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Alberta housing market braces for worst year since financial crisis

Alberta’s real estate market is bracing for its worst year since the global financial crisis as hopes dim that an economic recovery can stave off a broad housing correction.

In Calgary, homes prices are expected to fall 3 per cent this year, according to a new forecast from real estate firm Royal LePage, as job losses mount, vacancy rates rise and sellers adjust to the reality that their homes aren’t worth what they were even a year ago.

Prices should fall 2 per cent in Edmonton, which until recently had been shielded from much of the energy sector’s woes.

Alberta’s residential market ended 2015 on a dire note as housing starts plunged 39 per cent in one month in December to four-year lows, Canada Mortgage and Housing Agency reported this week.

Bank of Montreal economist Robert Kavcic called the sharp drop in new home construction a delayed reaction to a weakening housing market. “The precipitous drop in Alberta building activity now appears to be reflecting much weaker demand conditions in the province,” he wrote.

National Bank economist Marc Pinsonneault predicted housing starts would drop below 30,000 for the first time in five years in Alberta this year.

In some ways the pain now spreading across Alberta’s housing market is overdue.

Even as oil prices plunged and job losses piled up in the energy sector, the province’s housing market proved surprisingly resilient in 2015. Prices fell in some segments of the market, such as condos and luxury detached homes, while rising among less expensive detached homes.

Overall, Calgary saw average resale prices rise at an annualized rate of 0.3 per cent in the fourth quarter of year to $459,809, according to the Royal LePage analysis. Prices also rose 1.6 per cent in Edmonton, hitting an average of $389,502.

Many sellers simply refused to lower their prices last year, said Royal LePage chief executive Phil Soper, instead opting to wait out what many hoped would be a temporary downturn in the economy. That helped push sales down 26 per cent in Calgary last year, even as home values stayed relatively flat.

“It’s really hard for homeowners to get their head around the fact that their home might be worth less than they thought,” Mr. Soper said. “People just said I’m not selling at a discount.”

Yet as oil prices dropped below $30 US a barrel on Tuesday for the first time in more than decade, sellers are realizing that their property values likely have further to fall. Mr. Soper predicts that sales will rise in Calgary this year even as prices fall as move-up buyers opt to take a hit on selling their homes in hopes of getting a good deal on a better property.

Royal LePage said it expects Canada’s housing market to cool somewhat this year, with home prices growing at an annualized rate of 4.1 per cent this year, down from 6.5 per cent in the fourth quarter of last year.

Alberta’s woes will weigh on the national market. But Mr. Soper also expects the sizzling markets of Toronto and Vancouver to lose some steam this year. Home prices should increase 5.5 per cent in Greater Toronto and 9 per cent in Greater Vancouver, well below last year’s levels as buyers get pushed to the sidelines by a lack of affordable options.

“I’d expect 2016 to be a bit of a breather, particularly for Vancouver, which really did experience an overheated situation in 2015,” he said.

After several years of soft sales and prices, Quebec’s should prove a rare bright spot in an otherwise cooling housing market as the province’s export economy gradually recovers and the province loosens up on its fiscal belt-tightening.

The cool-down comes as mortgage rates have begun to creep up. Last week, Royal Bank of Canada announced it was hiking its discounted fixed rate mortgages by 10 basis point (1/100th of a percentage point) pushing up its five-year rate to 3.04 per cent, while raising variable mortgage rates by 15 basis points.

Several other banks responded by selectively raising rates on some mortgages over the past several days. National Bank hiked its discounted five-year fixed rate mortgage rates to match RBC, while increasing variable rates by 10 basis points. Bank of Nova Scotia said it was raising variable rates by 10 basis, but was not offering any rate specials on fixed-rate mortgages. Canadian Imperial Bank of Commerce hiked three and four-year fixed-rate mortgages by 10 basis points to 2.59 per cent and 2.84 per cent respectively, but left its discounted five-year fixed rate unchanged at 3.19 per cent.

Mortgage rates aren’t like to rise significantly amid a cooling market this year, Mr. Soper said, particularly if the Bank of Canada ends up slashing its key overnight rate again later this month.

“Over all we’ll probably see less mortgages written in Canada this year than last and that means the banks will be fighting for market share,” he said.

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