With the price of oil still in a downward trend, we have to first ask the question how low will oil go? This week black gold went below $30 a barrel and many people are now predicting that it will go down to $20 a barrel. Continuing weakness in the Chinese economy and dramatic losses in their stock market recently are not helping the situation with oil at all.
That, combined with a steady increase in supply from fracking, the Saudis and Iran, has caused a freefall in the price of oil. Saudi Arabia started this whole thing a little over a year ago when they decided they would try to force higher cost producers in the United States and to a lesser extent, other countries out of business by flooding the market and causing prices to drop.
So far no one has blinked, with the exception of the Alberta oilsands who have one of the highest cost structures of any oil producer. So most people expect prices to stay below $50 for the next several years. If that happens, the effect on home prices in Calgary and Alberta in general will not be good.
Prices have been surprisingly stable to this point in the beginning of 2016 with only small price decreases. For the month of December 2015 the average price of a single family home declined by only 3% when compared with December of 2014. For condos the news was a little worse with a decrease in price of 4.5% compared to December of 2014
So where do we go from here? If we continue to get mass layoffs and the unemployment rate continues to rise, we can expect prices to continue to decrease, but I do not think we will see a freefall. This is because even though there will be less jobs, Calgary is still a a very good place to live. In addition, as long as the housing markets in other Canadian cities remain stable, I believe that will help to prop up the market here. Sure some people that moved here only a few years ago may decide to pull up stakes and move back to their home province, but there will always be new immigrants to take their place.
2016 will not be a good year for the Calgary real estate market, but it won’t be a horror story either. As long as mortgage rates stay low we shouldn’t have too many foreclosures, although they will increase in number. If rates did go up dramatically, there would be a problem everywhere in Canada, not just Calgary.
Thanks to Carmen Paradis of RE/MAX for this infographic