Is this the sign of a bursting bubble?

[WinnipegFan]

Can't help but connect these two articles from the Herald and wonder if this means the bubble may be near bursting level.

http://www.calgaryherald.com/goodbye...910/story.html

http://calgaryherald.com/business/re...age-rent-up-10

I am not an expert in real estate but this paints a fairly clear picture of a dwindling demand and increasing supply.

[blueski]

1.2% price decline year over year? Nope that is not a bubble bursting.

[Slava]

This may not be a bubble. Prices of things rise and fall through the business cycle and it doesn't mean it's a bubble every time.

[burn_this_city]

Whether or not there is a bubble will depend on how long this downturn lasts. If it only goes on another year or less, it might only deflate slightly. If this lasts another 2-3 years I think there will be a decent drop in home values. We're already seeing the upper end of the market drop by sizable chunks.

[GGG]

It depends on what you believe. If you believe layoffs have stabilized with the 0 spend 2016 capital budgets the majors are doing then in theory we have reached the end of the layoffs.

If that's the case then the only pressure on housing will be people running out of severance, then rrsps which takes longer then you think.

With interest rates being low rents can drop and still cover mortgage costs so most rental properties will be neutralish.

If the job market stabilizes people will begin to buy again.

The biggest threat to housing price is likely new construction cost dropping do to labour price drops which allows them to drop prices and over supply the market.

So without continuing layoffs or interest rate increases I don't see anything greater than 10% downside.

[Erick Estrada]

My dad has been scoping Calgary for a higher end house and hasn't found prices coming in line with lower sales. That said it sounds like some people are holding out as he's looked at houses that have been on the market for months and their asking price isn't wavering.

IMO the rental vacancies increasing is a good thing. It has been pretty tough for people moving to the city and find a decent place to rent.

[Buster]

Originally Posted by Erick Estrada

My dad has been scoping Calgary for a higher end house and hasn't found prices coming in line with lower sales. That said it sounds like some people are holding out as he's looked at houses that have been on the market for months and their asking price isn't wavering.

IMO the rental vacancies increasing is a good thing. It has been pretty tough for people moving to the city and find a decent place to rent.

I've been looking at "higher end" (not sure how you define that) homes for a while, and have seen the same thing.

Overall, though, I'm much more bearish on the market than people here are, it seems.

We haven't seen any pressure put on the housing market yet from the downtown, and it's uncertain what the lag will be. I think six months from now, this thread will look quite different.

Layoffs is one thing, but there will be a large number of high paid professionals that are "under-employed" or billing less.

It seems the the markets are pointing toward a Fed rate hike in December, which will put upward pressure on yields across the board.

Once people realize that commodity prices are now structural, rather than cyclical, we will see some capitulation.

Unless one of those "higher end" homes decides to cut their price ahead of the downturn, then I'm just going to continue to sit on my cash.

[Slava]

Originally Posted by Buster

I've been looking at "higher end" (not sure how you define that) homes for a while, and have seen the same thing.

Overall, though, I'm much more bearish on the market than people here are, it seems.

We haven't seen any pressure put on the housing market yet from the downtown, and it's uncertain what the lag will be. I think six months from now, this thread will look quite different.

Layoffs is one thing, but there will be a large number of high paid professionals that are "under-employed" or billing less.

It seems the the markets are pointing toward a Fed rate hike in December, which will put upward pressure on yields across the board.

Once people realize that commodity prices are now structural, rather than cyclical, we will see some capitulation.

Unless one of those "higher end" homes decides to cut their price ahead of the downturn, then I'm just going to continue to sit on my cash.

I'm curious about that bolded line. What makes you think that this is the new normal and not a piece of a somewhat usual economic cycle?

[bomba]

I definitely think we are on the cusp of some more softness on the real estate side. There was an article that pointed to a big weakening on the condo side of the market - inventories have reached 6 months.

Its a good time to have some money on the sidelines waiting to scoop up some opportunities that might present themselves in the next couple months.

[Buster]

Originally Posted by Slava

I'm curious about that bolded line. What makes you think that this is the new normal and not a piece of a somewhat usual economic cycle?

Demand is soft across all commodities, not jsut oil. This is also combined with the fact that technology has advanced rapidly in terms of extraction across almost all commodity sectors. The best example is probably still the ability to access shale with new drilling techniques.

Fiscal and monetary policy since the mid-90's has been terrible. We've had central banks deliberately inflating bubbles, and massive public intervention in the markets. The rapid "growth" that ensued ensured capital flows went towards commodity extraction in an unbalanced way. This made us all feel rich. But we are coming to the end of the monetary and fiscal experiment of the last 20 years. Once the smart economies figure out how to return to open markets, which much less government control and intervation, we will look back on this period of history sharking our heads.

