Real estate in Calgary - another bubble?

[bizaro86]

Originally Posted by Rutuu

I've been checking in and out of this thread for a bit. On my snooping I haven't seen to many folks break the purchase of a detached property into land value and home value. Land typically goes up in a growing city, the house itself is a bit of a depreciating asset that needs maintenance and renovation over time. My buddy in Houston was the same way when he was purchasing his latest place...it was all about the total price, not about maximizing land size.

On the condo side. The best real estate guys I follow talk about the cost of supply. If they can build it cheaper than you bought it for, then you're in trouble. If you bought it cheaper than the rebuild costs, you're in the clear for a capital return.

Anyway...property chats are always great fun.

Great post. I think cost inflation (ie, price of lumber is up huge) will start to impact the Calgary condo market at some point. Right now lots of condos are selling below replacement cost, but once the market turns replacement cost will become the best metric. If land appreciates, and building costs increase that has the potential to be a pretty big double whammy for condo prices.

On the house side you're right as well, imo. I sort of think of it as owning a house is a consumer good, while owning the land under it is an appreciating investment. I bought too much house relative to the value of the land I own for my personal residence, but that was a conscious consumer choice, and I save money on other things (ie buying economy vehicles and driving them for a decade+)

Everyone craps on condo fees, but they often include a variety of utilities, plus insurance, plus replacement/repair. I did the windows/patio doors in my house and it was ~25k. If you figure a 30 year lifespan that's ~$70/month in windows alone.

[Rutuu]

Originally Posted by bizaro86

It's amazing how much the trailing returns affect people's perception of what the right course of action is.

Exhibit A: The Vancouver perspective. After years of going straight up, Vancouver RE is now very, very expensive. But that's meant that buying ANYTHING has been the right choice.



Exhibit B: The Calgary perspective. Condos are down over the last 10 year period. But they're so cheap now that it's really, really unlikely (imo!) that they will repeat anything close to that performance over the next 10 years.



Not meant to be a dig at either poster - they're both 100% correct for a certain set of circumstances.

I just think over the next 10 years the right choice might be opposite for the two geographies. Renting a Vancouver condo is so much cheaper than owning at this point that I don't see how the difference ever gets made up. The appreciation required to just break even would be huge.

Whereas owning a Calgary condo is very cheap relative to rent. Even if values stay flat (at current low prices) you're going to make out OK just from mortgage paydown. And with oil prices finally recovering and the Transmountain expansion getting built, I think there's the potential for upside. It doesn't need to be an old style 40% in one year boom, but a couple of 5%+ years in a row on a condo is a pretty nice shortcut on saving for a detached house if that's the end goal.

YMMV, not advice.

A few folks have mentioned the leverage before, but that 5% is a big return even if you're entering at an LVR of 80% (25% ROR on the 1st year).

Also looking at Vancouver prices the land values is similar to what some areas of where I live are at, which makes sense as the populations are similar. The prices for land in the Vancouver area are priced right for condo development. If you want a detached home Burnaby and North Van look reasonable still...on a VERY quick glance.

[boogerz]

Originally Posted by The Yen Man

There is no way a suburban 1 bedroom condo in Nolan Hill has a $500 condo fee. I have one in a beltline highrise that charges $300.

I only did a scan of the far south and condo fees were hovering between $325-500/month.

Regardless, it's not hard to find older SF starter homes east of Deerfoot for $300-350k. At 10% down that's a $1200-1300/month mortgage payment, which is doable on a single income of $65k/year and marginally more than the mortgage payment (+condo fees) of suburban condo.

[Winsor_Pilates]

Originally Posted by bizaro86

It's amazing how much the trailing returns affect people's perception of what the right course of action is.

Exhibit A: The Vancouver perspective. After years of going straight up, Vancouver RE is now very, very expensive. But that's meant that buying ANYTHING has been the right choice.
...

I just think over the next 10 years the right choice might be opposite for the two geographies. Renting a Vancouver condo is so much cheaper than owning at this point that I don't see how the difference ever gets made up. The appreciation required to just break even would be huge.

Maybe, or it could continue to rise again.
Everyone has to make those predictions for themselves and I have nothing against anyone who decides renting is their preference.

I can tell you that I heard the same thing from someone like you 5 years ago, and 10 years ago and 15 years ago.
There's always someone who thinks the Vancouver market has reached its peak and they've always been wrong.
Perhaps you'll be right this time though, time will tell.

Edit: should add that renting isn't that much cheaper than ownership here either (aside from the down-payment).
I closed an investment condo purchase last year (20% down) and cash flow on the rent I get from my tenant, with condo fees, mortgage and property management covered.

