It sounds like this headline is showing up all across Canada. Variations of this headline have been triggered by a new report from the Canadian Centre for Policy Alternatives. In the report they talk about six major centers (two in Alberta!) that are in a precarious position. (links to the reports are at the bottom of the article!)
I was writing an article about this for my weekly Real Estate column at the Chestermere Anchor when I found the following video from Peter Kinch. Peter is one of the top ranked mortgage brokers in Canada, and in the video he presents his view on the subject.
Also of note, he brings up the other report that just came out from the C.D Howe institute report that says there is a low risk of a US style housing burst. Basically the exact opposite of the other report. Also strangely enough, the C.D. Howe report didn’t make much news in the headlines! Anyway here is the video and I will probably have my post about this up some time tomorrow.
**Give the player a couple of seconds to start after you click the arrow!**
Oh, one more quick note, the next Bank of Canada rate announcement is due out on September 8th, if you are keeping track!
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?
Just noticed a story out of the city council meeting last night where the council has erased zoning restrictions on secondary suites designated for narrow properties. So what does that mean?
For some reason if doesn’t change anything for older districts that have the nice large lots (the example they use is Haysboro and University Heights) which are more suitable to add secondary suites. It does however affect areas where they cram homes in like Martindale, certain areas of Tuscany, McKenzie Towne, in all about 18% of Calgary homes.
These areas can now have legal basement suites. There are still certain rules to follow, but it cannot be denied due to zoning for these areas now which should take some pressure off landlords hoping to not get reported.
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?
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.
You’ve seen the stats, you’ve read the news, and you are likely aware home prices are continuing the trend of increasing in Calgary and area. What they aren’t telling you is that it’s not every area of the city!
The numbers that get released are an average price and when you look at averages this means some areas are growing more, while others grow less. No less than three individuals whom I have talked to in the last month have all been getting excited that prices are going up and have automatically assumed their property values have as well, but this isn’t always the case.
As we have been working on streamlining some of our portfolio and reducing some of the properties we own, I have been looking closer and closer at trends in a couple of areas and these areas have been completely flat or worse. They have shown either no growth or crept downwards a bit in price.
To add to this, inventory levels are continuing to increase around the city and with the upcoming mortgage rule changes, we have the dual problem of more product and fewer buyers. Now before you start to think I am predicting pending price drops, just realize this is something to be aware of, not meant to cause a panic. It may result in a temporary hiccup in sales and prices, but nothing long term.
There is nothing new about inventory increasing in the spring. This quite common occurrence usually starts in March and runs into June and brings not only additional inventory, but additional sales as well. Spring fever tends to be a huge factor with Real Estate every year.
As for the mortgage qualifying changes, this will only have a short term affect on buyers. Yes, it will reduce the number of qualified purchasers, but the purchasers getting pushed out would potentially be setting themselves up for a foreclosure in the future as rates increase. By reducing future foreclosure properties, these new rules will actually help keep prices stable and over time gradually increasing. Within a couple months, these changes will be forgotten.
Now, let’s get back to my original point about not all home prices increasing equally. Since average sales price is based on averages, don’t automatically assume since the average price increased by 3%, your property automatically increased as well. I’m seeing this mistake being made by both home owners and Realtors right now and new listings are coming on board for way too much.
In the one area I am looking at, when you compare the new listings to other properties listed all seems fine, but everything that has actually sold is all about 5% less than these currently listed prices. If you have a property a buyer absolutely loves, you might be able to get away with this as you have the leverage of emotion winning out over logic. However if you either don’t have the time to wait for that person to show up or you just want to sell your property most efficiently you need to have a firm grasp of what properties are actually selling for.
You really need all the facts when evaluating a property you are about to sell, or even a property you are about to purchase. Don’t fall prey to the headlines, make sure you find out what is really happening and as Don Campbell says, “Look behind the curtain!”
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,
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.
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!
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!
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.
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.
Just the other day I received an email from a colleague with REMAX’s Western Canada’s news release from September. I guess I’m not on their mailing list if I am getting it passed on to me, I wonder who I will have to talk to?
There was two big announcements in the release. The first was that the “Canadian housing markets buck recession and trend upwards”. This release went on to say with the worst of the recession over, that residential real estate markets in the major Canadian cities are poised for growth in the final quarter.
I think that’s great news, but I think it may be a bit too optimistic. While it’s true many of the major cities have seen significant growth in sales percentages, much of it has been stimulated by the increased affordability brought forward by low interest rates. Nationally house values have increased by 0.5% which doesn’t exactly sound earth shattering, but then when you compare it to the US we have done phenomenal.
