Why home prices will gradually increase from here on in Central Alberta.

How does a person know when prices are at their low?

There isn’t one way to know when property values are at their lowest until time has passed and prices have already risen. However, you can use potential future factors to speculate.

During the last decade, property values in Central Alberta increased a little but after peaking in 2014 they’ve decreased for a few reasons and they might now be as low as they’ll go and ready to turn around for the same reasons.

Prices increased slightly and very gradually from their peak in 2008 to the most recent peak in 2014. They increased slightly and gradually because they practically doubled between mid-2003 and 2008. Based on how quickly they increased between mid-2003 and 2008 it’s surprising they were able to increase at all, but they did. And do you remember how many people predicted a price crash during and after the U.S. mortgage crisis? You can see in the chart below that even after the 2008 mortgage crisis and while many people predicted a price crash, prices actually increased approx 15% in Central Alberta.

Now let’s look at the damage that’s happened since 2014. In 2014 oil prices plummeted and it had a substantial impact on the Alberta economy contributing to less and less work for oilfield companies and numerous layoffs. This, in turn, caused substantially fewer real estate transactions and impacted price because even though buying and sales slowed many homeowners either kept trying to sell or were forced to sell. With fewer people able to afford buying and so many homes on the market prices began to decrease. Supply overshadowed demand and when that happens prices decrease.

In 2018 another factor damaged every real estate market across Canada. More stringent lending rules were put in place to help curb runaway prices in the two largest markets Vancouver and Toronto and guard against individual dept issues if interest rates increased. But it had a detrimental effect everywhere else and failed to consider the income growth that will be experienced by the mortgage borrowers neutralizing the impact increasing interest rates might have. Almost every other real estate market in Canada wasn’t experiencing runaway prices but starting January 1, 2018, all buyers had to qualify at a higher rate and that gave all potential buyers less buying power, thwarting purchase plans and slowing each market.

Oil prices dropped in 2014 and mortgage activity slowed in 2017. Looking at the chart above, both variables contributed to prices dipping lower now than they were prior to 2013.

Is there a chance now that the factors mentioned above have had their full effect on our market and with the damage done the market might “normalize?” If nothing else happens to negatively impact the market the “normalization” alone will likely allow prices to very gradually climb at a normal rate?

save the the most money buying your next home in Central Ab

The “normalization” alone will allow prices to grow very gradually but two possible upcoming shifts are worth considering.

It’s not hard to imagine that a new federal government looking for ways to encourage growth might loosen some of the mortgage rules that have negatively impacted our economy. Left unchecked, the current framework could contribute significantly to the development of recessions in some economic regions – newswire.ca. There’s an election upcoming and I’m certain, whatever the results, we will see some loosening improvements made to mortgage rules. I feel strongly about this because the current Liberal government is already implementing incentives to encourage home buying. They are seeing the damage that’s taken place and any positive adjustments made to encourage home buying prices will increase.

The other large factor that will affect home prices is when the oilfield industry sees growth again. We don’t know when the pipelines and other activity will actually take place but “they are vitally important – not only to Alberta but to all of Canada… TMX has been mired in delays and has been through countless months of consultation and a lengthy and rigorous review process. It has been canceled twice. This cannot be allowed to happen again.” – Jason Kenney. With so much on the line, it’s believed the pipelines will be built, it’s just a matter of when. A person could wait to buy once the industry activity is underway but by then the wave will have already started.

save on real estate

In summary, nobody will know the exact point house prices hit their low until the growth following the low point is noted. If we can see variables on the horizon that will positively impact the real estate market, waiting until they happen will be when prices have already increased. If we can see positive variables on the horizon and no negative speedbumps in the way, speculating that we are currently witnessing the low price point and that prices will begin to improve is a safe bet.

Even if average home prices were to decrease a few percentage points before increases begin, you can be absolutely certain the price increases over the next decade will outway any decreases between now and then.

Blake King is a Realtor® in Central Alberta with Big Earth Realty and he’s doing everything he can to help his clients and the real estate equity position, buying or selling, by saving them money and getting them free cash-back at closing.

Please like & share:

About the Author

Blake King
Having lived in Red Deer my entire life and having experience in many avenues of real estate I offer enormous value to my clients.