Will it ever end? The Canadian Centre for Policy Alternatives just came out with their report that states ”Canada is experiencing, for the first time in the last 30 years, a synchronized housing bubble across the six largest residential real estate markets in Canada.” You can find the full 24 page report at www.policyalternatives.ca.

The author of the report, David MacDonald, provides three different scenarios a) a market correction through straight pricing deflation of homes b) a deeper and longer crash over several years with prices dropping each year, or c) a rapid and steep decline similar to the US. The biggest problem I see with this report is that it is grouping all the cities together and all having the same issues.

Due to Canada’s size and diversity, what happens in one region doesn’t necessarily affect another. Alberta as an example always lags behind other provinces initially as overall economic growth increases. Then due to our energy based economy it surges above and beyond the other economies after the demand factor increases. Ontario on the other hand often starts strong due to increasing manufacturing. As for specifically Vancouver, it seems to operate under its own set of universal laws as there is no way people can afford to buy homes there, yet it continues merrily along.

Now, having said that, we are also all tied together with certain aspects, such as mortgage rates, which David also says will play a factor. I absolutely agree with him that if mortgage rates return close to historic norms too quickly it will have a dramatic affect on affordability. This is why I have been surprised by the previous two rate hikes the Bank of Canada already instituted this year. It’s also something that the finance minister is paying very close attention to at this point.

They are very aware that if they continue to consistently increase rates, even at a slow pace, it will dramatically affect the entire economy.  As I have pointed out in previous articles, Canada had been the only G7 country to increase rates and we were only able to do so due to our quick recovery from the global slowdown. This was predominately due to many of the economic policies Canada had in place along with our stricter lending practices. Many other mortgage rate watchers, as well as myself, believe that if we do see further increases they will be very minimal and rates will stay very close to where they are currently at for a while. The caveat being if the economy starts to grow like crazy, increasing rates will just keep everything in balance.

Overall, he makes many good points and provides several possible outcomes. The unfortunate points being he doesn’t look at any of the positive signs we see out there which point to the market possibly dropping still a bit more, but regaining strength as we move into the end of 2010 and into a positive looking 2011.

Just to close off, the same day the above mentioned report came out, a report from C.D. Howe also came out. It took the stance that there is no indication that Canada will suffer a US style housing crash. Also a good read, it just didn’t get much press because it may perhaps have been to positive and positive headlines just don’t sell!

In a report by the Real Estate Investment Network (REIN) in early August, Calgary was ranked the number 1 city in Canada for Real estate investments. With the slower and shaky economy, the high price of home ownership, forecasts for a slowdown in housing prices increasing interest rates this has come as a surprise to many people.

So where does this type of report get its basis from? First off, the group is basing its pick of Calgary from now until 2015. So while presently it may seem less glamorous to look at Real Estate as an investment, it’s over time that it shines.

REIN bases their decision on several factors that directly affect the value of property. These key factors are population growth, job growth and increasing average incomes. Whoa, you might say! Isn’t Calgary losing population, hasn’t there been layoffs and how could average income be increasing?

This is where the long term five year view comes into play. As the global energy markets continue to stabilize over the next several years and the US continues to increases its dependency on the “dirty oil” coming directly from the Alberta oil sands, Calgary will see its economic stability ramping up. Of course as the energy industry thrives so does the rest of the provincial economy.

Although we are currently seeing a slowdown in inter provincial migration, as more jobs become available and the economy grows, this will once again turn around. Now we aren’t talking 2005/2006 out of control growth, but definitely stronger than we have seen the last three years.

Now the majority of people first moving here are not likely to be home buyers. They tend to be renters who are initially more intent on getting a good job and less concerned about buying of they are unsure how long they will stay. This is what many people who are disregarding the report are missing.

From a home owner’s standpoint, with an average price of over $450,000 for a property that may not be able to increase much is not be a good investment. On the other hand, a $300,000 suited bungalow in a rental neighbourhood that generates $2,200 a month in gross income versus a $1,070 monthly mortgage payment could be a great investment from a Real Estate investor’s viewpoint.

