Real Estate Market Surges On Despite Oil’s Volatility

A lot has been written lately about the effect of the price-drop in the oil market on Canadian communities dependent on revenues from the oil sector, but recent studies and outlooks about the housing market in the coming months may indicate that all is not as dire as it seems.

First, some history. The global price of oil started to slide dramatically toward the end of 2014, leading some communities such as Calgary and Edmonton, and provinces such as Saskatchewan and Newfoundland and Labrador, to see a sharp decline in the housing market, in terms of the availability of resale homes and new purchases.

Toward the end of 2014, analysts were predicting a slowing real estate market in those provinces and cities, but were optimistic about the market in Ontario (and most notably Toronto) and Quebec (predominantly Montreal) thanks to the effect the price of oil has had on the decline in gasoline prices. For some time, many have predicted a soft landing for the market as interest rates rise and people hold off increasing their debt load.

Fast forward to the first month in 2015, and we’re seeing a softening of the stances that were taken at the end of last year.

Oil prices have started to rebound (as they always do), gas prices are starting to creep up (it never ceases to amaze me how slowly they drop, but how quickly they rebound), mortgage rates are poised to stay relatively low for the rest of the year and maybe beyond, and the housing market is soldiering on.

First of all, the jobs may not be dwindling as quickly or drastically as initially thought. A recent forecast by CareerBuilder.ca projects job growth in certain large markets by the end of this decade, and sees Edmonton as the big winner, with an eight percent projected growth in employment. Calgary is next up with seven percent projected growth, followed by Regina and Saskatoon (six percent each). Toronto, Winnipeg and Vancouver (each at five percent) are tied for fifth, with Montreal, Ottawa-Gatineau and Quebec City (at four percent each) rounding out the top 10.

So, the jobs in the oil sector may not be disappearing as quickly as once thought. And what does that bode for real estate? The notion is that housing prices won’t rise as dramatically as they did in 2014, but they are predicted to fall well shy of a decline, at least in the short term.

“As we look out to 2015, we forecast home prices in Toronto will rise by 4.5 per cent, compared to the 7.5 per cent we saw in 2014,” Phil Soper, president and CEO of Royal LePage, told industry professionals at an Empire Club of Canada lunch in Toronto. “We believe the slowdown would have been more dramatic if it had not been for the drop in the price of oil.”

The Canada Mortgage and Housing Corporation (CMHC) shares that guarded optimism, forecasting increases of 1.5 percent in the prices on the Multiple Listing Service (despite a break-even point in the year-to-year number of listings). It also expects housing starts to drop by one percent in comparison to the past year, and similar numbers to play out in 2016.

Royal Bank of Canada economist Robert Hogue generally agrees with that outlook for 2016. Like Soper, Hogue forecasts prices rising by 4.3 percent through 2015 as interest rates remain low, but he also shares the CMHC vision of MLS prices increasing (by 1.1 percent) and a decline of one percent in new starts under the possibility of a rate hike towards the end of 2015.

So it looks like a “wait and see” kind of year, but there’s no denying that there’s a lot of opportunity there for growth, even with the uncertainty of what lies beyond this year.