Calgary Real Estate Bubble?

[MacDougalbry]

I found this blog recently:

http://calgary-housing-bubble.blogspot.com/

[I-Hate-Hulse]

Originally Posted by MacDougalbry

I found this blog recently:

http://calgary-housing-bubble.blogspot.com/

Does this guy have any credentials to comment? I coudn't find any to suggest he did, but it was a pretty quick scan.

That said, we all know this kind of price appreciation can't last forever. It's a cycle, and it will come down at some point. The real question is when, and how soon?

Oil at $50 would likely chill the market back to normal levels of expansion IMHO.

[Bobblehead]

Looks like the blog only started on May 11. No credentials that I can see.

In his first post, he says:

Historically, most asset bubbles begin with an economically rational reason for increasing prices, but then get taken over by speculators taking advantage of momentum, and finally by the masses piling into a particular asset driving up values quickly and beyond any rational valuation. This continues as long as a "greater fool" will always be willing to pay more for the asset.

Hmmmm, my first year Economics prof pretty much called this crap in '87. I don't think I'll pay too much attention. He appears to be cherry picking examples to support his hypothesis. I'm sure something will happen that he predicted, but like a few hockey blogs we can all name, you make enough predictions, some of them are bound to come true.

[Agamemnon]

I don't think it takes a rocket scientist to suggest that the current housing boom won't last. I think what is important is figuring out when it will peak, and either 'getting out' or at least not buying during that period. Where is the peak though? Did we hit it? Are we still 2 years away?

I think Shell is moving 400 families from Toronto to Calgary, that'll cause some pressure on the market.

[Rhettzky]

His comparison of our current inventory levels compared to other Boom markets is pretty scary. He'd gain a crap load of credibility if we saw a drastic increase in inventory in the next quarter. Almost makes you want to sell and rent for a few months to ride the wave out.

[MacDougalbry]

There is a wider context... I found that Calgary blog while reading a Vancouver housing bubble blog. In Vancouver City proper, the average price for a detached home is now over $700,000. Calgary is actually the last market to be hit by a wave of escalating prices. Many real estate markets in the states had seen similar big run-ups in the past few years but now the market down there is collapsing. See http://thehousingbubbleblog.com/ for example.

[Tron_fdc]

My neighbour went out and bought 10 houses within 2 months of 9-11. Housing prices dipped, so he mortgaged his exising house, cashed in his retirement funds, and bought up a bunch of real estate.

The guy is a multi millionaire now......

As far as the real estate market goes, I believe we're still behind Vancouver and Toronto as far as avg home prices go, and from what I understand our economy is still further ahead than BC and Ontario (per capita). Yes, it is oil based but unless the price of oil suddenly drops to $20/bbl I can't see it bursting anytime soon. Unless of course there is a sudden surge of property sales that flood the market, but as it sits I see no reason that something like that would happen.

[photon]

A bubble is something that isn't supported. This isn't a bubble...

a 30% increase in 3 months isn't sustainable, but the fundamentals are there to support the current prices and moderate growth. Affordability is still relatively high (though decreasing), unemployment is low, wages here are increasing faster than the rest of the country, and inventory is still constrained.

For Oil there's a huge amount of multiple $Billion projects on the books, and like Tron_fdc said short of $20/bbl oil they aren't going to abandon those projects, so that's a decade of sustained jobs and immigration for Alberta.

Calgary itself might become less of a good place to invest, but there will be lots of other places in Alberta to invest real estate wise.

Probably a guy that sold his house right before this ramp up or lost out on a house.

EDIT: He does have some good things though, always look at the fundamentals.. His part about inventory is valid; when inventory starts to free up then the increases will slow down and the current inversion of new home builds being far cheaper than resale houses will revert. But even that's a ways away, talking to several builders in the past week they say that right now there's a shortage of house trusses, concrete, and next will be drywall and drywallers. Prices on materials continues to rise because of world events (rebuilding an entire city!) and another hurricane season could make it even worse.

EDIT2: I was also talking with a real estate agent who said that we're now seeing some sanity in the market; houses that would have sold 3 months ago are now sitting on the market because people aren't willing to overpay.

[firebug]

Bored, so have been running some numbers.

Since Jan of 1992, homes have increased by an average of 7.267%/year (assuming annual compounding).

Running a regression between oil prices and avg house prices gives a line of (y=mx+b):
Avg. Calgary Home price (CDN) = 2,605.1 x $CDN Price of oil + $77,135

with an R^2 value of .7964

Therefore, with a CDN $60 oil price (remember the forex), you might expect an avg. home price of $233,441.

I will see if I can find some other correlated data.

I also have a couple excel charts prepared, but don't know how to post them.

[looooob]

Originally Posted by Tron_fdc

......

