Calgary's Property Market: A Boom Fueled by Flips and Condos, But Shadowed by Economic Risks

The Canadian housing market has witnessed a significant slowdown in recent months. However, Calgary, Alberta's largest city, presents a curious case. While national headlines scream of a cooling market, Calgary's property purchases, though lower than the 2022 peak, currently exceed those of 2021 and 2023. This unique trend is driven by two key factors: a surge in house flipping activity, an influx of out-of-province investors, and robust condo apartment demand.

House Flipping Heats Up the Market

House flipping, the practice of investors buying properties, making quick cosmetic renovations to improve their value, and reselling them for a profit, has become a prominent player in the Calgary market. Currently, house flipping makes up a significant 5 to 6 per cent of all purchases in the city. While this activity can contribute to short-term price inflation by injecting additional capital into the market, it raises concerns about long-term sustainability. A market heavily reliant on flipping can be susceptible to sudden shifts in investor sentiment, potentially leading to price volatility.

Condo Market Sees Record-Breaking Demand

Calgary's condo market is experiencing a red-hot buying frenzy. Investors and newcomers to the province are snapping up available units at an unprecedented pace. This high demand is fueled by several factors.

Firstly, Alberta has seen record population growth since mid-2022, with many newcomers seeking affordable housing options in urban centers.

Alberta Quarterly Population Growth 2024

Secondly, condo apartments typically offer lower entry points compared to detached homes, making them attractive to investors and first-time buyers.

Finally, a limited supply of new listings is further intensifying competition among buyers, driving condo prices upwards.

Underlying Risks: A House of Cards Built on Short Supply?

Despite the apparent boom in Calgary's housing market, there are underlying risks to consider.

The current price surge is primarily driven by a lack of available properties, not necessarily a significant increase in long-term demand.

With 24,000 homes currently under construction slated for completion in the coming months, an increase in supply could quickly tip the scales and lead to price corrections.

Furthermore, Alberta's economic outlook presents a cause for caution. The province's economic engine, the oil industry, has seen oil prices plummet from a peak of $110 per barrel in mid-2022 to around $50. This price drop is significantly below the break-even point of $72 per barrel for the Alberta government, raising concerns about the province's ability to sustain its economic growth.

This economic uncertainty is reflected in rising unemployment rates, with Calgary currently experiencing a 6.5% unemployment rate, one of the highest in Canada.

Calgary Unemployment Rate March 2024

Canada is planning to limit the number of temporary residents it lets in. This applies to international students, foreign workers, and asylum claimants. As of 2024, there were 2.5 million temporary residents in Canada, and the new limits will reduce that number by roughly 500 thousand (a 20% reduction in temporary residents). It is still unclear how a drop in Canada’s population from approximately 41 million to 40.5 million will impact rents and property markets.

Looking Ahead: Boom or Bust?

Despite these economic headwinds, Calgary's property prices are projected to rise in 2024 due to existing market momentum and relatively affordable housing compared to other major Canadian cities. However, the city's history of volatile property values, coupled with a shaky economic foundation, leaves it vulnerable to a potential market correction.

Calgary's housing market presents a complex picture. While short-term trends show a rise in activity, particularly in the condo and flipping segments, long-term sustainability remains uncertain. Only time will tell if Calgary's market can defy its historical volatility and navigate the economic headwinds ahead.