the year, also a record for the period, putting Calgary on pace to top last year’s record sales. Overall home sales stood at 1,672 for the month, a 35% increase over the 1,230 homes sold in January 2013.
Canadian Housing Most Overvalued in World
The high average home prices in Toronto, Vancouver, and Calgary are indicative of a cross-Canada trend that places it as the most overvalued in the world according to several outfits.
The International Monetary Fund in November of last year released a report comparing the housing prices in multiple countries to the average rent prices there; a prime indicator of house price valuation. The IMF found that Canada had the most overvalued homes in the world based on that criteria, at 85% above the average. Other countries that ranked poorly included New Zealand, Australia, France, and the United Kingdom, while Japan, Greece, and Germany all scored favourably.
They’re not the only ones. Shortly after the IMF report was released, Germa
n bank Deutsche Bank released their own separate report on the global housing market which came to the same conclusions: Canadian real estate is the most overvalued in the world. The bank estimated that home prices in Canada were overvalued on the whole by a whopping 60%.
The IMF report did find that average house prices in Canada remained largely unchanged in the second quarter of 2013, while countries like Hong Kong, the Philippines, New Zealand, Switzerland, and the United States all saw significant increases for the quarter.
Mortgage Rates Wooing Buyers
Despite any fears that the Canadian housing market is overvalued (at least based upon the criteria used to generate those reports), the Calgary and broader Canadian housing markets are booming thanks to low interest rates, low unemployment, and favourable mortgage terms that are making it affordable (and preferential to renting) for Canadians to purchase their own homes.
In terms of mortgage payments as a percentage of income, Calgary compares favourably with other markets, despite higher average house prices. According to Numbeo statistics, Calgary homeowners devote 37.1% of their income to their mortgages. In Toronto it’s 55.08%, Vancouver sits at 69.43%, San Francisco tips the scales at 53.91%, and New York City checks in at 56.99%. Overseas, London is a hefty 110.6%, Paris is 112.11%, Berlin is 41.28%, Hong Kong is 170.65%, and Tokyo is 47.87%.
Of course, mortgages are still a major commitment even in Calgary, one of the biggest financial commitments most people will make in their life. Of particular deliberation for homebuyers is the choice between fixed and variable term interest rates, which either lock in the existing rates for the lifetime of the mortgage, or adjust over time based on the present market conditions.
Immigration Rules to Put Damper on Luxury Housing Market?
Recent changes to immigration policy unveiled in the federal budget in February could adversely affect the market for luxury homes in Canada, with wealthy poten
tial immigrants now being shut off from a once favourable immigration loophole that rushed them to the front of the “Welcome to Canada” line.
Previously, immigrants with $800,000 to spare were allowed to fast track their permanent residency applications, and these wealthy immigrants inevitably set themselves up with luxury abodes once permitted to do so. In China alone there were 45,000 such wealthy citizens waiting for their chance to become Canadian citizens under the program, according to the South China Morning Post, despite that country’s cooling economy and possible housing market bubble.
That was as much as six times higher than the number of wealthy Chinese citizens waiting to get into Britain, the U.S, or Australia through similar programs.
However few of these immigrants were actually contributing to the Canadian economy, and have instead been accused of driving up the home prices in the luxury market, which is ostensibly why the loophole was closed. Cooling the overheated Canadian housing market was a prime objective for finance minister Jim Flaherty. Whether the changes will have a noticeable effect on luxury markets in major Canadian cities still remains to be seen.
by Emma Harper
References
1. Financial Post. 2014. “How Canada’s new immigration rules could slow high end real estate sales”. Last modified February 12, 2014. http://business.financialpost.com/2014/02/12/how-canadas-new-immigration-rules-could-slow-high-end-real-estate-sales/
2. Huffington Post. 2014. “Calgary Hottest Luxury Real Estate Market In 2013: Sotheby's Report”. Last modified January 25, 2014. http://www.huffingtonpost.ca/2014/01/09/calgary-luxury-homes-market-sothebys_n_4565090.html
3. Financial Post. 2014. “North America’s top 20 housing markets: Vancouver, Toronto, Calgary among most expensive on continent”. Last modified March 5, 2014. http://business.financialpost.com/2014/03/05/north-americas-top-20-housing-markets-vancouver-the-most-expensive-on-continent-while-toronto-calgary-beat-new-york-city/
4. Calgary Herald. 2014. “Calgary poised to reach record highs for average home sale prices.” Last modified February 27, 2014. http://www.calgaryherald.com/business/Calgary+poised+reach+record+highs +average+home+sale+prices/9558531/story.html
5. CalgaryRealEstateReview. 2014. “Calgary Luxury Home Market Breaks March & Q1 Sales Record “. Accessed April 3, 2014. http://calgaryrealestatereview.com/2014/04/01/calgary-luxury-home-market-report-march-2014/
6. RossPAVL.com. 2013. “MLS Calgary Resale Market Starts 2013 on Up Trend”. Accessed April 3, 2014. http://www.rosspavl.com/2013/02/calgary-resale-market-starts-2013-on-up-trend/
7. CBC. 2013. “Canadian real estate most overvalued in world, study says”. Last modified December 12, 2013. http://www.cbc.ca/news/canada/toronto/canadian-real-estate-most-overvalued-in-world-study-says-1.2462374
8. International Monetary Fund. 2013. “Global House Prices Inching Up”. Accessed April 3, 2014. http://www.imf.org/external/pubs/ft/fandd/2013/12/picture.htm
9. LuxuryHomeMarketing.com. 2014. “China: Reversal of Fortunes?”. Accessed April 3, 2014. http://blog.luxuryhomemarketing.com/2014/03/china-reversal-of-fortunes.html
10. Money.co.uk. 2014. “How to Find the Best Mortgage Deals”. Accessed April 3, 2014. http://www.money.co.uk/mortgages.htm
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