[Rutuu]

Originally Posted by Winsor_Pilates

Maybe, or it could continue to rise again.
Everyone has to make those predictions for themselves and I have nothing against anyone who decides renting is their preference.

I can tell you that I heard the same thing from someone like you 5 years ago, and 10 years ago and 15 years ago.
There's always someone who thinks the Vancouver market has reached its peak and they've always been wrong.
Perhaps you'll be right this time though, time will tell.

Edit: should add that renting isn't that much cheaper than ownership here either (aside from the down-payment).
I closed an investment condo purchase last year (20% down) and cash flow on the rent I get from my tenant, with condo fees, mortgage and property management covered.

It is interesting that so many people think it can't go up forever...and they're kinda right as there is a lending limit for two salaries, but they don't envision the scenario where wages cap the total spend but developers come in and start cutting properties up into "right sized" blocks, be it infills or condos. All of a sudden there is inventory that can rise in price again to what two salaries can cover.

Can't afford a 6000sqft lot...well subdivide it and put two houses on it. Houses cost ~$400k, and the $1.2m property is now two 3000sqft properties valued at $1m with room to run. If its a younger area, put townhouses or condos on that property and get the units into the $650k - $800k range.

[Fuzz]

Originally Posted by boogerz

A $175k mortgage on a condo is do-able...but for that money you're only getting one bedroom, you'll have to deal with the terrible condo board, and the condo fees are $500/month.

The condo fees push that mortgage payment into the monthly payment range of a small starter SFH, which has more space and no condo board.

The small extra stretch for a SFH is a no brainer.

I'm not a fan of condos personally, but I took a quick look, and found this:

https://www.realtor.ca/real-estate/2...algary-kincora

Maintenance Fees
$277 Monthly


Maintenance Fees Include
Common Area Maintenance, Heat, Insurance, Interior Maintenance, Property Management, Reserve Fund Contributions, Sewer, Water

Now, to me that sounds like pretty good value, and you can't compare condo fees + mortgage to a house mortgage, without adding in all the things a condo fee covers. Just heat, sewer, water, and insurance on a home is going to be more than $277.

[timun]

$277 is barely enough to cover heat, water, sewer, and insurance on that condo too. That place is ripe for "special assessments" down the road.

[Flamenspiel]

Can one of the Vancouver agents indicate the percentage increase in Vancouver real estate since the US dollar began rising in 2012.

I remember looking into the Toronto market in 2019 and it basically matched the dollar at around 30-40%.

I’d the return to condos mainly speculation? The report on global.ca seemed to indicate that, as is the craze on the east coast.

Can someone that gets accustomed to living a quieter life with more space move back to downtown condos?

[Kickazzflames]

Originally Posted by timun

$277 is barely enough to cover heat, water, sewer, and insurance on that condo too. That place is ripe for "special assessments" down the road.

Learned a hard lesson on "special assessments"..

[GGG]

Originally Posted by Winsor_Pilates

Maybe, or it could continue to rise again.
Everyone has to make those predictions for themselves and I have nothing against anyone who decides renting is their preference.

I can tell you that I heard the same thing from someone like you 5 years ago, and 10 years ago and 15 years ago.
There's always someone who thinks the Vancouver market has reached its peak and they've always been wrong.
Perhaps you'll be right this time though, time will tell.

Edit: should add that renting isn't that much cheaper than ownership here either (aside from the down-payment).
I closed an investment condo purchase last year (20% down) and cash flow on the rent I get from my tenant, with condo fees, mortgage and property management covered.

This would suggest that the Vancouver market is fairly priced and not in fact a bubble. If rents support the purchase price without relying on future growth greater than inflation to make the numbers work there there is sufficient real demand for housing to support the price and not speculative demand on appreciation.

It will be highly susceptible to interest rate changes though. How do your metrics change if you increase the interest by 1%

[Weitz]

Originally Posted by timun

$277 is barely enough to cover heat, water, sewer, and insurance on that condo too. That place is ripe for "special assessments" down the road.

Not only that but these days condos basically have to self insure unless its a massive fire or flood of a very large amount of units.

[bizaro86]

Originally Posted by boogerz

I only did a scan of the far south and condo fees were hovering between $325-500/month.

Regardless, it's not hard to find older SF starter homes east of Deerfoot for $300-350k. At 10% down that's a $1200-1300/month mortgage payment, which is doable on a single income of $65k/year and marginally more than the mortgage payment (+condo fees) of suburban condo.

Yeah, if you compare mortgage payment for a house to mortgage+utilities+insurance+maintenance+replaceme nt reserves for the condo the house will come out with an advantage.

Once you add water/sewer/trash/compost/recycling/gas/insurance/maintenance/replacing big stuff (roof/windows/furnace) the comparison tilts a bit.

