Alberta’s oil and gas sector has been dealing with the repercussions of plummeting oil prices, having deep impacts on the province’s economy, and real estate markets. For this reason, the timing of the COVID-19 public health crisis has been less than ideal for the Alberta real estate markets, which were already fighting to recover from a market slump.
Ranked as the third most affordable real estate market out of 16 Canadian cities compared in the 2020 RE/MAX Housing Affordability Report, Edmonton’s average sales prices are low, and have been steadily declining since 2018. The city has been dealing with an economic downturn, and this has led to decreased activity within the local real estate market, particularly in light of the mortgage stress test which further supressed real estate activity in 2019. With prices dropping so low, the city’s real estate is regarded by many as undervalued.
Coming into 2020, Edmonton’s market was looking promising, with fewer listings and an increase in sales, indicating that perhaps a heathy spring market could unfold. The COVID-19 pandemic has unsurprisingly shifted this outlook, as consumer confidence within the city is dealt another hard blow. Below we look at how the public health crisis has impacted real estate prices within the city, and how we project that Edmonton’s market will fare in the wake of the crisis.
Edmonton: A Buyers Market
Before diving into price activity within this market, it is important to first understand the dynamics at place within Edmonton Real Estate. This buyer’s market has been on a downward trend for years, with year-over-year sales and average house prices creeping lower each year. New rules around the mortgage stress test were proving to be a significant hurdle for prospective buyers, depressing market activity within Edmonton real estate over 2019.
Despite the fact that Edmonton is less reliant on the energy sector compared to neighboring Calgary, 2019 was also a very tough year for Edmonton’s economy. With over 11,000 job losses in the city, unemployment levels have been rising, and consumer confidence plummeting.
Coming into 2020, the market was finally showing modest signs of improvement, as the city was starting to attract first-time home buying millennials as well as foreign buyers who were unable to tap into neighbouring BC’s overpriced, inaccessible housing markets. With a variety of development projects taking place within the downtown Edmonton area, buyers will soon have a diverse variety of housing options to fit every budget, which will continue to attract buyers and investors.
Price Activity within the Edmonton Market
Average price levels for homes in Edmonton have been on a downward slope over the past few years, but the pandemic has made the slope considerably steeper. Over the first few months of 2020, price levels had already dropped by 1.4% year over year. By the end of March, the average home price was a full three percent lower than last year’s levels for the month.
The good news? By April, the average residential price shifted up by 2.8% to $353,577. While this is still a 3.29% decrease from the April 2019 average price, any increases are warmly welcomed as a sign of improvement within this market.
At this point, any further price decreases within this market will be determined by how long it takes for life within Edmonton to return to business as usual. Should business activity start up again in the second quarter of 2020, it is hopeful that the city will only suffer a 1% loss in the year-over-year average house price for 2020. This is in line with what was forecasted for the Edmonton Housing Market even before the COVID-19 outbreak. Should the economic pause be prolonged until the summer, there is potential for the average home price to dip as much as 3% for the year.
The Alberta government announced in late April that the province will start a multi-stage roll-out plan for emerging from the COVID-19 lockdown. The first date set of business re-openings is May 14th, though a limit on public gatherings will remain in place. If all goes smoothly, and the rate of infection continues to stay stable, then the provincial economy will gradually regain balance by the summer, making the former prediction of a 1% drop in average sale price, a more likely possibility.
Room for Optimism with the Edmonton Housing Market
Despite what appears to be a downhill decent for the local market, there remains optimism for Edmonton, and the future continues to show promise. Prior to the crisis, there was a spike in investor interest within the city, on the hunt for single-family homes with legal in-law suites. As this interest is side-lined during the crisis, it is likely to return once isolation measures are lifted. As one of the most affordable cities in a county full of sizzling, inaccessible markets, as long as prices stay comparatively low, the city will continue to attract investors looking for a good deal.
In addition, Prime Minister Trudeau announced in April that the federal government is committing $1.7B to clean up orphan wells across British Columbia, Alberta, and Saskatchewan – a move that will bring some much-needed support to the oil and gas sector. As well as pleasing environmental advocates, the initiative will also employ tens of thousands of workers across the 3 three provinces. As well as boosting the Alberta economy, there is hope that this will stimulate housing demand within the province’s big cities, namely Calgary and Edmonton.
A new phase in the COVID-19 pandemic is coming also into play in early May, with loosening restrictions in many provinces across the country. As citizens return to work, re-engaging in local economies, those who had put real estate plans on hold will slowly start to trickle back into the market, particularly those who are keen to take advantage of lower interest rates! While the complete recovery of consumer confidence will take time, there is hope that as activity continues to gain momentum through the summer, activity and prices within the Edmonton real estate market will rebound to pre-crisis levels before the end of the year.