Calgary Real Estate predictions?

[Jason14h]

http://calsun.canoe.ca/Business/2009...07401-sun.html

Well at least they are finally admiting home prices will be negative! Unfortunently I think 2% and 5% drops are still a good 10% too optimistic

[Slava]

Originally Posted by AFireInside

To be honest, CREB is a joke. Everyday for the past several months (about 6) listings have out numbered sales by at least 2 -3 to 1. Since the beginning of January, listings have outnumbered sales most days at least 4 to 1, some days much more. Thing is you can not just look at listings to sales. There is also a category for price changes. (All of which are changes downward these days). Those also outnumber sales by a similar margin.

As far as the spring goes, there is going to be a huge number of listings, and with the economy going the way it is, and people being laid off, there will be far fewer buyers, add to that no more 40 year, 0 down mortgages, and it does not look good for the sellers (those that are looking to flip, or make a lot of money on a recent purchase). People are going to be very cautious when buying.

Honestly I think that we will be looking at drops of at least 15% this year.

As far as listing prices go, I've already seen some houses drop well over 10% from their original listed price.

Where do you base this though? If housing prices were down by about 15% last year (an estimate/recollection of mine, not a solid fact I've researched) than why do you think that another 15% cut is in the works?

That would make the total drop about 30%...not unheard of, but rather drastic for an economy that is still projected to grow in the later part of '09 and into 2010.

[macker]

Speaking of the recession....Bank of Canada who was recently saying 1rst quarter GDP would be flat now predict a drop of 4.8% A lot of guess work and I don't take a lot of comfort from any of these so called estimates. At the end of the day they are guessing on a rapidly moving target. I woudn't take much comfort in Crebs predictions thats for certain.

[Nancy]

Originally Posted by macker

Speaking of the recession....Bank of Canada who was recently saying 1rst quarter GDP would be flat now predict a drop of 4.8% A lot of guess work and I don't take a lot of comfort from any of these so called estimates. At the end of the day they are guessing on a rapidly moving target. I woudn't take much comfort in Crebs predictions thats for certain.

Do you have a source for this? That would be massive. Even the 1981 recession was only on a scale of around -2%, I think.

[macker]

Originally Posted by Nancy

Do you have a source for this? That would be massive. Even the 1981 recession was only on a scale of around -2%, I think.

http://business.theglobeandmail.com/.../Business/home
And it was also reported this morning on BNN. If you get a chance to watch http://watch.bnn.ca/#clip132175 It is also kinda Alarming. They are just guessing at this point and they are guessing wrong currently....I like the wording they use in the Globe article. Completely unpredictable....

[Cowboy89]

Originally Posted by Slava

Where do you base this though? If housing prices were down by about 15% last year (an estimate/recollection of mine, not a solid fact I've researched) than why do you think that another 15% cut is in the works?

That would make the total drop about 30%...not unheard of, but rather drastic for an economy that is still projected to grow in the later part of '09 and into 2010.

First of all, let's really discount this 'projected' number nonsense. I've personally sat through presentations by some of the senoir economists of the major Canadian banks in the past month (some of them highly esteemed and decorated) and collectively they are all over the map. They range from Q3 2009 a return to positive GDP growth to the end of 2010 as a recovery time table. Bottom line is that even the best and brightest really don't know and there's a lot of indications that this is much worse than '80-82. Americans collectively are in a $1 Trillion home equity deficit. Thats trillion with a T.

I find it really hard to believe that Calgary house prices will stay stable all the while defaults and bankrupcies occur all over the map in the USA. I'm thinking that a 15% drop would still leave Calgary as one of the best performing real estate markets in North America through 2009. That being said I think once people are sure of their employment, there should be plenty of buying action towards the beginning of the recovery when that should happen. My call is -10% this year and plus 5% for 2010.

As for that 15% drop in '08, I'd be inclined to think that a lot of that was a drop from the "don't let house prices leave you behind, lever up and buy now" madness that occured here and here alone in 06-07 combined with a bit of overbuild. Right now we're in a credit crunch (banks can be much more selective on who they loan to), people are getting laid off, and there's still a bunch of newly built inventory being added. Calgary's not a large enough market to absorb that with only single digit price drops.

[Slava]

I guess as far as real estate goes the nagging question is basically this:

A) You bought a house in 2007 for $500,000

B) Would you list that home for $425,000 today?

