Oil prices are soaring with other commodities, and it can lend a big boost to Calgary real estate. Maybe. That’s the take from BMO senior economist Douglas Porter, in his latest Capital Markets’ research note. Calgary real estate prices recently started climbing, but still lag national price growth. Historically the region underperformed during periods where oil prices were low. Now that crude is soaring, the economist sees home prices moving higher — at least on a relative basis.
Calgary Real Estate Prices Usually Move With Oil
Calgary’s real estate prices historically have moved with oil prices, which makes sense. It’s a large city, but the oil industry is one of the biggest drivers of the local economy. Home prices ripped higher during the 2010 oil price boom, as well as the one seen in the early 1980s. Oil prices are once again on the move, but Calgary home prices lag the gains made across the rest of the country.
Calgary’s MLS house price index (HPI) saw annual price growth of 11% in May. It’s a very large amount of growth during a normal period, just not in the middle of a bubble. National home price growth increased 23% over the same period. Even with the recent oil price boom, prices in Calgary have yet to climb. However, that may change according to an unconventional indicator Porter has created.
Sell Windsor Real Estate, and Buy Calgary?
The economist observed the ratio of Calgary to Windsor home prices moved with oil prices. The thinking isn’t just Bay Street’s version of reading tea leaves either. Cheap oil makes buying a new car more attractive, stimulating auto manufacturing. Since Windsor is an auto manufacturing hub, it’s a boost to the local economy.
Expensive oil makes car buying less attractive, but is a boost to oil regions. Since Calgary is the unofficial oil capital of a petrol country, it gets a boost from high prices.
“Windsor is chosen very deliberately, as its auto-driven economy is arguably the biggest winner from low oil prices,” he said.
The ratio of Calgary to Windsor home prices has crashed. Windsor actually became more expensive than Calgary for the first time ever. “Five years ago, Calgary’s prices were more than double Windsor’s level,” said Porter.
Calgary Home Prices May Climb With Oil
Oil prices have been climbing, but the Calgary to Windsor ratio hasn’t responded — yet. WTI reached the mid-US$70 range recently, which Porter highlighted with that blue dot. With falling auto sales and more expensive oil, Calgary could see higher prices. That and it’s one of the last few affordable major cities in Canada, and there are few other options left.
“However, the big recovery in oil prices (dot) suggest that better times lie ahead for the Calgary housing market—certainly relatively,” said Porter.
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