Bow Valley Real Estate Market Update: 24 May, 2021

By Robin Tuck
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The Bow Valley continues to show exceptionally strong market activity, with many properties selling within a matter of hours or a few short days of reaching the market. We’re still seeing plenty of interest from Calgary, Edmonton, Toronto and Vancouver as people realise they can work from anywhere and live in the mountains.

Quick Stats for the past 7 days:

  • New listings: 25
  • Properties back on the market: 1
  • Conditional sales: 6
  • New Sales: 18
  • Price changes: 14
  • Sales closed: 13
  • Off market deals: 1

This week’s closed sales (13 total):

  • Cheapest sale: $415,000 (1BR 1BTH)
  • Highest sale: $1,376,000
  • Average Sale Price: $828,093
  • Median Sale Price: $754,900
  • Average DOM: 26 days
  • Average 1 BR: $584,950
  • Average 2 BR: $665,400
  • Average 3 BR: $1,083,480

Average 4 BR +: $1,269,000

Banff Market update:

The Banff market remains strong, and is typically more stable than the Canmore market. Limitations on ownership mean that the market doesn’t react as strongly to demand side factors as Canmore’s. In many cases, first time buyers are actually finding Banff condos to be more reasonably priced than Canmore, and the cheaper condos are still selling within a few days of being on the market.

For example, our latest listing, 104-347 Marten St., sold within just a few hours of being on the market!!

Sold immediately!

We’re also seeing some great development opportunities appear in the Banff market, with several types of plots becoming available for those looking to build multifamily properties in a market that’s notoriously short on rental accommodation.

Canmore Market Update:

Supply of properties in Canmore still remains low (1-2 months supply), meaning many properties are still facing multiple offers within days of first reaching the market. Many buyers are facing competition from buyers making offers in cash with no conditions and well above asking price. It is still absolutely a ‘seller’s’ market. If there was ever a time to sell and realise the exceptional market gains from your property, now could be the time!

In particular, vacation and tourism home zoned properties are facing extreme demand from buyers looking to cash in on the anticipated swathe of Airbnb vacationers that hope to head to the Bow Valley as soon as the COVID restrictions ease.

If you’re interested in hearing a few of my thoughts on some of the market factors affecting the Bow Valley Real Estate market prices right now, check out this blog post!

News affecting the Bow Valley Real Estate Market

Bank mortgage stress tests are set to increase June 1st

In an effort to curb the crazy demand being exhibited across virtually all Canadian real estate markets, the banks are set to increase their mortgage qualification stress tests for uninsured mortgages from 4.79% to 5.25%. This is going to be introduced June 1st.

We’ve made inquiries into whether those that are already prequalified can be locked in at the previous stress test levels, and it seems to vary depending on who you talk to. It seems that certain banks will lock you in with a pre-approval if you submit an application before the 1st, however the feedback from certain brokers seems to be that you’ll only be locked in at the old stress test levels if you have an accepted offer and pre-approval prior to June 1.

It’s going to be challenging to lock anything in before June 1 at this point, but it’s definitely worth noting that it’s going to increase this week, and this may have an effect on affordability if you’re looking to buy right now.

What is the bank stress test?

There are multiple tests that banks run on your finances when you’re trying to qualify for a mortgage, and one is known as the stress test. Essentially, they look at the house you’re purchasing at today’s interest rates, and see if you can still afford the monthly payments if the interest rate was raised to a much higher monthly rate.

Whatever today’s rate is, the stress test is usually 2% higher, or the 5 year benchmark rate, whichever is higher. This is to make sure that if the interest rates go up significantly, you’re not going to default on your mortgage payments.

Here is a broad example of how this could affect your affordability (taken from Financialpost.com):

 “If we estimate that if a potential buyer’s maximum mortgage had previously been $1 million, now it will be $955,000.”

Or in other words:

“If you were preapproved to buy a home for $500,000 with a 20 per cent down payment before the stress test changes, you might only be qualified to buy a $480,000 home after they’re implemented. This means you would need to save up an additional $20,000 to make up the difference.”

Typically, the stress test is a fixed percentage above the current bank rates, however a move to increase the stress tests independently from the interest rates is designed to make it that little bit harder for people to qualify for mortgages. I’ll be writing a full explanation of stress tests here shortly, so keep an eye out for an updated link!

