The biggest reason why Calgary real estate prices haven't dropped like a stone

Here in Calgary, we have a front row seat to what’s been happening as a result of oil prices falling through the floor.  We’ve watched while downtown office buildings have started to empty as the unemployment rate has almost doubled.  There have been salary cuts, less spending going on in our stores and the sheer volume of sales in real estate is also down.

Yet despite the dreary news coming at us almost daily, real estate prices have hardly dropped.  Maybe a half percentage here and there.  It would appear that the only thing stable in our economy, relatively speaking, are home prices.  The average sale price in Calgary in the first six months of 2016 is $479,464 according to the Calgary Real Estate Board. Comparing this to the 2014 average that just .5% lower.  What is contributing to this anomaly?

Analysts have been wondering this as well, according to CBC News, which obtained a memo in this regard via a request for access to information.

The primary reason appears to be the fact that the majority of workers in the oil patch and related industries that were laid off weren’t actually permanent residents of our province.  They worked here but paid taxes elsewhere, they lived here but didn’t buy property – they rented or stayed in camps or boarded with perhaps friends and family.  This would minimize the pressure on Alberta’s economy and therefore Calgary’s real estate market.  The fact that the non-permanent residents have now been dispersed to other areas of the country has prevented the full force of the crash from hitting Alberta’s economy in general.

It was estimated that as many as 154,000 people from outside of Alberta were employed here and 70,000 to 80,000 of these people worked in other industries that supported the production of oil and gas, like construction.  It is thought that perhaps 56,000 workers have left.

Bigger impact on the rental sector

Referred to as itinerant workers, some of these folks understand Alberta’s boom and bust economy. Just ask anyone who worked up north in Alberta’s oil sands about where their fellow co-workers hailed from.  Kelowna and Kamloops in B.C.’s interior.  Nova Scotia, New Brunswick, and Newfoundland.  These folks still had families to support back home and lived in camps but more so, those that came out together as a family tended to rent rather than buy a place.   Or many workers would rent an apartment with roommates.

But the picture in Calgary is one of empty rentals. In April 2016 there are an estimated 21,000 empty rentals which is up from 8,300 in April 2015.  At a vacancy rate of 4.3% that’s the highest it’s been in a decade.  This is the first time in six years that the vacancy rate has gone so high, when more people left Calgary than arrived, a phenomenon known as negative net migration.

At the same time, the City of Calgary census recorded that the number of owner-occupied homes has actually increased to 323,000 which has helped analysts uncover the fact that all these people did indeed leave rental units and not homes they owned.

How long will we be insulated?

As Calgary moves into its second year of low oil prices, reality may start to set in as we move deeper into this year.  Recent recessions have not lasted more than two years and there may be some negative momentum the longer oil prices remain ultra-low.  The rental market will have an impact on housing prices at that point, when housing becomes super affordable – almost cheap – causing people in the housing market to rent rather than buy because it’s the flavour of the day.