Real estate in Calgary - another bubble?

[Cowboy89]

Originally Posted by _Q_

So here's another question.

What does a balanced market look like in Calgary? Is a $1million 800sqft condo a possibility in the near future? Considering the availability of land, does a 20% year over year increase become the norm for the next few decades?

In nominal Canadian dollars, yes it could be possible. People seem to be forgetting that the money supply was increased through heavy government deficits and BoC monetary policy. Inflation's here to stay at least until prices for real assets match that same run up. A CAD$1.0 million dollar house in 2019 could be worth CAD$1.4 million without any significant changes in local employment, fundamental conditions, real estate market conditions.

[agulati]

How has the mid value/high end market been impacted by this? Are homes that are more than a million, growing at a similar value as those that used to be around 500k?

[Slava]

Originally Posted by Leondros

The BoC is going to be in a very interesting spot - never have Canadians had more debt. They are going to need to raise these interest rates significantly to combat inflation, but they are going to find themselves between a rock and a hard place. Interest rates won't be able to come up too quickly or they risk imploding the financial system. They will have to be comfortable with a moderate increase to interest rates and higher inflation rates. My two cents at least.

The stress tests have been doing their jobs and should cushion real estate enough not to see massive corrections. Foreign investment is agnostic to the interest rate increase in Canada as well.

I think you will be sitting in the corner waiting for this so called correction to happen for a while yet if ever...

I don't disagree with the interest rate issue that the BoC faces. They hve a really difficult job because they need to raise rates to cool the Toronto/Vancouver markets and not crush the prairies and places where they're not in the same situation.

I also wonder whether interest rate increases will do much to alleviate cost-push inflation. Sure, there's an element of demand here, but it's fairly evident that the main driver is a supply issue in general, and that's not normalizing just because interest rates rise.

[Cowboy89]

Originally Posted by agulati

How has the mid value/high end market been impacted by this? Are homes that are more than a million, growing at a similar value as those that used to be around 500k?

Last year's run up was in the ~$500k range. This year so far it has moved up the chain towards the $1 million range. Another thing to keep in mind is that the CMHC maximum purchase price is likely moving up to $1.25 million from $1.0 million as per the LPC's election promise. When that happens if someone wants to buy a $1.0 million house they only have to show up with $75,000 down payment rather than $200,000. Probably puts price pressure up in that segment.

[blankall]

Toronto/Vancouver also have entirely differently functioning markets. The days of random families with $4k budgets buying detached homes are long gone. The only people who own homes are:
1. Investors.
2. People who purchased them for peanuts years ago.
3. Spawn of the first two.
4. The occasional financially successful household earning $300k+ per year.

These people don't really feel the pressure of a 2-3% interest rake hike, the same way average Canadian families do. The supply of detached homes is ever dwindling, while the population rises.

Condos could be more exposed, but they are limited by supply. Plus condos haven't really been increasing in value the same way detached homes have. So they are less exposed to a crash.

Vancouver will always have short term 20-30% corrections. However, I don't see a long and sustained crash. If prices ever dropped 50%, people would just be showing up with cash to buy immediately.

[DoubleF]

Originally Posted by blankall

Toronto/Vancouver also have entirely differently functioning markets. The days of random families with $4k budgets buying detached homes are long gone. The only people who own homes are:
1. Investors.
2. People who purchased them for peanuts years ago.
3. Spawn of the first two.
4. The occasional financially successful household earning $300k+ per year.

These people don't really feel the pressure of a 2-3% interest rake hike, the same way average Canadian families do. The supply of detached homes is ever dwindling, while the population rises.

Condos could be more exposed, but they are limited by supply. Plus condos haven't really been increasing in value the same way detached homes have. So they are less exposed to a crash.

Vancouver will always have short term 20-30% corrections. However, I don't see a long and sustained crash. If prices ever dropped 50%, people would just be showing up with cash to buy immediately.

Thanked for the wording of #3.

[Calgary14]

I was browsing one of the builders websites and noticed for quick possessions, they changed their pricing from listing an actual price for each house to "contact us for pricing" for each one. Not sure when that changed but last time I looked (last year?) they listed prices for each one

[Leondros]

Originally Posted by Calgary14

I was browsing one of the builders websites and noticed for quick possessions, they changed their pricing from listing an actual price for each house to "contact us for pricing" for each one. Not sure when that changed but last time I looked (last year?) they listed prices for each one

Also just as likely its in response to building costs versus trying to maximize price. Lumber and concrete is moving so much that one house built 2 months ago to a house being built today is the difference of $50 - $75K.

[BigNumbers]

I've received 3 unsolicited offers for our house in the past 6 weeks, stemming from friends who know we're starting a build and telling their friends. Not looking to move twice (effectively) and deal with renting for 18-24 months while we build, but if someone threw enough cash at me... maybe.