The run-up and wealth generation in the last 20 years in Calgary, when put in context, will be considered windfall profits, not sustainable, structural wealth creation.

The psychological problem in Calgary is that many people got rich, or have been paid handsomely because of highly external factors. But they got it all confused with them thinking they were smarter than the average bear.

[chemgear]

[Locke]

'Bursting bubbles' dont tend to have mild economic indicators.

You ever pop a balloon? Its more like that.

This seems more like part of a market correction as part of an economic cycle.

[ranchlandsselling]

Can we get a thread title change?

This seems like a shoot of the Layoffs thread and countless other threads. I queried what happened to the Calgary Real Estate Predictions thread that originated in 08 IIRC but didn't hear anything.

Title should probably include something about Real Estate.

[blankall]

The problems in Vancouver and Toronto are going to have a trickle down effect into all the other cities. A portion of the people who can't live in Vancouver or Toronto are going to buy housing in Calgary. Your even going to start seeing foreign investment in Calgary.

Basically, don't expect housing prices in desirable areas in Calgary to drop, just because wages and the economy have. The external factors in Canada are too great now.

[Fighting Banana Slug]

Certainly possible that there may be a real estate bubble that could burst, but those articles are not evidence of that. Really just a market correction, where we have gone from historically low vacancy and increasing housing prices, to a drop off which isn't that steep (yet).

Typical attention grabbing headline though. "Vacancies Quadruple!" is the negative, sky is falling spin on what is probably a good thing as far as rentals go.

[peter12]

Originally Posted by blankall

The problems in Vancouver and Toronto are going to have a trickle down effect into all the other cities. A portion of the people who can't live in Vancouver or Toronto are going to buy housing in Calgary. Your even going to start seeing foreign investment in Calgary.

Basically, don't expect housing prices in desirable areas in Calgary to drop, just because wages and the economy have. The external factors in Canada are too great now.

On the other side, if you see a bubble burst in Toronto, the spill-over effect will have a negative impact on Calgary.

As for foreign investment, we know it is driving up certain high-value neighbourhoods, and now we know for absolute certain that a lot of this value was driven by dirty money.

[Harry Lime]

Locke and Peter are headed in the right direction. I love reading economists talk about predictions, and if we are lucky get to look at some nifty graphs, but when a 'bubble' has been identified, what they do is 'burst'.

All we are really waiting for is an inciting incident.

An unpredictable event that will bring prices back down to what is affordable for the majority of the population. What will this be? When will it happen? The only thing that we know is that the cost of buying a house has exceeded the buying power of a large portion of the population. Housing is a necessary part of life.

Real estate experts are fun to listen to, but in this particular scenario they will be 'caught off guard', by definition.

[Buster]

Originally Posted by Locke

'Bursting bubbles' dont tend to have mild economic indicators.

You ever pop a balloon? Its more like that.

This seems more like part of a market correction as part of an economic cycle.

I disagree.

House prices can remain sticky through a change in underlying fundamentals. Prices can lag these fundamentals by months, a year.

The damage that is being done to the fundamentals of Calgary's real estate market won't immediately be seen. But the signs are there - for instance I find the collapse in volume to be a much more valuable indicator (for now) than price. The psychology of the average buyer is what we are debating here, more than than anything. And people really don't like to absorb bad news until they are forced to do so. We're not there yet - as people still believe that calgary is just going through an "adjustment".

[peter12]

Originally Posted by Harry Lime

Locke and Peter are headed in the right direction. I love reading economists talk about predictions, and if we are lucky get to look at some nifty graphs, but when a 'bubble' has been identified, what they do is 'burst'.

All we are really waiting for is an inciting incident.

An unpredictable event that will bring prices back down to what is affordable for the majority of the population. What will this be? When will it happen? The only thing that we know is that the cost of buying a house has exceeded the buying power of a large portion of the population. Housing is a necessary part of life.

Real estate experts are fun to listen to, but in this particular scenario they will be 'caught off guard', by definition.

Real estate "experts" are also vested in the housing market, and thus, are full of BS.

[Winsor_Pilates]

Originally Posted by blankall

The problems in Vancouver and Toronto are going to have a trickle down effect into all the other cities.

Not to detract from the discussion on Calgary, but this study released yesterday is getting a lot of talk in Vancouver right now:
Housing Market Fuelled by Chinese Buyers

To Summarize:
-Around 66% of detached houses bought on Vancouver's Westside were by Mainland Chinese buyers.
-Number 1 occupation of the buyers was "housewife"; "student" was also high on the list