What are your thoughts? Is Don Campbell going out on a limb or does he have a firm grasp on what’s happening out there?

Here it comes again! It seems as if every street you drive down lately has another house listed for sale with the big shiny Real Estate companies sign out front. Aren’t we supposed to be recovering and home prices were set to rebound? Isn’t the recession over?

Instead, here we are approaching inventory levels we haven’t seen since spring of 2008! That’s when we peaked at around 15,000 listings in Calgary and area. This overstock of properties for sale ultimately led to values decreasing even more and causing a further slowdown in a weak market as properties were everywhere and buyers had little competition.

So where are we sitting now? Well as we hit the end of June, we were sitting with a numbing 14,066 listings on the MLS. That is almost 5,000 listings higher than the same time frame last year! To make this even more frightening, sales are down by over 900 properties from June in 2009. So, once again, does this mean it’s time to panic?

If you are prone to panic, I guess now is as good a time as any, although I believe this will be short term and you might be getting anxious over headlines only. The bad news is prices are going to get pushed down marginally as the extra competition among sellers mounts; the good news is that homes are still selling if they are priced right and my Pollyanna crystal ball still shows considerable upside for the fall.

I’m not expecting prices to plummet a huge percentage; they will most likely come down only 2 or 3% short term as the market once again stabilize and buyers take advantage of frantic sellers. Based on average home prices this should be around $8,000 to $12,000 on a property, which shouldn’t be cataclysmic, unless you were close to 100% financed. Also, by short term, I am not expecting this to last much longer than the summer and then to see another surge of increasing prices again this fall.

You might ask at this point, why I am expecting it to rebound so quickly. My thoughts are that the market slowdown is more directly related to the huge surge in the markets earlier in the year rather than anything else that’s currently taking place.

If you look back to February, March and April this year, there was significant uncertainty how the new mortgage rules would affect home buyers and there was a strong feeling interest rates would be increasing very shortly. This pushed a larger than normal amount of buyers into purchasing sooner than they planned in order to take advantage of low interest rates and easier qualifying.

With this large portion of both first time buyers and home owners being suddenly removed from the market it was bound to slow down as buyers disappeared. Then to top it off, we added in the small increase in interest rates and it managed to push even more buyers to the side as they re-evaluated whether to purchase or wait. Is it any wonder then that fewer homes are selling?

So, here we are in July and people’s thoughts have moved to enjoying the few beautiful days we have during our summertime and less to a new home. However, by the end of summer, this will all change. We should see further stabilization in the economy, allowing more people to contemplate purchasing a new home without the uncertainty of potential job loss, prices will have decreased, making it more attractive and affordable, interest rates should remain steady and the overall mood of the Canadian economy will be once more optimistic. This should plant the seeds for some steady growth during the fall and a great time for the market!

Or at least that’s how I currently see it, anyone else have some alternative viewpoints?

First off, I missed this entirely. From everything I was seeing and hearing the economy was cooling. The housing markets had already stalled a bit after the recent changes to mortgage qualifying requirements in April, oil prices had dropped almost $10 from a few weeks ago, our dollar has dropped a nickel against the US, the crisis in Greece still has some huge ramifications and the general consensus is not much is happening right now as people wait for everything to play out.

Then again I don’t run the central bank, perhaps I missed something? I did see a report from the OECD predicting the Canadian economy has rebounded vigorously, but I don’t think vigorous was exactly the correct word? Really we aren’t doing bad, all things considered.

When you look at the horrors still facing the US (trillions in deficits, billions of pending foreclosures, huge unemployment rates) we are pretty stable. When you see what’s happening in Europe and how countries like Greece are becoming financially unstable, once again our situation doesn’t seem so bad.

I just think the rate hike may be a bit premature, our economy needs some more legs underneath it. The important part to remember is there is no additional indication of  this being the trend. We all understand rates only have one way to go, but if it’s done gradually the impact should be minimal, only time will tell though.

