Calgary Real Estate predictions?

[Wookie]

Originally Posted by Bob

Wow, I had no idea Kelowna was so screwed.

I don't have the time to read all those comments/conversation from that thread and original email.

However, the original guy mostly talks about SFH prices. Average wage, earnings, etc.

Do they take into account the huge $$ value for vacation homes that is probably fluctuating the most.

Take average senior oil Calgary family. Who go and buy vacation home. Plus Iginla, his buddies, etc. Those huge value homes have a massive influence on that market. Sales of them stop happening, those prices plummet!! Because they were the most inflated.

Sure, there was a trickle down, but I'd wonder how many of the average Kelowna industry workers bought $1,000,000+ homes on the salary they had. I don't think they would have even qualified for the 0 down 40 year mortgage. They rented! Or previously owned, or, the higher income workers bought houses in westbank and used basement suites to rent out to vacationers or lower income families.

Housing prices may plummet there. But I think Average oil dude from Calgary is going to see his $3.5 million dollar home suddenly be worth $1.5 vs. Safeway/marina/construction/fruit picker/rcmp/waitress/bartender workers apartment or suite, or smaller less bling normal family house plummet 57%. Why because they probably couldn't afford it to begin with!!

Now I could be soooo wrong. But that's the direction my quick thoughts go.

[Winsor_Pilates]

Originally Posted by Wookie

I don't have the time to read all those comments/conversation from that thread and original email.

However, the original guy mostly talks about SFH prices. Average wage, earnings, etc.

Do they take into account the huge $$ value for vacation homes that is probably fluctuating the most.

Take average senior oil Calgary family. Who go and buy vacation home. Plus Iginla, his buddies, etc. Those huge value homes have a massive influence on that market. Sales of them stop happening, those prices plummet!! Because they were the most inflated.

Sure, there was a trickle down, but I'd wonder how many of the average Kelowna industry workers bought $1,000,000+ homes on the salary they had. I don't think they would have even qualified for the 0 down 40 year mortgage. They rented! Or previously owned, or, the higher income workers bought houses in westbank and used basement suites to rent out to vacationers or lower income families.

Housing prices may plummet there. But I think Average oil dude from Calgary is going to see his $3.5 million dollar home suddenly be worth $1.5 vs. Safeway/marina/construction/fruit picker/rcmp/waitress/bartender workers apartment or suite, or smaller less bling normal family house plummet 57%. Why because they probably couldn't afford it to begin with!!

Now I could be soooo wrong. But that's the direction my quick thoughts go.

My experience with Kelowna makes me think the same thing. A huge amount of our buyers were Albertans on any Kelowna projects we've had. Rec property in BC in general has been heavily supported with Alberta's Oil wealth, and is in big trouble right now. I expect this to be one of the hardest hit sectors in the next year, and there may be some great deals towards the end.

[Wookie]

Originally Posted by Winsor_Pilates

My experience with Kelowna makes me think the same thing. A huge amount of our buyers were Albertans on any Kelowna projects we've had. Rec property in BC in general has been heavily supported with Alberta's Oil wealth, and is in big trouble right now. I expect this to be one of the hardest hit sectors in the next year, and there may be some great deals towards the end.

Agreed.

I don't see people taking huge losses to get out of second/vacation homes as those were most likely bought without large mortgages (wealth vs. debt). Some no doubt will, as people feel the pinch here and it will trickle across the border.

I can see the economy suffering as people spend less, construction slows, etc. from the less free for all spending by commodity rich out of provincers. But, a downturn in houseing prices, regardless at which level may in fact help out the real Kelowna residents as housing becomes more affordable and people will return/stay/move there if affordability improves.

[Nancy]

Originally Posted by Wookie

Agreed.

I don't see people taking huge losses to get out of second/vacation homes as those were most likely bought without large mortgages (wealth vs. debt). Some no doubt will, as people feel the pinch here and it will trickle across the border.

I can see the economy suffering as people spend less, construction slows, etc. from the less free for all spending by commodity rich out of provincers. But, a downturn in houseing prices, regardless at which level may in fact help out the real Kelowna residents as housing becomes more affordable and people will return/stay/move there if affordability improves.

I know a few people who bought property in BC, and none of them are oil executives. I think the typical scenario was people taking a LOC out on the paper gains from their primary residence in Calgary and using that as their 25% down on their recreation property. The one guy was a tradesman who at one point was making almost $100K but got laid off in the fall and had taken a job at half the salary, then he got laid off again before Christmas. Last I talked to him, it sounded like he was banking on selling his recreational property quickly for a profit. (Didn't have the heart to say anything to him.) I think it is people like him, who are being forced to sell, that are making the collapse of the market there so spectacular.

[Sylvanfan]

Well there were a lot of Baby Boomers who came into some nice inheritence packages from their parents too. These boomers who have owned their homes since the years rolled over into the 2000's all of a sudden saw their net worth sky rocket over night, and than they inherited a nice sum of money from their parents who were pretty well off too. This also helped spark demand for vacation/recreation property in this area.

