Edmonton’s strong housing market run could create inventory woes

Article content

As Edmonton’s housing market continues a strong run, its inventory continues to bleed, putting upward pressure on prices and forcing a municipal imperative to build, the industry says.

In its quarterly market update released last week, the Real Estate Association of Edmonton’s (REA) report shows that the city housing market is cooling off after a spicy summer surge. But even amid the slowdown it continues to outstrip last year.

Article content

In September, the Greater Edmonton Area (GEA) housing market dropped 12.6 per cent in residential sales from August with more than 2,250 sales. Despite the month-to-month slump, the sales were still 10 per cent more than September 2023. The month-to-month change is expected as the autumn season often slows the market. While the year-over-year change may look good for a strong market, it’s already taking a toll on prices.

“When we see the inventory level dip because of the activity in the market, that does put some upward pressure on pricing, which does make it a little more challenging for some first time buyers,” said Melanie Boles, board chairwoman of the REA.

The activity in the market is largely driven by migration, which is showing no signs of slowing down, according to the City of Edmonton’s chief corporate economist, Felicia Mutheardy.

“We’re expecting those forces to slow over the near to medium term but, at this point, you’re still in the midst of very strong population growth,” said Mutheardy.

Combining strong migration with a suffering housing inventory, to say nothing of interest rates, housing costs will predictably rise — which they have. The REA report shows the average price for total residential homes in September was $440,366, which is an increase of 1.2 per cent from August, and 11.7 per cent more than September 2023.

Article content

Article content

Boles thought inventory played the biggest role in housing costs.

“I think, more than interest rates, inventory drives what’s happening with our pricing,” said Boles.

Based on her assessment of inventory, comparing this year’s inventory to last year’s is similarly poor news for homebuyers, which is showing a decrease of more than one per cent from August and a drop of 12.1 per cent since last September. Boles pointed to Calgary as evidence of what could be to come if the inventory problem isn’t addressed, which caused a significant surge in house prices, making it tough for new homeowners to enter the market.

“I mean is it a risk here? Absolutely it is. Depending what happens with our inventory levels,” said Boles.

The inventory started to become an issue in 2022, Mutheady said. As migration picked up, bringing new residents to the city, building lagged behind with a lack of construction activity to keep up with the population increase in 2023. By the end of 2023, that began to change and this year construction has soared.

If the difference between housing costs from last year was troublesome, the difference between housing starts in August from this year to last should inspire a more than 43 per cent increase from last year. Similarly, the total value of residential building permits in July for the Census Metropolitan Area (CMA) of Edmonton was more than $470 million, up 88 per cent from the same month a year before.

Article content

Edmonton’s reputation of affordability may be contributing to its eroding affordability, but the City of Edmonton has tried to cool those upward price pressures by influencing the supply. While the city can’t control the price of housing, “bringing on new supply” is a key way that the city can keep its affordability.

The City of Edmonton has contributed to that effort with its red tape reduction and rewritten bylaws, which it announced two weeks ago, to have helped put the city on track for a record year of housing starts.

Despite the rise in prices, both Boles and Mutheardy indicated that the city maintains its relatively affordable reputation.

“Edmonton definitely stands out still as as providing that more attractive price point,” said Mutheardy.

As the city celebrates being on track for a record year of housing starts, Edmonton’s juggernaut real estate market will be the stick at its rear, spurring the construction forward. If the city is to retain its relative affordability, it will be a fine balance of buying and building for the next year to build a cushion in its sleight inventory.

Article content

Article content