How does the rate change affect you? Did you lock in your rate before today for an upcoming mortgage? Are you wondering whether it’s time to switch from variable to a fixed rate mortgage due to this? Ask me some questions and I will tell you my thoughts, even if I got this one wrong!

The Royal Bank of Canada just released their latest affordability report covering the first quarter of 2010 and strangely enough, Alberta was the only province to actually show an increase in affordability throughout Canada. Every other province and region actually became slightly less affordable.

Just to clarify, we weren’t talking about double digit increases or decreases, but rather moderate changes, still though great news for Alberta. There really wasn’t to much out of the ordinary in the report, although they did point out that they believe we won’t see any excessive “unaffordability” coming up in the near future. This is due to a projected cooling of the Real Estate market across Canada after an unusually active first quarter.

From my perspective, the market may behave slightly differently in Alberta as we tend to be behind the curve. We didn’t experience the significant surge many of the other provinces did in sales and values during the first quarter, although it wasn’t all that bad here. We are still dealing with concerns about oil prices, the contining saga of low gas prices and the uncertainty in various areas of the energy industry.

As we meander through the rest of 2010, I can still see some real opportunity during the last half of the year for employment stability and easing of pressure on our energy industries. This should lead to more reactionary purchasing to take advantage of interest rates while they are still at low points. Eventually this could contribute to not only values increasing, but also an additional surge in the economy as stability continues to take hold.

If you have a few minutes to read throught he full report, it is available here, http://www.rbc.com/economics/market/pdf/house.pdf

If you have thoughts on what will happen over the next six months, next year or even tomorrow, I would love to hear them!

If you missed it, Garth Turner was in Calgary recently forecasting for Calgary’s bubble to burst another 20% in the near future. As always he had a loyal following turnout, but it appears he managed to hit a couple of nerves with some Realtors and other folks in the Real Estate industry.

So just for some perspective about why things may not be as bad as he is projecting check out this article from the Herald by Marty Hope,

Author Forecast Just So Much Hooey

As a side note, anytime anyone seems to post anything bad about Garth his supporters bash the individuals soundly, it will be interesting to see if Marty gets some backlash.

The Winnipeg based Frontier Centre released it’s report on housing affordability recently and proclaimed Calgary was ranked 23rd out of the 28 cities in their affordability index. The number one cities for affordability were Windsor and Thunder Bay.

Can anyone read between the lines here? At first glance this would suggest Calgary wouldn’t be the place to move to, but if you are looking for work, don’t you want to go where the jobs are? Perhaps there is a reason Windsor is so affordable, everyone is leaving as all the automaker jobs are drying up, so all the values are dropping. The future for Thunder Bay isn’t to glittering either.

Calgary, although unemployment is way up, still has significantly better opportunities for the people vacating other economically depressed areas. Even more importantly, the jobs also pay considerably more here, we have no PST and over all aren’t we just nicer people?

The study actually covered 272 cities worldwide and not surprisingly Vancouver topped the list as the least affordable.

The link to the full story is available here, Frontier Center – How Affordable is Your Housing?. Just remember, affordability doesn’t directly relate to desirability to live there. There are always additional economic and emotional reasons for certain locations to be more costly to live and these can be incredibly difficult to measure.

We're Number 1!

I just received my copy of REIN’s Top Investment Towns in Alberta for 2010 and Calgary has been tagged as the Top Town in the province over the next 3-5 years. How exciting! Except that I am selling some of our properties, but in that case how exciting for the lucky purchasers!

Now to help clarify this a bit more. Investing in Real Estate is only a get rich quick plan on TV shows. In reality it is a slow and steady race (think Tortoise and The Hare) where persistence and a long term plan work in harmony.

What Don Campbell’s report shows is that after Calgary’s predictable correction of the last couple years we are at a point now where we have more affordable housing conditions, a stabilized economy and renewed optimism. This all bodes well for the next three plus years for Calgary to see above average growth in property values, in-migration and general happiness for Real Estate investors.

So if you are currently investing, planning on investing or are considering investing this is some great news. Oh for Edmonton readers you are in position two this year after multiple years of being top dog!

