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Low inventory squeezes housing market

Red Deer housing market has lowest inventory since 2006
To the end of May, 741 residential units of all kinds have been sold in the Red Deer, down 24 per cent from 987 through the first five months of 2022. (Photo by Advocate Staff)

A lack of inventory and financing challenges are putting a crimp on house sales in Red Deer, say local realtors.

To the end of May, 741 residential units of all kinds have been sold in the city, down 24 per cent from 987 through the first five months of 2022.

For May, there were 218 sales, down 11 per cent from 243 last year but ahead of the previous three years.

Alberta Real Estate Association’s (AREA) Red Deer market summary says the city’s inventory is the lowest it’s been since 2006. The lack of choice, plus a “pullback” in the sales of detached homes — down 28 per cent in May and 32 per cent year-over-year — have cooled the housing market, says AREA.

Royal LePage Lifestyles Realty broker Michael Gouchie said the numbers reflect a return to pre-pandemic housing markets. When COVID-19 hit, the demand soared as people working from home wanted more space, pushing sales to record levels, especially in the first half of 2022.

“Now that the supply and demand factor has worked through the market, sales numbers have reverted back to a pre-pandemic rate,” said Gouchie, who is president of Central Alberta Realtors Association.

A “drastically short supply of housing on the market” is the biggest factor affecting real estate markets, not only in Red Deer, but province- and Canada-wide.

Locally, new housing starts are very low, which puts even more pressure on the already limited supply of pre-existing houses, he says.

The regional picture is similar to Red Deer. Central Alberta residential sales are down 45 per cent through five months to 1,949 sales from 2,822 a year earlier. Month-over-month sales are also down, but not as much. There were 558 sales last month compared with 679 in May 2022, about a 21 per cent decrease.

Gouchie said further putting pressure on housing markets are the growing number of people from other provinces and countries who are coming to Alberta to study or work. Compared with many other provinces, Alberta is affordable and has a great job market.

Also cooling sales are higher interest rates, which are making it harder for people to get in the market.

“Higher interest rates are affecting the first-time buyer’s ability to purchase, but it also is a drag on the normal move-up buyer that does not want to sell and lose a low-interest rate to purchase a more expensive home with higher interest rates,” he added.

While sales are down year over year, demand is keeping prices up.

Gouchie believes builders and investors will see the opportunities and step up building, especially in multi-family housing.

“So, I see positive growth in our local economy and housing markets.”

Century 21 Advantage associate broker Richard Pochylko has much the same take.

Pochylko is also seeing the impact of interest rates on potential buyers, some of whom fear they will go higher still.

But for those ready to take a dip in the market, many are finding it tough getting the necessary financing.

“Lenders are more cautious, by far,” said Pochylko. “It’s a lot more difficult, there are a lot more hoops to jump through.

“It’s a little bit frustrating for buyers in that department. It isn’t as easy getting money as it used to be.”

Generally though, he sees the market as being solid and a seller’s market.

But low inventory levels mean there is no chance of sales catching up to last year’s sales numbers, he added.

“(Inventory is) really low. On any given day there’s between 165 and 175 single-family homes available. In 2018, we would have been running 625 to 650. So, that’s one hell of a change.”

Homes that don’t sell are usually those that need a little work.

“Really nice, clean and well-cared for properties sell very quickly,” he said, adding they usually get asking price if not more.

One of the reasons inventory levels have fallen is that Red Deer has had little growth in recent years and there have not been a lot of new homes built. One of the reasons for that is inflation, which has driven the cost of new builds, scaring off some who have been ready to upgrade in the past.

“There’s people holding on because there isn’t any place better to be than the place they’re currently at.”

Inflation also affects builders, who already face razor-thin margins and must now try to construct a home at a price point that fits the market.

Pochylko said it will take some time to rebuild inventory.

“Once you build up some inventory you’re going to have people cut loose that weren’t going to sell before.”

Pochylko expects the next couple of months will follow the same trend. There will be fewer sales than last year but nice properties will see multiple offers.

Central Alberta sales through May (last year in brackets):

• Blackfalds – 91 (175)

• Innisfail – 54 (70)

• Lacome – 65 (118)

• Rocky Mountain House – 57 (90)

(Updated numbers were not available for Penhold, Ponoka, Stettler and Sylvan Lake)

Paul Cowley

About the Author: Paul Cowley

Paul grew up in Brampton, Ont. and began his journalism career in 1990 at the Alaska Highway News in Fort. St. John, B.C.
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