Factors Influencing Alberta Home Prices

Core Demand: What’s Driving the Market?

• Population Growth: This is all about how many people are moving to the area. On average, about 2.5 people make up a household.
• Home Price Growth: This refers to the changing market values of homes that people want to buy.
• Savings and Equity: This includes any disposable income you’ve managed to save after taxes, plus the equity you have in your current home.
• Financing: This looks at how much mortgage you can get based on your income (what you can afford in payments) and interest rates (how much those payments will be). Job availability is also key, as having a job is essential for qualifying for a mortgage.

Population Growth in Alberta

Alberta’s population usually keeps growing, but the rate of that growth is what really matters. If growth slows down compared to previous years, there’s less pressure for prices to rise.

After a bit of a slowdown in 2020, Alberta is bouncing back nicely, making up for the pandemic pause. While 2023’s growth numbers might seem high, they fit well within the long-term trends, especially when considering the low growth during COVID. Plus, Canada has set ambitious immigration targets, and it looks like those were met in 2022. However, it’s interesting to note that full-time job growth hasn't kept pace with population growth.

Changes in Home Prices

When prices rise, it can make homes less affordable, which in turn limits the number of buyers in the market. This can create a bit of a catch-22: higher prices can actually put downward pressure on them, especially for first-time buyers looking for entry-level options.

A general guideline is that homeownership costs become a stretch when they exceed 40% of household income. According to RBC Royal Bank, in Calgary, these costs were about 39% of the median income, while in Edmonton, they were 29%. Overall, Alberta's home prices seem to be aligned with long-term economic trends.

Savings and Equity Insights

Equity: Existing homeowners have seen their property values rise, giving them more equity to work with when purchasing a new home. Although there’s been a recent softening in the market, it hasn’t significantly affected most homeowners’ equity.

Condo-to-House Price Gap: A large gap between condo and house prices means that condo owners wanting to upgrade to a detached home need to save more and secure larger mortgages. A smaller price gap would make it easier for those condo owners to make the leap. Lately, this gap has widened quite a bit.

Savings: With inflation outpacing income growth, everyday items are costing more, but paychecks aren’t increasing much. If this trend continues, many Canadians might deplete their savings or even start accumulating debt to cover daily expenses.

Financing and Mortgage Rates

Mortgage Rates: Since 2020, mortgage rates have been climbing. While they’re currently in the mid-range compared to the last 30 years, they’re the highest we’ve seen since before the 2007 financial crisis. Rates often move in sync with bond rates, influencing overall affordability in the housing market.