You probably heard Ontario and Quebec have started to gang up on Alberta. Ontario’s Environment Minister even called Alberta’s oil sands “an embarrassment”. Here’s a great story from the Financial Post that spills a bit more information that Ontario and Quebec forgot to mention, like equalization payments?It’s

Not Just About The Environment! – Financial Post Article

As we are on the back end of what has been termed the worst economic situation since the Great Depression, do we need to re-establish the Big Picture of what is happening in the world? Sure it’s fun lamenting about how crappy the last year and a half has been, talking about the layoffs, the drop in oil prices, perhaps we can bring up how the government royalty program is directly responsible for the global meltdown (oh did that come off to sarcastic?), how it’s just not great like it used to be?

You remember, when we continuously complained about how expensive property was getting, when we complained about how busy it was, when we were frustrated at the incredibly poor customer service virtually everywhere due to lax hiring standards, you know the good old days. It just seems if we aren’t finding something to be annoyed with (did you go outside anywhere Sunday in Alberta!), we just aren’t happy.

Far too many people are caught up in the moment, it is definitely time for many of us to revisit the Big Picture, and I am not talking about global warming right now either. That is a separate rant. We will still feel repercussions of the recession for quite a while, there will be plenty of debt for people to pay back, there will be more pressure on homeowners as values keep increasing, we have to accept it.

Look forwards a year, two or perhaps even further down the time line, what may be happening then? As I like to mention, what happens when the global economy continues to ramp up? First and foremost demand for energy (think oil and gas) will eventually increase, this is a good thing! If you haven’t paid attention, neither China nor India are going away, in fact they are expected to continue to have more incredible growth in their economies for the next several years.

Too many Canadian companies have focused on dealing with the US, after all, it’s easy, and they are just across the border. As Canadian companies start to look globally to economies that are more active, (I think the US will be stagnating under all its debt for quite a while yet) more business will be directed globally. Global business requires more energy! Canada and specifically Alberta provide energy; can you see where this is going?

The Big Picture is things will continue to improve and while we won’t repeat the same unbelievable levels we were mid this decade, we will be rolling along. We will still have people complaining about something then, but for the majority of us it will be a much better place.

Since I brought up a potential rant about global warming, here are a couple thoughts for you. As global warming and its new nom de plume, climate change continues to take center stage; wouldn’t it be great if we see more electric vehicles in use. After all, they use less gasoline and are more efficient, we just have to plug them in? Our already over taxed electrical grids would welcome even more burden on them, then we can fire up more natural gas or “clean coal” electrical plants overnight to help increase power in the grid. Except it won’t be overnight, it takes a couple of years of longer to build a power plant, and they already account for 26% of the CO2 emissions in the world, making them the largest single source of CO2 emissions globally.

Perhaps there will be even more pressure due to the climate conference on Canada and  Alberta to reduce CO2 emissions most specifically relating to the oil sands. This as the US has already announced they are planning on weaning off Middle Eastern oil within ten years. This leaves Venezuela (gosh that Hugo Chavez seems like a nice fellow, very rational and looking out for everyone, seems to love the US too), Mexico (thought to be a net importer of oil due to its growth within the next five years, oops one more tap turned off) and perhaps Canada?

Who do you think will win that one? The energy starved demands of the US perhaps? If they do put reductions in place, the oil just becomes more expensive, which eventually leads to price increases that get passed on to the consumer. Presently one in every five barrels of oil the US uses comes out of Canada; one barrel out of every 20 comes from the oil sands. This number will only increase as Obama moves away from Middle Eastern oil and it has to come from somewhere stable, and nearby. What affect will this have on our economy?

Of course as our economy goes, so does our Real Estate. This really puts a big smile on my face as I look at the Big Picture, now if I can only get through 2009.

Thanks again to Mr. Stef Lukas for keeping me on top of what’s going on in the market, here are some of the current numbers.