[Weitz]

Originally Posted by _Q_

What happens when the inevitable interest rate increase happens and the Toronto/Vancouver bubbles burst? Most experts predict as much as a 30% drop in property values in those cities happening in the coming year.

Will those same people looking at moving to Calgary be around?

Will the feds let BC’s entire economy collapse by hiking the rate really high? I don’t see it.

Anyone predicting a 30% drop within a year is stupid imo. They aren’t even going to jack the rate 2% this year. All talk.

[#-3]

Originally Posted by Cowboy89

In nominal Canadian dollars, yes it could be possible. People seem to be forgetting that the money supply was increased through heavy government deficits and BoC monetary policy. Inflation's here to stay at least until prices for real assets match that same run up. A CAD$1.0 million dollar house in 2019 could be worth CAD$1.4 million without any significant changes in local employment, fundamental conditions, real estate market conditions.

Don't forget the $3.5T US that was created in Cyrpto of the past three years.
It's definitely having some de-basement like effects, as institutions have started to extend credit based on those assets.

[bizaro86]

Originally Posted by Weitz

They aren’t even going to jack the rate 2% this year. All talk.

It will depend at least partially on what the US does. Inflation has become a huge political issue there, so they will almost certainly raise a few times before the midterm elections.

If we don't raise when they do, the Canadian dollar will decline, and the will juice inflation even more.

[red sky]

We will move in tandem with the US but the US has 30 trillion reasons to not increase rates too rapidly. 5% mortgages won't be a thing.

[you&me]

Originally Posted by bizaro86

It will depend at least partially on what the US does. Inflation has become a huge political issue there, so they will almost certainly raise a few times before the midterm elections.

If we don't raise when they do, the Canadian dollar will decline, and the will juice inflation even more.

Watching CNBC yesterday, they said the market is pricing in 6 rate hikes in the next 2 years. Selfishly, since I get paid in US$ and want to start a new house build later in the year, I hope the BoC is more reserved in their approach to rates

[Slava]

It's pretty interesting, as far as the timing goes. The Bank of Canada is set for March 2, which is ahead of the February economic data (jobs, GDP, housing starts for example). It'll be interesting to see how they act, given that factor. The US federal reserve isn't until the 15th, so Canada will either be early, or late it seems.

[stampsx2]

The feds were handing money out during covid to boost the economy and went into a lot of debt. If they increase interest rates their own interest payments will increase on all the loans they took out. The gdp to debt ratio will increase possibly higher than what we seen in the 90’s.

That together with real estate being one of the last major drivers of gdp in this country (since oil is out),i have a hard time believing the federal government is in any hurry to raise interest rates.

I don’t think the feds can afford higher interest rates or a cooling housing market at this point.

[Slava]

Originally Posted by stampsx2

The feds were handing money out during covid to boost the economy and went into a lot of debt. If they increase interest rates their own interest payments will increase on all the loans they took out. The gdp to debt ratio will increase possibly higher than what we seen in the 90’s.

That together with real estate being one of the last major drivers of gdp in this country (since oil is out),i have a hard time believing the federal government is in any hurry to raise interest rates.

I don’t think the feds can afford higher interest rates or a cooling housing market at this point.

Obviously the government went into a lot of debt and there’s no debate in that fact. But I think calling oil over is a bit premature. Will we eventually get past oil? Probably. But certainly at this point we’re not close. The provincial government can actually balance the budget this year, based solely on energy and not because they’ve been amazing fiscal stewards.

Perhaps most notably though, the BoC is separate from the government. They make decisions apart from the government of the day, and while raising rates isn’t helpful for the government, they don’t have control over that aspect directly. It’s also a longer term issue for the government as most of the debt is locked in, in the form of bonds. So, once those bonds mature and have to be re-upped it’s an issue, but not immediately. I’m not suggesting this is great; just that it’s how these things work from a mechanical perspective. I haven’t looked at what’s maturing this year or in the next year or two, but my guess is most of the debt that they took on is pushed out further than a year or two.

[stampsx2]

^^^ or put simply, the government is “kicking the can down the road”. A can that’s too big to handle.

[burn_this_city]

If oil stays around $100 CAD this year we will make $150-200B on oil in 2022. Not sure what the federal government's cut would be, but it should certainly help cut down the deficit.

[accord1999]

Originally Posted by burn_this_city

If oil stays around $100 CAD this year we will make $150-200B on oil in 2022. Not sure what the federal government's cut would be, but it should certainly help cut down the deficit.

With oil that high, the Feds could easily see a $25+B surplus with Alberta based on past years. But to really cut down on the deficit, the Feds need major recoveries in Ontario and Quebec.