Edmonton Mid-year Market Outlook 2022
To start, we look back at the first half of the year and review our current climate within the general economy, and real estate sector specifically.
A look back
With a torrent start to 2022, the early months brought record sales and price increases usually reserved for larger cities and spring and summer markets. January and February showcased some of the highest sales on record with strong year-over-year sales and price gains. We witnessed out of town buyers, for the first time in years, focusing on investments in Edmonton, with many cashing out in the larger metropolitan markets in Ontario and BC and allocating some of the gains towards relatively affordable investments in a market perceived as having less of a downside as interest rates increase. The relative affordability in Alberta and high quality of life again attracted more people to the province for the third straight quarter. We anticipate this trend will continue through 2022 and beyond. Coupled with positive international immigration to the province, Alberta and Edmonton should continue to see population growth that is a key factor in sustained price strength and stability. Alberta’s unemployment rate is at the lowest rate in 8 years and is comparable to the national average.
An improving economic outlook for the province both within the oil and gas sector, agriculture and tech, is driving shortages in labour which will likely need to be filled with out of province and out of country labour. It is noted that Alberta’s economy “is on track to regain 2014 levels of economic activity this year, with the province seeing the most private-sector economic growth in the country, according to the Business Council of Alberta’s quarterly update.”
While Edmonton did experience price growth throughout the pandemic and into the first half of 2022 it wasn’t at the torrid pace of other provinces. This leaves the province with a more stable footing with which to navigate further interest rate hikes and subsequent recession.
All about interest rates.
Interest rates have been the name of the game for much of the second quarter of 2022. Rates have gone from historical lows at a Prime rate of 0.5% to over 2.5% in only a quarter. This brings us to the highest prime rate we have seen since 2008. This means borrowing costs have gone from 1.5% at the start of the year to about 4.5% in a matter of months. This is a big jump in a short period of time and quickly lessening the purchasing power of prospective buyers. The flurry of activity to beat many of these rate hikes can account for some of the early year activity, and the fact that purchasers are able to obtain rate holds in the range of 90-120 days means that activity will likely remain at or above historical averages for the remainder of 2022. Further hikes are anticipated to achieve a rate closer to 3% by year’s end and likely to 3.5% by mid 2023. Qualifying rates are also rising. The stress test, the higher of 5.25% or 200 bps above the contract rate, has now risen to 6% for variable rate mortgages and 7% for fixed.
Why the rate hikes?
These hikes are in an effort to curb inflation rates which are currently gripping Canada and are the highest we have seen in nearly 40 years and also in a sense to recalibrate after record low rates brought on by the pandemic. A number of academics and economists think that inflation may have now peaked, oil prices are decreasing some and supply chains are starting to work through the challenges from the pandemic and since then, the war in Ukraine. If we are seeing inflation leveling off, that would be cause for a more restrained interest rate policy from the Bank of Canada who have to date surpassed analysts’ expectations for both speed and height at which they are raising rates to stave off inflation.
Is a recession in the cards?
Analysts fear that the aggressive rate hikes and subsequent higher borrowing costs will negatively impact the economy and drive Canada into a recession. If/how long and deep the recession will be is anyone’s guess; it could only be a short period of retracted economic output if inflation is tamed. A brief recessionary period could also lead to the easing of rates. Alberta is uniquely positioned at the present time with strong economic fundamentals that could help weather any storm that may be on the horizon. Alberta also did not climb at the rate of other provinces as it relates to housing and remains relatively affordable.
Where do we go from here?
The real estate market in Alberta is likely to soften along with the rest of Canada, but likely not to see the larger retractions that may be felt in Ontario, BC and the Maritime provinces. The market is still currently in sellers’ territory with just over 3 months of inventory in Edmonton, but this will likely transition to a more balanced market (4-6 months of inventory) as we edge closer to 2023. Sales will soften and days on market will increase and year-over-year average price increases will level off.
As always there will be differences in how each segment of the market and each neighbourhood will react and perform. Condos and entry level product below the 500K range will likely feel the impact sooner. Single family will still outperform attached and apartment sectors as the effects of Covid linger and the demand for space is still at a premium, however this may shift as affordability begins to diminish and desire for more affordable product increases. The luxury segment may weather the storm better than most as fluctuations in interest rates tend to have less of an impact on the purchasing power in this segment.
Our advice moving forward in 2022 is to speak to trusted professionals, both REALTORS® and mortgage professionals, about your unique circumstances and how to best navigate the evolving market. As always, we at Rimrock Real Estate remain committed to you and are happy to connect anytime to discuss your needs in the Alberta market.