CALGARY - A new report from CIBC World Markets says price increases in mid- and high-priced homes are far outpacing those of lower-priced ones, which is making it increasingly more difficult for many Canadians to move up out of their starter homes.
“The value of bigger and pricier properties is rising notably faster than less expensive properties — widening the gap between starter home and dream house,” said Benjamin Tal, deputy chief economist at CIBC. “Regardless of what your starting point is, and by how much your property has appreciated, the desired move up target is getting further and further out of reach.”
The report said “gravity-defying” home valuations exacerbated by tighter mortgage insurance regulations have worked to price out a notable portion of the first-time homebuyer’ market while at the same time an “asymmetrical trajectory” of price appreciation is starting to “paralyse” the move up market.
The dynamic is also taking place in Calgary, said Tal.
“If there is a durable market, if you wish, I think that Calgary, and Alberta in general, seems the one,” he said. “Though I expect to see some moderation in activity in 2015 and 2016 in the rest of the country, especially when interest rates start rising, I do believe that in Calgary and in Edmonton the situation will not be as severe or not to the same extent. In fact, I would not be surprised if we don’t see any adjustment to prices.”
According to the Calgary Real Estate Board, so far in September until Sunday, the average MLS sale price for a residential property in Calgary was $489,040, up 4.14 per cent from the same period a year ago. The median price has increased 1.13 per cent to $424,750. Total MLS sales of 432 so far this month have risen by 8.27 per cent. Average annual MLS sale prices in Calgary have climbed from $256,327 in 2005 to $456,595 last year. Year-to-date until the end of August, the average price for 2014 was $482,185.
Ann-Marie Lurie, CREB’s chief economist, said salaries in Calgary tend to be fairly high.
“There are people whose salaries aren’t necessarily increasing by that much so it’s harder for them to get the next stage of the home. But then there’s other people who frankly their wages are increasing. They have those high levels and they’ve earned enough equity in their first home to move up. And we’ve seen that now,” she said. But if there isn’t as much price gains moving forward, it will be harder to build that additional equity, said Lurie.
Tal said most Canadians have followed a well-known narrative.
“You graduate from school, land your first job, get married, buy your first house, start a family, and after a number of years, move up to a larger house to accommodate your growing family,” he said. “However, there are many indications that this cycle that dominated the Canadian housing market for decades, is breaking.” He said the homeownership rate among Canadians aged 25-35 (first-time homebuyers) has fallen from 55 per cent in 2012 to the current 50 per cent. For those over the age of 35, the homeownership rate remained stable. “With limited move up options, it’s no surprise then that many Canadians choose to renovate their existing homes,” said Tal.
“Over the past five years, spending on home renovations as a share of total residential investment averaged close to 46 per cent—by far the largest share on record. Renovation activity will remain robust and, in fact, might accelerate in the coming years.”
By Mario Toneguzzi, Calgary Herald
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