Connect

Dashboard

Login using...

Evidence Pointing Toward Oil Prices Impacting Calgary Home Values

Posted by Joe Samson on Tuesday, November 18th, 2014 at 8:24am.

Should I be worried about real estate prices dropping in Calgary since oil prices have begun slipping again?

Oil seems to be the core industry and the engine of our city's economy. Many native Calgarians can relate to oil prices as it is our lifeline. Some might consider oil being as important for Calgary business owners as blood in a human body.

Oil Prices vs. Calgary Home Values

For many years I have been very curious about comparing the facts of the impact that oil prices may have on Calgary home values.

Below I have collected the data for crude oil prices all the way from 2002 and for the same period I have inserted Calgary home values right over top of it.

*Note: It was intended to display the relationship between price fluctuations. Dollar figures have been purposely removed to indicate proportional variances.Oil Prices vs. Calgary Home Values

 

The second graph below indicates a 12 month moving average or a smoother curve of both figures to eliminate the month-to-month market fluctuations.

Oil Prices vs. Calgary Home Values - 12 mo. Moving Average

 

Oil is in Our Veins

Imagine downtown Calgary as being the heart of a human body and the streets are the arteries through which oil is flowing to many businesses within the living organism.

During the lunch hour rush in downtown, restaurants are highly addicted to the fat wallets of well paying businessmen. The luxurious shopping centres are expecting record breaking crowds to flood them every weekend. In the wealthy communities, construction companies never seem to have enough working days to complete their projects before jumping onto the next task.

The list could go on-and-on. What's worth realizing is that one way or another, oil is very closely intertwined in everyone's live's in Calgary and either directly or indirectly tens of thousands of employees who are current home owners are benefiting from the spin-offs that the oil industry generates.

Less Jobs in Calgary

Between 2012 - 2013 Calgary had recorded approximately 57,000 people moving into our city looking for a brighter future.

When the coffers of oil companies are overflowing with cash, finding a job in Calgary seems to be a walk in a park for professionals and tradesmen.

Many industry experts like Ann-Maire Lurie, the chief economist at Calgary Real Estate Board agree that: "If energy prices keep dropping, then it is going to be inevitable not to have an impact on employment growth and eventually on the housing market."

Irresponsible Home Buyers

Similar to the previous oil boom that ended in 2008 it is not uncommon for ambitious home buyers to stretch their budget to their limits just to get into a luxurious property or to have expectations beyond their means.

Due to the blessings of well paying jobs in the oil sector, monthly cashflow does not seem to be a problem for far too many people. It's not rare to see young professionals in their 20's to be without any savings who are paying between $2,000 - $3,000 each month for mortgage payments alone. Coupled with high spending habits and accumulated credit card debts the outcome could be disastrous if one were to loose his job.

The Media is Already Crying Wolf

Alarming headlines have already started to surface about dropping oil prices:

"Calgary braces for gloom of falling oil prices" - Financial Post
"Unsteady oil markets prompt fears Calgary housing will follow suit" - The Globe and Mail
"Oil's crash threatens to derail booming Alberta..." - Global News

Many media sources are expecting a considerate correction for Calgary's housing market, similar to what happened to home values in 2008 when the last oil price crash happened.

However, due to the sub-prime mortgage crisis in the U.S.A. home values in Calgary have started dropping way before crude oil prices have peaked in early 2008.

Home Values are Still Holding

So far we are not seeing any signs of a softening real estate market in Calgary. Sales are up by about 10 percent compared to the same period last year. Average home prices are still up by about 6.5 percent in the last 12 months.

Depending on what's going to shake out in the job market in the coming months, home price increased could come to a significant halt if major projects in the oil industry are going to be set aside.

It is imperative to stay on top of the facts when it comes to your real estate. The monthly real estate market update may be a good place for anyone to keep their fingers on the pulse to see which direction is the real estate market going to be moving towards.

Resources:

- Calgary Real Estate Board, (CREB)
- Oil-price.net


Calgary, AB Real Estate Blog

 

I am a licensed member of the Real Estate Council of Alberta since 2005 - proudly representing CIR REALTY, Calgary’s largest real estate brokerage. I enjoy keeping my readers up to date with real estate related information that they can easily understand and use for their own benefit. I welcome feedbacks and comments equally from first-time visitors to my blog, past clients and also from my fellow REALTOR® colleagues. Thanks for stopping by!

6 Responses to "Evidence Pointing Toward Oil Prices Impacting Calgary Home Values"

bz6wp4 wrote: The price / barrel is now $69. What happens to Calgary Real Estate if this goes below $60. Sure there will be curtailment of future projects and even moderation of current production. If this lasts long, there could be serious impact to the real estate price. As it is the prices are high by NA standards for housing - the house hold debt is higher in Calgary than most Canadian cities. May soon be a buyers market with prices coming down as long and a bit after the price of oil comes back up again.

Posted on Thursday, November 27th, 2014 at 9:42pm.

Joe Samson wrote: I don’t want to sound like a scare crow, but you may be right. I just hope that you’re not and that we will be able to protect our investments as housing is most people’s biggest financial asset. Unfortunately far too many people are spread very thin with their equity in their homes. Many home owners are only 1-2 missed mortgage payment away from going bankrupt. If they would start loosing their high paying jobs in downtown, then only logical solution is to start cutting expenses that they can’t afford anymore. If their mortgage payment is their biggest hole in their pocket than selling the house might be most people’s only solutions. Let’s just hope that this won’t happen in Calgary.

Posted on Friday, November 28th, 2014 at 1:05am.

bz6wp4 wrote: I live in Michigan. My household income is not too far less as compared to my house. The house is reasonably sized in one of the best towns of NA. Excellent schools and parks and trails. I like Calgary and the way it has expanded over the years. However, as in many cities, housing is the main source of investment for some. Investments need to be based on other tools rather than housing alone. If not the oil price, some other triggers will bring this balance in Canada. It may take a few years, in my view, but this may be a good time to exit the housing market and protect the family financials in place.

Posted on Friday, November 28th, 2014 at 11:25am.

Ivan wrote: Excellent analysis. Does the Y-axis indicate oil price index of WTI is US dollars or WCS in Canadian? Given the differential and FX rate this could be totally different graph as WCS used to be the only growing oil until last month because of these two factors.

Posted on Sunday, November 30th, 2014 at 10:41pm.

Joe Samson wrote: Ivan, I have the price of oil represented in US dollars. Obviously I couldn't represent the real estate prices on the same scale as we are talking about hundreds of thousands of dollars of differences and then the lower value would have shown as a flat line.

Therefore I have created two separate charts at their respective values and blended them together to display the proportional price gains or losses over time.

Posted on Monday, December 1st, 2014 at 4:36am.

CJ wrote: Here's another great chart that I came across that has a larger historical axis. Interesting trends!

http://www.investingintelligently.com/wp-content/uploads/2006/09/calgary-house-prices-1973-2006.jpg

Posted on Thursday, December 11th, 2014 at 4:13pm.

Leave a Comment