C) Are you going to want to list in another 6-8 months for $350,000?

That is essentially what you are suggesting that the market will do here. Whether you factor in the projected growth or not at that point makes little difference in some ways. The only time a guy with a $500,000 house is selling for those types of price is when he has no choice....its sort of an artificial floor on the market in that sense?

[Cowboy89]

Originally Posted by Slava

I guess as far as real estate goes the nagging question is basically this:

A) You bought a house in 2007 for $500,000

B) Would you list that home for $425,000 today?

C) Are you going to want to list in another 6-8 months for $350,000?

That is essentially what you are suggesting that the market will do here. Whether you factor in the projected growth or not at that point makes little difference in some ways. The only time a guy with a $500,000 house is selling for those types of price is when he has no choice....its sort of an artificial floor on the market in that sense?

I think you underestimate how many people will not be able to service their mortgages through this thing and will actually have to sell. Calgary is still in the early stages of this. The layoffs have only just begun whereas in other places in North America its been going on for a year and a half. Also how many people levered up to the nines for the privilege of buying a $350,000 home for $500,000 in 2007.

[DementedReality]

well speaking for myself ... i got laid off in December and selling my house isnt an option.

i cant rent for less than my mortgage costs. So my house wont go up for a sale, even if it takes months to get work. Unless i plan on living on the street.

not everyone bought a 350k house for 500k. although i feel sorry for those that did, especially if they have the double wammy of being laid off too!

[Leeman4Gilmour]

Originally Posted by fotze

If I had no family I would have sold my house 4 months ago and signed a 1.5 year lease in some apartment.

I'm listing my house Feb. 1st. We bought in '02 so have plenty of equity, but need to relocate for commuting reasons.

I thought of doing just this. I have 3 kids, so obviously we wouldn't be renting an apartment, but there's lots to choose from for house rentals.

Now, this move is intended to be for the long haul, so any further drop in market we'd be willing and able to wait it out.

But, at the same time, if one could sell, rent for 6 months (with the amount of availability out there, I'm sure a 6 month lease could be negotiated) and take advantage of further price drops which seem likely, it seems to me this may be a smart move.

Right now, the pain in the arse of moving twice is the main reason for me not going ahead with this plan.

I'd appreciate any thoughts.

[smith12]

Originally Posted by Slava

I guess as far as real estate goes the nagging question is basically this:

A) You bought a house in 2007 for $500,000

B) Would you list that home for $425,000 today?

C) Are you going to want to list in another 6-8 months for $350,000?

That is essentially what you are suggesting that the market will do here. Whether you factor in the projected growth or not at that point makes little difference in some ways. The only time a guy with a $500,000 house is selling for those types of price is when he has no choice....its sort of an artificial floor on the market in that sense?

There's no such thing as an artificial floor. Everything that's a commodity will be determined by supply and demand. If that person who has that 500K house with a 480K mortgage left on it loses their job, what are they going to do? They have no options so their bank is going to take their house and sell if for the 350 you've quoted above.

If oil prices sustain the 30 - 40 dollar range for 6+ months this, imo, will be the norm in Calgary and not the exception. You will have combined effect of an increase in supply due to foreclosures and a decrease in demand due a lack of affordability that stems from job losses and frozen wages.

It could get very ugly if oil doesn’t recover soon……

[smith12]

I would say that's a great idea considering I just finished doing the exact thing you're referring to. I put my place up for sale in the beginning of Nov, it sold in Dec and I just moved out last week.

Ya, it's a big pain in the butt moving and I am a single guy so it's not that hard for me however it's going to be worth it. I now have no obligations coming into what might be the biggest recession since the great depression and I am sitting on hoards of cash. When the housing market drops another 30 - 50K I'll buy back in if things appear to be turning around.

What you need to ask yourself is: Is 30 - 50K worth it for me to pack up my family and move them twice? If you can answer that you'll have your answer.

For me it was clearly a yes.

[Winsor_Pilates]

Originally Posted by AFireInside

Are these condos that are sold in an auction type format, ONNI, or MAC?

Yeah, I work for Mac. It's not an auction though, it's first come first serve with no multiple offers.

[Jetsfan]

Royal LePage has closed their kiosk at the Chinook Centre on the main floor down by Sears. I guess business is slow.