Calgary Metro – Single Family       2009                  2008
Sales                                                     622                       393
New Listings Added                              881                    1,049
Inventory                                             2,871                  5,400
Sales to New Listings                            75%                      37%
Sales to Inventory                                 23%                        7%

You can see the sales are significantly higher this year than last year which is very promising, but the number that is always interesting to me is new listings added. Once again the gap between units sold and new listings is staying fairly close. If this gap becomes to large we end up with excess inventory, if it stays close we remain relatively balanced all other factors considered.

Some other interesting stats from Stef’s update is that currently there are 46 single family three bedroom homes available for under $300,000 and 15 of those have double garages. Now five years ago, there were hundreds of properties under $300,000 similar to these, but in the current market this is still great and these types of properties generally make great rentals!

A KatSid Housez Podcast

If it’s Thursday it must be blog post day! I just wanted to touch on what’s happening with the Real Estate market right now. We are continuing to see a trend where the gap between number of sales and number of new listings is getting closer and closer.

When a level is reached, where the number of monthly sales meets or exceeds the number of new properties added to the market things become crazy, much like 2006. It’s unlikely we will actually reach that point any time soon, but the current numbers really show a turnaround in the market from last year at this time.

As an investor it signals supply is dwindling causing demand and pricing to spike upwards. Potentially anyway, right now there is still quite a bit of caution for many people, but it is definitely a good indicator of a much healthier market than we saw earlier this year.

Whether this trend will continue into the normally very slow November and December months is yet to be determined. I personally feel it will drop off for the next couple months and then locally here in Calgary we will see quite a bit of activity in early 2010 and into the spring.

That could make November and December a great time to beat the rush and pick up some more investment properties for the fortunate investors out there.

A KatSid Housez Podcast

I’m trying to post more consistently on Thursday’s these days as it is usually a quieter time for me. Also, if you haven’t noticed, I am starting to include an audio version of the posts. You can find it at the top of the post, just click on the little arrow beside the speaker icon. If this sentence is still here, I haven’t finished editing the audio  yet,so check back later!

I’m seeing plenty of interesting topics starting to show up in the news and  in the markets right now, so today is just a quick recap. Let’s start locally first.

I really enjoy talking to many of my tenants and acquaintances, as I get “the dirt” on what is happening in the economy much sooner than the news and government agencies can report it. What we saw through much of September, was many of our short term accommodations were significantly ramping up in demand.

Vacancies were quite low and the people coming to Calgary were pretty excited about the opportunities out here. It was on several occasions that the tenants even commented on how busy it was out here compared to the locations they came from. This was in stark contrast to the news that came out at the end of September talking about all the layoffs at Haworth, Suncor and everywhere else.

Couple this with the news reports that Alberta was going to be coming out of the recession slower than other provinces and no wonder our vacancies started to jump in October. I had talked in a previous post about how the media manipulated the public conscience and here it was happening. It’s as if people quit heading here over night. Once again, though, other than one fellow who returned to BC, all the other tenants were talking about the jobs that were available here.

They were getting steady work and able to move into locations that are more permanent which is great for them, less great for me though as the funnel wasn’t getting filled on the other end. So much for a slow recovery, or perhaps things never were that bad here?

On conversations in the last couple of weeks with people there is even more work ramping up, one company supplying piping to the oil industry has seen orders increase threefold in the last month and has had to rehire laid off workers. Some of the folks working downtown are churning out new projects that are starting to get ready to scale up and oil is currently at $75 a barrel (offset by a 97 cent dollar mind you, but still better than $60 oil). Also talking with some of the Union people I deal with there are more projects starting in the near future, which also bodes well for the workers.

On the Real Estate side, sales are still very consistent, the average resale price is down about $8,000, but the median price is up $2,000. So that indicates Real Estate is staying quite stable, with the dollar rising against the US, perhaps there is some extra pressure on potential buyers to buy now in case mortgage rates move up earlier than expected? Will this spur sales to increase during a time of year when they typically decrease? Only time will tell.

What are you seeing out there? Are you buying into the news, or seeing some positives? Were you part of the shoppers who hit the Cross Iron Mills, or were you to busy sitting at home talking about the woeful economy? Are you from outside of Alberta reading this and wondering how to get out here? I’d love to see some comments on this topic.