Calgary’s property market is about to collapse due to falling oil prices causing real estate prices to plunge. The real estate board predicted higher unemployment levels if oil prices continue to fall, resulting in a bear market and layoffs. Experts predict a plunge of 22 percent in home sales by the end of 2015.
Developments and Prospects
The local board admitted that they didn’t expect the market slowdown to last for so long as it did. Experts, however, predicted a steeper decline when it comes to real estate prices. While property prices have become more affordable, experts at the RBC point out that it is unlikely that many buyers enter the market this year. High unemployment is also a source of concern as the economy dwindled by 1.2 percent in 2015. Calgary’s job market is about to lose close to 50,000 positions by the end of the year, shows a forecast by the Conference Board of Canada. Calgary Economic Development’s chief executive and president Mary Morgan pointed out that the unemployment rate in the city skyrocketed to 7.5 percent 5 years ago. While the rate is lower at present, the unemployment rate in Alberta ranks the 4th highest in Canada.
The problem is that the number of listings has not increased while unemployment levels remain consistently high. The unemployment rate in Alberta stays at 6 percent, with thousands of jobs lost across sectors. Jobs in manufacturing are down by more than 13,000 and in forestry and other extraction sectors – by 22,000.
As a result of the property market slowdown and higher unemployment levels, many people are unable to meet their mortgage and loan payments and lose their homes and other valuable assets. This results in repossessions, closures, maxed out cards, late payments, hefty penalty interest, and other charges. More and more people get bad credit and see their applications for consumer loans turned down. They are forced to resort to subprime lenders and cash or pay advances. The problem with subprime lenders is that interest charges are extremely high, and many borrowers fall into a spiral of debt. Subprime lenders offer short-term financing with high charges because bad credit borrowers are seen as high risk. They advertise quick approval and no credit checks but rates are usually in the range of 200 – 300 percent and sometimes higher. This means that payday loans are a last resort for emergencies such as car repairs, medications, high-interest credit card payments, gas, phone, and other utilities, and the like. Some people resort to cash advances to meet their expenses. A cash advance on a credit card can be expensive because the interest rate is usually higher, and there is no grace period. High debt to income ratio, combined with excessive debt, can be a serious problem in times when full-time and part-time work drop, which is the case in Calgary. This is evident as reports show that the majority of job gains in Alberta are in part-time. There is a significant shift from full-time to part-time positions in manufacturing and the resource sector. A number of sectors rely on manufacturing, including refined oil products, specialized equipment, steel pipe, the gas sector, and others. In Calgary alone, thousands of jobs were lost in the energy-related and energy sectors.
The good news is that there are more job openings in other sectors such as public administration, social assistance, health care, and whole and retail trade. Significant employment increases have been reported in sectors such as educational services, support services, building and business services, and trade. At the same time, these are lower paying positions compared to manufacturing. Logistics and transportation added a total of 3,100 jobs in Calgary this year while social assistance and health care added some 20,000 jobs. The rate is up from previous years partly due to the fact that labor force in Calgary went up by more than 26,000 people.