[bizaro86]

Originally Posted by Winsor_Pilates

Maybe, or it could continue to rise again.
Everyone has to make those predictions for themselves and I have nothing against anyone who decides renting is their preference.

I can tell you that I heard the same thing from someone like you 5 years ago, and 10 years ago and 15 years ago.
There's always someone who thinks the Vancouver market has reached its peak and they've always been wrong.
Perhaps you'll be right this time though, time will tell.

Edit: should add that renting isn't that much cheaper than ownership here either (aside from the down-payment).
I closed an investment condo purchase last year (20% down) and cash flow on the rent I get from my tenant, with condo fees, mortgage and property management covered.

I'm quite surprised the bolded is still possible in Vancouver. That changes my perception quite a bit. If the rental value of a property covers all its costs buying is probably better than renting.

[CroFlames]

If I had no kids, I would 100% be buying a condo in a suburb and work to pay it down quickly.

Then live mortgage and rent free except for your condo fee. Special assessments? You need to do regular maintenance and upkeep on your detached house too. I think it's a wash.

[you&me]

Originally Posted by bizaro86

I'm quite surprised the bolded is still possible in Vancouver. That changes my perception quite a bit. If the rental value of a property covers all its costs buying is probably better than renting.

We've casually looked at moving to either Toronto or Vancouver for the last couple of years or so with the idea that we might rent initially, to get a feel for the city before buying... From my observations, both cities offer far greater value in the rental market relative to home prices than Calgary. Generally speaking, the same rental rate will get you a home worth 2X+ in either TO or Vancouver, vs. Calgary... and at the price point we were looking at, none would cover the relative carrying costs, which means the Vancouver and TO homes are way underwater. Just one anecdote...

[Winsor_Pilates]

Originally Posted by bizaro86

I'm quite surprised the bolded is still possible in Vancouver. That changes my perception quite a bit. If the rental value of a property covers all its costs buying is probably better than renting.

It's not easy and not the case with just any condo, I picked a strategically good option.
But it's not necessary as far a gap as you may have thought, mainly due to the record low mortgage rates.

Even if your ownership cost is higher than renting a similar product, it's important to look at how much principal you're paying off vs interest.
For a lot of buyers the extra is manageable and at least paying for an appreciating assett(potentially) vs renting is still the preferred choice.

[Hemi-Cuda]

Originally Posted by CroFlames

If I had no kids, I would 100% be buying a condo in a suburb and work to pay it down quickly.

Then live mortgage and rent free except for your condo fee. Special assessments? You need to do regular maintenance and upkeep on your detached house too. I think it's a wash.

At least with a house the maintenance is predictable and spread out. Getting hit with a $20,000 special assessment out of the blue can completely screw some people over

[The Yen Man]

I guess my point is that I agree with several posters here that Calgary is still one of the more affordable markets for a big city in Canada. The wage to house mortgage ratio isn't out of whack.

Now, obviously it's different than the 80s, where my dad, as an immigrant, worked at a hotel as a cook for ~$600 a month, but houses were about $40K. But those were different times.

[Hemi-Cuda]

Originally Posted by The Yen Man

I guess my point is that I agree with several posters here that Calgary is still one of the more affordable markets for a big city in Canada. The wage to house mortgage ratio isn't out of whack.

Now, obviously it's different than the 80s, where my dad, as an immigrant, worked at a hotel as a cook for ~$600 a month, but houses were about $40K. But those were different times.

I wonder if we'll see a significant number of people move to Calgary in the future simply for housing prices

[Winsor_Pilates]

Originally Posted by Rutuu

It is interesting that so many people think it can't go up forever...and they're kinda right as there is a lending limit for two salaries, but they don't envision the scenario where wages cap the total spend but developers come in and start cutting properties up into "right sized" blocks, be it infills or condos. All of a sudden there is inventory that can rise in price again to what two salaries can cover.

Can't afford a 6000sqft lot...well subdivide it and put two houses on it. Houses cost ~$400k, and the $1.2m property is now two 3000sqft properties valued at $1m with room to run. If its a younger area, put townhouses or condos on that property and get the units into the $650k - $800k range.

This is exactly what's happening.
Vancouver passed a zoning change about 2 years ago that now allows pretty much every single family lot in the city to be zoned for duplex building.
We are starting to and will continue to see the decrease of single family housing and replaced by 2 homes on the same lot.

Other areas are zoned for townhouses which gives even more homes per lot.

Families will adapt to living in these semi connected housing types if they want to stay in Vancouver (which aren't bad at all).

The single family dream is just too difficult for most incomes and should rise even further as more houses become duplexes/townhouses.
The supply of single family homes is only going down.