As far as the real estate market goes, I believe we're still behind Vancouver and Toronto as far as avg home prices go, and from what I understand our economy is still further ahead than BC and Ontario (per capita). Yes, it is oil based but unless the price of oil suddenly drops to $20/bbl I can't see it bursting anytime soon. Unless of course there is a sudden surge of property sales that flood the market, but as it sits I see no reason that something like that would happen.

I'm no expert but I pretty much agree with this....Calgarians have more take home pay than most any other city in Canada, and Vancouver and Toronto have shown that people will pay alot for a house...does this mean the insanity seen in the last bit in Calgary will continue? I doubt it, but I don't picture a major crash either...city is still growing quickly...takes forever to build a house etc...

[looooob]

actually on his blog he says this:

I've had numerous requests to restart this blog, which has been inactive for the past number of years.


suggests to me he has had a blog , off and on, predicting a Calgary bubble bursting for many years...I suppose eventually he will be correct

[Bobblehead]

People are leaving jobs in Calgary because they can't get homes. As long as there is demand for labour, there will be a need for more housing. I don't see the job market (in Alberta) crashing anytime soon, so the increases will slow down, but I don't think you'll see any claw-back of home values.
Average home prices may go down, but that will only be because of a demand for lower cost housing will rage on for a while yet.

[habernac]

I think it'll level off, but I doubt prices will drop at all.

[Bingo]

For most of us it doesn't matter anyway.

Looks good for net worth but unless you're watching for the high so you can sell and live in a van down by the river it matters little.

I have a house. I live in it. I plan to stay. I owe X, when I pay off X it's mine.

Until my kids leave and I sell the rest is market value not real.

[looooob]

Originally Posted by Bingo

For most of us it doesn't matter anyway.

Looks good for net worth but unless you're watching for the high so you can sell and live in a van down by the river it matters little.

I have a house. I live in it. I plan to stay. I owe X, when I pay off X it's mine.

Until my kids leave and I sell the rest is market value not real.

you aren't leaving that basement....ever....

[MacDougalbry]

Originally Posted by Tron_fdc

As far as the real estate market goes, I believe we're still behind Vancouver and Toronto as far as avg home prices go, and from what I understand our economy is still further ahead than BC and Ontario (per capita).

As of last month, Calgary is now more expensive than Toronto.

Originally Posted by Bingo

For most of us it doesn't matter anyway.

Looks good for net worth but unless you're watching for the high so you can sell and live in a van down by the river it matters little.

I have a house. I live in it. I plan to stay. I owe X, when I pay off X it's mine.

Until my kids leave and I sell the rest is market value not real.

I agree... unless, of course, you have taken out a HELOC's (Home Equity Line of Credity), which have become an extremely popular way for people to tap into their new found "wealth". A lot of people are living high off of these paper gains.

Originally Posted by photon

For Oil there's a huge amount of multiple $Billion projects on the books, and like Tron_fdc said short of $20/bbl oil they aren't going to abandon those projects, so that's a decade of sustained jobs and immigration for Alberta.

Yes, but oil has been up there for a while now. What happened starting last August to drive housing prices up by 43% year over year? Also , a collapse of the housing market in the states is sure to bring on a fairly painful recession down there; which will definitely impact the price of oil in some way.

[looooob]

Originally Posted by MacDougalbry

As of last month, Calgary is now more expensive than Toronto.



.

wasn't that an error, in that they were comparing apples to oranges in the end?

[MacDougalbry]

I just had to go check this myself, I think I must have heard the same news story you did. Here is the market summary from the TO Real Estate Board web site:

Meanwhile, prices trended upward in April, with the average rising four per cent over March to $366,683. It was also up seven per cent over the $342,032 recorded in April of 2005. "A price jump like this is good news for home-owners. However, potential purchasers can take comfort from the fact that, with listings up four per cent over last April 25,245), further increases should be quite limited for the remainder of the year."

[Lurch]

For most of us it doesn't matter anyway.

Looks good for net worth but unless you're watching for the high so you can sell and live in a van down by the river it matters little.

I have a house. I live in it. I plan to stay. I owe X, when I pay off X it's mine.

Until my kids leave and I sell the rest is market value not real.

This is only true if you don't leverage off of your house for other investments. I know for me the run-up in prices allowed me to purchase a share of a small business (non real estate - I'm not so convinced we're not due for a correction) that I otherwise would never have had the capital to get involved with.

[looooob]

The average price topped all previous monthly highs in Vancouver, where it reached $502,846, 21.8 per cent higher than a year earlier; in Halifax-Dartmouth, with prices reaching $271,969, up 48.1 per cent; in Calgary, $341,838, up 37.1 per cent; in Edmonton, $226,846, up 18.2 per cent; in Winnipeg, $162,615, up 16.8 per cent; in Montreal, $220,246, up 7.9 per cent; in Toronto, $366,683, up 7.2 per cent; and in Ottawa, $263,122, up 6.2 per cent

I think the initial story where it came out that Calgary surpassed Toronto compared something like all housing in Toronto versus single family dwelling in Calgary?