CALGARY, Alberta, March 5 (Reuters) - A year ago, one of the hottest parts of Canada’s red-hot housing market was Alberta’s oil capital of Calgary, where cash-rich consumers fought for the fanciest home on the block. Now, a plunge in crude prices is pulling the housing market with it.
While realtors in Calgary are loathe to admit the tide has turned, sellers are no longer in the drivers’ seat and buyers are biding their time in hope of a real estate slump.
Sales in Calgary, the corporate center of Canada’s oil industry, were down 34 percent in February compared to the same period last year, according to data from the Calgary Real Estate Board. Meanwhile, the price for benchmark U.S. crude oil has more than halved since last June.
Active listings have more than doubled since February 2014 as homeowners hurry to get their homes on the market before jobs losses hit hard and prices sink further.
The price for the average Calgary home dropped 4.3 percent from a year earlier to C$462,108, the largest year-on-year drop since July 2009. February’s drop was the second consecutive monthly decline in year-over-year prices, and the first back-to-back slide since June and July of 2011.
It is a rare decline in a country that has seen home prices climb steadily for more than five years and double in the last decade.
In contrast, the Greater Toronto Area saw average year-on-year selling prices rise 7.8 percent in February and homes sales climb 11.3 percent, according to the Toronto Real Estate Board. Active listings for the month fell 8.7 percent compared with February 2014.
“We have a plethora of houses, it’s like a beauty pageant of beautiful houses, out there on the market. We know there are lots of people wanting them, but they are waiting,” said Shirley-Anne Jacques, owner of Parkhaven Designs Inc, who has been building houses in Calgary for 27 years.
Parkhaven Designs, which typically builds four to seven homes year in the C$2 million-plus bracket, will shift its focus this year to build apartments and triplexes instead, she said.
Morrison Homes, winner of Calgary’s ‘Builder of the Year’ in 2013, is offering a lowest-price guarantee to reassure nervous customers. If the value of the new home falls between the time it is bought and move-in day, Morrison will honor the lower price.
“What we are trying to address with this is consumer confidence,” said Morrison Homes sales manager Mike Wagner.
In Altadore, an upscale neighbourhood in southwest Calgary, one prospective seller said she and her husband were unwilling to take less than the C$855,000 they paid for their four-bedroom house in 2007.
The mother of two, who declined to be named, said they decided to sell last summer because they thought the Calgary housing market was overvalued, but delayed after her husband lost his job as a general manager at Devon Energy Corp.
“We discussed it with realtors and they did not think prices were going to fall,” she said. “Looking back, I wish we had sold in the summer.”
The Alberta government expects the unemployment rate to rise to 5.4 percent in 2015 from 4.7 percent in 2014, while the Canadian Association of Oilwell Drilling Contractors warned in January 23,000 jobs could be lost as a result of decreased drilling activity alone.
CIBC World Markets economist Nick Exarhos expects around 30,000 to 40,000 jobs to disappear in Alberta this year, a figure echoed by the Alberta Treasury Board and Finance Ministry, and the province’s unemployment rate to converge with the national average around 6.8 percent.
In Calgary alone there are 1,700 energy businesses and between 70,000 and 75,000 people working directly in the oil and gas industry, according to the city’s Chamber of Commerce.
That organization estimates 10,000 to 12,000 of those jobs could be at risk due to the oil price drop, and those numbers do not include sectors linked indirectly to the energy industry, such as finance and infrastructure.
Among the companies headquartered in Calgary, Suncor Energy and Precision Drilling Corp have already cut employees as well as contractors.
“If we start to see full-time job losses and people cannot replace those jobs, that’s when it really starts to have downward pressure on the housing market,” Calgary Real Estate Board Chief Economist Ann-Marie Lurie said.
It all comes down to oil. The price for benchmark U.S. crude oil has dropped to just over $50 a barrel from more than $100 in June. If it remains around $50 or falls further, as some economists have warned it could, house prices are likely to slump further.
And the chill is also spreading beyond Calgary.
In Canmore, a pretty mountain town about an hour from Calgary popular for second homes and a short drive from the Sunshine Village ski resort, sales are slowing. Realtors alternate between guessing how bad it will get and rescue scenarios involving wealthy foreigners and a weak Canadian dollar.
“I do not think it will hit us as hard as 2008,” said Canmore realtor Jason Penny, citing that year’s 25 percent drop in prices. “Even if we do lose a bit of business with regard to Calgary and Edmonton, because of the strength of the U.S. dollar it would not surprise me if we start to see more U.S. buyers coming across.” (Editing by Alan Crosby)