As I say Osoyoos biggest glut of property is in the vacation/recreation type property. Like anything to do with building...builders over reacted to what was once a crazy demand and have saturated the market as they always do. This past summer there was also huge competition from the US as their prices were down and our dollar was way up. Even with an 80 cent dollar there are still way better bargains in the US, and last I knew Phoenix doesn't have a foot and a half of snow and a frozen Lake! But like Nancy suggests with most Albertans not being able to get $100 grand so easily in the form of home equity, I think that also was a big factor.

[Shin Pad]

Originally Posted by Sylvanfan

Well there were a lot of Baby Boomers who came into some nice inheritence packages from their parents too. These boomers who have owned their homes since the years rolled over into the 2000's all of a sudden saw their net worth sky rocket over night, and than they inherited a nice sum of money from their parents who were pretty well off too. This also helped spark demand for vacation/recreation property in this area.

As I say Osoyoos biggest glut of property is in the vacation/recreation type property. Like anything to do with building...builders over reacted to what was once a crazy demand and have saturated the market as they always do. This past summer there was also huge competition from the US as their prices were down and our dollar was way up. Even with an 80 cent dollar there are still way better bargains in the US, and last I knew Phoenix doesn't have a foot and a half of snow and a frozen Lake! But like Nancy suggests with most Albertans not being able to get $100 grand so easily in the form of home equity, I think that also was a big factor.

We are looking at a retirement property in Arizona. Prices are way down - ie - you can get a 2100 sq. ft. house with a pool just outside of Phoenix for around $100,000.00 US. Even at 80 cent dollars, that's still very cheap at $120,000.00 CAN. According to what I've read, the dollar should rise to around 85 cents US later this year. I don't think the prices of houses in Arizona are going to rise any time soon. So, we'll probably make our move later this year.

[Flames_Gimp]

Originally Posted by Shin Pad

We are looking at a retirement property in Arizona. Prices are way down - ie - you can get a 2100 sq. ft. house with a pool just outside of Phoenix for around $100,000.00 US. Even at 80 cent dollars, that's still very cheap at $120,000.00 CAN. According to what I've read, the dollar should rise to around 85 cents US later this year. I don't think the prices of houses in Arizona are going to rise any time soon. So, we'll probably make our move later this year.

oh man, i could have used my equity to get a place in arizona at that price. too bad i blew it all

[Sylvanfan]

Originally Posted by Shin Pad

We are looking at a retirement property in Arizona. Prices are way down - ie - you can get a 2100 sq. ft. house with a pool just outside of Phoenix for around $100,000.00 US. Even at 80 cent dollars, that's still very cheap at $120,000.00 CAN. According to what I've read, the dollar should rise to around 85 cents US later this year. I don't think the prices of houses in Arizona are going to rise any time soon. So, we'll probably make our move later this year.

The hearsay that I last knew had Phoenix and Las Vegas as having the highest inventories of unsold spec properties in the United States. Again that is hearsay, but no doubt prices are down big time in the Phoenix area right now, and it doesn't look to be rebounding anytime soon here.

[Shin Pad]

Originally Posted by Sylvanfan

The hearsay that I last knew had Phoenix and Las Vegas as having the highest inventories of unsold spec properties in the United States. Again that is hearsay, but no doubt prices are down big time in the Phoenix area right now, and it doesn't look to be rebounding anytime soon here.

That probably explains the low prices. The point is, it'll always be warm there in the winters, so, it still looks very attractive for someone like myself that is looking for a retirement property to spend the winters at.

[Slava]

^ Be careful buying and owning property in the US though. After 183 days down there and owning property you are deemed to be a resident. Once that happens you have to be prepared to pay their taxes....

[Bagor]

Originally Posted by Slava

^ Be careful buying and owning property in the US though. After 183 days down there and owning property you are deemed to be a resident. Once that happens you have to be prepared to pay their taxes....

I'm presuming that's 183 days/year? Surely it can't be total?

[Slava]

Originally Posted by Bagor

I'm presuming that's 183 days/year? Surely it can't be total?

Right, its 183 days per year. But if you are buying a property for retirement there, that is pretty easy to hit. Its not 183 consecutive days either.

[Bagor]

Thanks, what about income property? Is there a tax treaty with the US?

[I_H8_Crawford]

I think prices will really tank in the summer.

Reason being is that sellers are holding out hope that spring will bring in a glut of buyers, but with no 0/40 and with the economy going firmly into the crapper, I don't think there will be a large number of people looking to buy, and those that are buying are not in the frenzy of "must buy now before it goes up even more!!!!" so they will wait and with the large supply that will be available, they will expect some monster deals.

It seems that a lot of sellers in Calgary are still holding out hope that their 700 sq ft condo is worth $300+K still, and I think they will be stubborn into spring time when "there will be buyers" but when nothing happens and reality sets in, I think summer will see some big drops as sellers realize they have to get what they can if they want to ditch it.