Major Financial Institutions predict bank mortgage rates to increase before BOC rate hike

Even if the Bank of Canada doesn’t increase their key rate, it’s likely that banks will begin to raise their interest rates again soon. A study by DesJardins and Bank of Canada predicted that mortgage interest rates will be back to pre-pandemic levels by Fall of 2022.

The diagram below shows predictions that rates will soon begin to rise, even if the Bank of Canada keeps their rates low.

What does this mean? Record low interest rates and opportunities to lock those rates in might soon be a thing of the past. The threat of rising interest rates seems to only bring more market madness in the short term, but it’s reasonable that if next year you could afford less than this year, you’d want to try and buy a house this year!

Canada lost 207,000 jobs in April

Canada lost 207,000 jobs in April, which was 32,000 more than expected. This pushes our national unemployment from 7.8% to 8.1%. We’re talking broad strokes here, but an increase in unemployment has a negative effect on government bond yields.

What that means is that there’s increased pressure on interest rates to stay low, meaning this is a strong indicator that interest rates aren’t going to rise in the short term, even if over the next 12-18 months they might rise significantly.

In terms of the housing market, this means that mortgage affordability is likely to continue to remain high and mortgage interest rates will stay at their current levels in the short term. This means the demand for real estate in Banff and Canmore will continue to remain strong.

Alberta releases its plan to reopen

This is the news we’ve all been waiting for. The latest news from Jason Kenney announced that the province will be re-opening for the “best summer ever”. What this means for the Bow Valley is a potential boon in tourism, particularly if tourists are welcomed back from July onwards.

Did you hear the Calgary Stampede is back on this year?

This is going to have a big effect on occupancy and revenues for all tourism accommodation and tourism related businesses. Here are some potential effects on the property market:

  • Business owners will have more disposable income again, allowing more buyers and investors to enter the Bow Valley property market.
  • Businesses will potentially return to normal revenues, removing certain distressed real estate sales from the market, or causing price/valuation increases for commercial properties with revenue based valuations. e.g. a hotel that might have been for sale for a low price (because of 2020 earnings), may either leave the market altogether or raise their asking price now that they can report higher revenues. In summary, opportunities for buy-side commercial bargains might soon disappear.
  • Similarly, short term tourism accommodation that might have really struggled over the past couple of years will return to profitability. In hard times, owners tend to dispose of secondary homes and rental properties before their primary residences, so this might explain why there are a few on the market right now. A return to normalcy may see many of these Airbnb home opportunities disappear from the market place. Again, the window to grab some of these typically rare properties may rapidly be closing.

New 74 Unit visitor accommodation development approved in Canmore

This month, a new Airbnb accommodation zoned development has been approved on the site of the old Chrysler dealership on Kananaskis Way. This is going to add yet more short term rental accommodation to Canmore in an area that already contains several thousand short term rental units. The rental units, which are being developed by the owner of Basecamp Resorts, have already sold out.

What does this mean for the market? Generally speaking, this is increasing supply of vacation properties in the area, which could have several long term effects.

  1. Continued supply eventually will cause rental prices to drop if demand can’t can’t keep up. I don’t think we’re at this point yet, however.
  2. The area will be able to support more tourists that contribute to our Bow Valley economy.
  3. There will be increased demand for more commercial services in this area. There is already a real lack of food and basic amenities in this part of Canmore, so there are fantastic opportunities for anyone interested in starting a tourist focused retail venture.

Across Canada, new sellers are starting to catch up with buyers

We have yet to see this come into effect in the Bow Valley, but in several major cities across the country, the number of properties coming onto the market is starting to overtake the number of properties being bought. This is the first sign of markets starting to cool off. Toronto and Vancouver are now showing the first signs. Here’s a great article that describes the changes we saw across Canada in April (May data isn’t available yet).

What we may find is seasoned investors taking their massive earnings over the past 24 months in these major cities, and moving to the Rockies in search of still hot real estate markets (like Canmore and Banff).

Final thoughts

Lots of interesting news in Canada this week that points to continued pressure on demand in Banff, Canmore and the Bow Valley in the short term, but a potential gradual cooling off in the next 12-18 months. It’s an absolutely fantastic time to sell a property in the Bow Valley, or to snatch a rare buy opportunity before the tourism market fully recovers.

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