Also, when you consider during this last year of the recession that Real Estate has held its value it is kind of heartening. This was just an average of course and only represents the last twelve months of which I am painfully aware as I have several properties I am waiting on as they slowly recover their original values. We still have to wait a few more years before the local markets can recover back to the peaks we had seen in 2007 for local Real Estate pricing.
The second big part of the announcement for me was that they quoted an Angus Reid Omnibus Survey that asked, “In which do you feel more comfortable investing your money, the stock market or Real Estate? A surprising 77% of respondents all chose Real Estate, that is a pretty surprising number for me. Although when you get down to it, many people talk about investing in Real Estate, it’s just a chosen few who actually take action and actually do invest on their own or pursue someone to help them like ourselves. It will be interesting to see how that unfolds over the next year and how many actually jump in the waters so to speak.
As for my take on the announcement being perhaps a bit optimistic? Our Real Estate market has been incredibly tricky for anyone to forecast for quite a while now, but at the same time, it’s also been quite consistent through the last quarter of the year. As we move closer to the holiday season and as winter sets in, people aren’t thinking about a new home or even moving as much. Traditionally both sales and listings slow down and during December are the lowest of the year for both new listings and sales. My thoughts are that this year may include a bit more belt tightening than normal as people aren’t quite ready to call the recession over, no matter what press releases they read.
People just seem to be a bit more cautious right now and are filled with even more uncertainty about what will happen over the next few months. Will rates go up? Australia
This is where some will end up
was the first major nation to announce an increase in bank rates, so there is a possibility that Canada could also follow this route. It’s unlikely, but it does make people think. Other questions are will the federal government blow up and how could this affect the economy? Or will the Alberta government beat them to it? So many questions and so many concerns, all with no real answers.
Now I’m not saying the markets are going to start declining again, far from it. I just sense it will be slower again for the next few months until we move into the New Year. Sort of a rest period as the market coasts along for a little while and grabs a breather. Once we move into 2010 though I am expecting some positive market growth.
By that time, we should be feeling even more upbeat about the economy, we should have a better idea about where interest rates may be, or may be heading and we will see even more renewed optimism in the province and the country. I personally cannot wait for 2010, it’s going to be a wonderful time of new growth, new opportunities and newfound enthusiasm for those willing to embrace it.
I’ve always felt the last couple of years have been a weeding out process. It’s provided an opportunity for people to review where they are and what they have been doing (sometimes by corporate decisions out of their control) and make some incredible changes. A dear friend of ours was just let go after 20 years at the same job. Can you imagine what that’s like?
First off 20 years is amazing in this day and age, but the important part is she is taking advantage of this time, this opportunity in our eyes, to find out what she really wants to do. It’s something more people should be doing, but they get so caught up in their day to day life they miss the positives that are right out their in plain site if you have the right mindset.
Now it appears I have gone off topic a bit here, but it’s back to my point that 2010 is
While others will end up here!
going to be a very important time. By all indications it will be the resurgence of the economy with the potential for the recessionary period to be officially over. Right now and over the next year there are going to be so many opportunites for people as business picks up that I just don’t want people to look back and say it surprised them.
It makes my head spins sometimes trying to figure out where the market is moving to each month. I understand the big picture, I keep on trying to explain to others how Real Estate is a long term view investment and how if you look at it long term it’s a pretty low risk investment with plenty of up-side.
It’s the way it keeps moving each month that I have some problems with. After the last couple of years with huge excess inventory buyers have been having a great time, but now take a look at this graph out of the latest CREB statistics for September.
We have been coasting along in a balanced market since about May this year. That’s four months of what could be termed a strong healthy Real Estate market. How could that be? I keep on hearing how bad things are here. I keep hearing how it’s a bubble from all these people commenting on Real Estate articles in the Calgary Herald site. Could those people be wrong and things are actually pretty good here in Calgary, and in Alberta, like I keep telling people?
People are so used to looking at their own little microcosm of the world that they miss the big picture view. We have become so spoiled for so long we neglect to remind ourselves of where we would be if the huge economic growth hadn’t of occurred here. We forget to be thankful of what we have, and not of what we want or are not able to get.
On one hand we have many individuals in horrible situations where they may lose their homes due to layoffs, over leveraging and economic pressures. Yet at the same time many of these people would not be living in the nice homes they are currently in if the economy hadn’t blossomed so much in the middle of the decade.
I don’t want to get too excited here, things look fairly rosey right now, but we know as we get deeper into the fall, the Real Estate market will tail off again. It will slow down significantly during November and more in December, but January and then February and then spring are coming up soon. And when they arrive, we will be starting those months off with lower inventory and higher expectations than we have seen in a couple years.