[Claeren]

I think the biggest mistake a lot of you are making is the assumption that energy prices in Calgary were the prime driver of real estate pricing. (They were not.)

There were housing price bubbles around the WORLD people. Miami, LA, Vancouver, Spain, Ireland, London, etc etc etc etc etc.

It was due to cheap money (a credit bubble) and not a fundamental need for housing.


As that credit bubble deflates around the world prices have collapsed in roughly the same order they inflated and Calgary is right on course to experience its drop roughly 2 years after everyone elses.


I will eat my own testicles if Calgary home prices are only down 2% year-over-year in 2009 (except if they are being held-up due to hyperinflation where the underlying value is down substantially but the asking price is the same - which i only say because I don't want to eat my own testicles and that is that only way i see prices not dropping further).


I would say (again, as I have been saying for about 2 years) that prices will drop at least 15% this year.

(2010 is the bigger wild card, I can see prices dropping ANOTHER 15% in a number of scenarios but could also see them flatlining at that 33% total drop from peak and staying there for 10 years instead.)


What I find most interesting is that a lot of the people saying prices won't drop are the same ones who were saying that 2 years ago and 1 year ago, etc. I am pretty sure they could drop another 15%, look like they will fall further, and those same posters would still be saying they are not going to drop.

If there was any underlying increase in demand in Calgary the home building industry is already so large now yet has cut back from capacity so much that tens of thousands of homes could be built to meet that demand almost instantly. Home prices exploded when easy credit fueled demand for more homes than could be provided in the market. You subtract heavy demand AND easy credit AND a lack of ability of provide units from the equation and prices will free fall.


Claeren.

PS - If prices were not down 2% this year I would not actually eat my own testicles unless people on the otherside of the debate anti-up something equally horrible! lol

[photon]

Originally Posted by Cowboy89

I think you underestimate how many people will not be able to service their mortgages through this thing and will actually have to sell. Calgary is still in the early stages of this. The layoffs have only just begun whereas in other places in North America its been going on for a year and a half. Also how many people levered up to the nines for the privilege of buying a $350,000 home for $500,000 in 2007.

Canada and the US are in vastly different positions, I don't see anything that supports that severe a downturn in the Canadian economy. Other countries are saying Canada will weather the storm better than most.

What kind of unemployment rate are you expecting next year? 15%? You do realize that Alberta itself might even avoid a recession altogether right?

Originally Posted by smith12

If oil prices sustain the 30 - 40 dollar range for 6+ months this, imo, will be the norm in Calgary and not the exception. You will have combined effect of an increase in supply due to foreclosures and a decrease in demand due a lack of affordability that stems from job losses and frozen wages.

It could get very ugly if oil doesn’t recover soon……

Maybe someone in the industry can verify this, but it doesn't seem to me that a O&G company would live and die on a six month span at a specific price, not when projects can take years to develop and have decades lifespan.

[DementedReality]

what happens to people with super lines of credit for their mortgage? ie... i am on Manulife 1 and my home was appraised for my credit line in early 2008. Will Manulife adjust my credit limit if in fact there is another 15% market correction?

also, can they pull my mortgage if they know i was laid off? We are meeting all our obligations for the interest, but the loan was based on my income and now i dont have one.

anyone know?

[Claeren]

Originally Posted by photon

Canada and the US are in vastly different positions, I don't see anything that supports that severe a downturn in the Canadian economy. Other countries are saying Canada will weather the storm better than most.

What kind of unemployment rate are you expecting next year? 15%? You do realize that Alberta itself might even avoid a recession altogether right?

1) Real Estate prices can drop without a recession. They will merely drop further/faster with a recession. But the underlying fundamentals in real estate can easily lead to a world of falling prices in a good market, bad market or inbetween market. High prices always attract more builders who provide more and more supply until demand is met and then exceeded -- just like for any product around the world.

2) The Canadian situation is deteriorating quickly. We now are looking at a 2-year $68-Billion deficit, rising unemployment, plummeting home sales/real estate industry, plummeting commodity prices, plummeting prospects in our biggest trading partner, and a massive shift in consumer spending from borrowing to saving. All of that will lead to substantial long term deflation OR to the negative outcome brought about when the government counters that deflation with massive inflationary policy (which they are trying but failing at).