I also expect we will see a rental market that will be much more in favour of tenants than landlords as even more of the spec properties purchased will go up for rent to subsidize a portion of that 2nd/3rd/etc mortgage that the purchaser had not planned on carrying for more than a couple months...

[Claeren]

I have said this before but the key point against any price increases is the current 'capacity to build' in the market.

We have about 9 months of already built inventory with (in my opinion) another 9 months+ of hidden inventory that would could be listed but is not.

+/-18 months is already a LOT of inventory, enough so that prices should drop 15%-30% more to clear it. But the real heart of the problem is that the home building industry went from working towards 30,000 units/year to 5,000 (with the need for less than zero due to inventories being so high) and therefore in the short term could EASILY up their new supply to 30,000 units/year again if there really was any demand out there for it.



Thus, even if people think Calgary demand is going to pick up, the ability to supply is now so great compared to 3+ years ago that it should have no upward effect on pricing.

(In short: New demand is too easily met by new supply)



Absolute BEST case IMO is flat pricing (likely due to inflation picking up significantly).

Worst case is a further -30% drop with a long period of price stagnation thereafter (further eroding 'value', though not necessarily 'prices')


The average single family home should be $250,000-$280,000 at most, and that is with high'ish oil and/or gas prices. And that is not a 'drop' in prices, or a market of 'cheap' prices, that is simply mean reversion in a city outperforming historical growth norms. If the economy starts to underperform the mean drops significantly.





Claeren.

[burn_this_city]

Originally Posted by I_H8_Crawford

I think prices will really tank in the summer.

Reason being is that sellers are holding out hope that spring will bring in a glut of buyers, but with no 0/40 and with the economy going firmly into the crapper, I don't think there will be a large number of people looking to buy, and those that are buying are not in the frenzy of "must buy now before it goes up even more!!!!" so they will wait and with the large supply that will be available, they will expect some monster deals.

It seems that a lot of sellers in Calgary are still holding out hope that their 700 sq ft condo is worth $300+K still, and I think they will be stubborn into spring time when "there will be buyers" but when nothing happens and reality sets in, I think summer will see some big drops as sellers realize they have to get what they can if they want to ditch it.

I also expect we will see a rental market that will be much more in favour of tenants than landlords as even more of the spec properties purchased will go up for rent to subsidize a portion of that 2nd/3rd/etc mortgage that the purchaser had not planned on carrying for more than a couple months...

I'd say this has already began to happen. I'm renting a brand new 900 sq/ft condo. When I was signing the lease I looked at the prices for the units themselves. Its very likely the owners paid more than $325,000 for this unit. There are $225 worth of condo fees every month plus utilities. I'm only paying $1250/month including utilities.

[photon]

Yup, rental prices have softened in the past while, though not a whole bunch. I know two people who've had vacancies come up and they filled them right away and the decrease was minimal. It depends on what it is as well. Downtown condo rental prices probably have the most pressure on them.

If someone bought at the peak and is trying to rent the places out because they can't sell them, they're not going to be covering their costs.

I remember when things were still running up, and there was a condo project going up that we were looking at for maybe buying rental units. It worked it out that we'd have to charge $1300 a month just to break even, and this was near Applewood!

Needless to say it didn't meet my requirements of needing to buy something that was cashflow positive and had some buffer room to drop rents.

[Claeren]

^ The 'Nova' Building downtown seems to have had a glut of units hit the rental market. I have seen a significant number of large 2-bedroom/2-bathroom suites that must have been priced above $500,000 at the peak of the boom going for as low as (individually) $1695/month! INCLUDING internet and cable! The builder is even seemingly (maybe it was one large speculator?) renting out multiple units for $1800/month.

The condo fees and property taxes alone must be close to half of that amount! Or the mortgage alone close to double that amount! Crazy....



Rental prices had been holding up pretty well but in the last few weeks I have seen peak priced $2200/month houses for $1800 and $1800 houses for $1400. With many many more perks like free months rent, Plasma TVs or cable/internet being thrown in for 'free' upfront.

Likewise with condos.

I think the big thing is that the bigger drops are in the "faux luxury" segments (which i just remembered I predicted here like a year ago?). There will always be plenty of entry level renters, but getting cash flow out of the higher priced properties, especially when the luxury is only in the sales material and not the actual build quality, is a tough sell. THAT is where you can find a lot of property for your rental dollar right now and more so into spring/summer.



Claeren.

[burn_this_city]

I think the developers help the owners find tenants. I'm renting this through the developer, but I know the owners are speculators from Vancouver . Good call about the shabby build quality on these upscale condos. I have crooked walls and weird ceiling elevation changes.

[megatron]

The average MLS sale price for a single-family home in the city will drop by 2 per cent this year while for condos it will decrease by 5 per cent, says the Calgary Real Estate Board in its annual forecast released today.

Link

Personally, I don't put much stock into what CREB says and I think prices are going to drop much more than 2%. I think they dropped 2% within the first day of 2009. There is a glut of supply and not enough demand to to even it out even with Spring and Summer coming up.