3) One of the largest stimulators on the economy was new found home equity. Not only has this source of 'wealth' disappeared but it has been replaced by negative equity which is as destructive now as the spending of that money was way back in 2004-2008.

4) The federal government has already quietly moved $75 Billion in liabilities off the banks books and on to the taxpayers backs. This massive bailout, not even voted on, would be worth $750 Billion in the states if you adjusted it per capita and would indicate to me that things are not so rosy here at home. AS home prices continue to sink, and people and businesses start defaulting on their debts through 2009 and into 2010 banks will come back looking for more money. When the federal government goes to give them another $75 Billion bailout in a backroom deal I will be interested to hear whether you still think Canada is in such great shape...

5) The north american auto industry, and along with it the industrial base of Canada and the USA, is on the brink of collapse. By late spring the big 3 (maybe not Ford, they could make it until Winter maybe?) will be back looking for more money. I am not sure how this will play out but I can say for sure, 100% confidence, it is not good for Canada, the economy, unemployment, or home prices - In Alberta or Ontario or elsewhere.

6) People have stopped buying fuel. The numbers coming in are staggering. Guess you need a job in order to have a reason to drive to work?

7) Britain is literally on the verge of national default. They are also about a year further into this than the USA and 2-3 years ahead of Canada. How does that scenario play out when it gets here?
http://www.nytimes.com/2009/01/22/bu...s/22pound.html



Claeren.

[photon]

Originally Posted by Claeren

1) Real Estate prices can drop without a recession. They will merely drop further/faster with a recession. But the underlying fundamentals in real estate can easily lead to a world of falling prices in a good market, bad market or inbetween market. High prices always attract more builders who provide more and more supply until demand is met and then exceeded -- just like for any product around the world.

Of course, I didn't say prices wouldn't drop. I was responding to how many people would be compelled to sell at the lower price.

There's waaay to much inventory and hidden inventory out there to think prices are going to remain the same.

Originally Posted by Claeren

2) The Canadian situation is deteriorating quickly. We now are looking at a 2-year $68-Billion deficit, rising unemployment, plummeting home sales/real estate industry, plummeting commodity prices, plummeting prospects in our biggest trading partner, and a massive shift in consumer spending from borrowing to saving. All of that will lead to substantial long term deflation OR to the negative outcome brought about when the government counters that deflation with massive inflationary policy (which they are trying but failing at).

I didn't say that things were all roses either, it's a recession.

Originally Posted by Claeren

4) The federal government has already quietly moved $75 Billion in liabilities off the banks books and on to the taxpayers backs. This massive bailout, not even voted on, would be worth $750 Billion in the states if you adjusted it per capita and would indicate to me that things are not so rosy here at home. AS home prices continue to sink, and people and businesses start defaulting on their debts through 2009 and into 2010 banks will come back looking for more money. When the federal government goes to give them another $75 Billion bailout in a backroom deal I will be interested to hear whether you still think Canada is in such great shape...

This is totally different than the US's situation. In the US the government bought tons of toxic mortgages that have no hope of ever being repaid, it's lost money.

In Canada that money was spent on the top mortgages, the government bought the cream of the crop, in order to unfreeze intrabank credit. Unless the default rate exceeds the interest paid on the rest of them, the government will MAKE money on those mortgages.

Originally Posted by Claeren

5) The north american auto industry, and along with it the industrial base of Canada and the USA, is on the brink of collapse. By late spring the big 3 (maybe not Ford, they could make it til Winter maybe?) will be back loking for more money. I am not sure how this will play out but I can say for sure, 100% confidence, it is not good for Canada, the economy, unemployment, or home prices - In Alberta or Ontario or elsewhere.

Agreed.

Originally Posted by Claeren

6) People have stopped buying fuel. The numbers coming in are staggering.

Impossible to have stopped buying fuel, I'd be interested in the numbers though.

Originally Posted by Claeren

7) Britain is literally on the verge of national default. They are also about a year further into this than the USA and 2-3 years ahead of Canada. How does that scenario play out when it gets here?

Not sure but to just assume that it will be the same is no more or less valid as to assume it will be the opposite.

Yes times will be tough, but you're painting a picture of a depression not a recession, and I just don't see that, at least not for a province and a country where regardless of what happens there will still be a need for oil for a long long time. Conventional supplies are going down. As the economy gets worse, global unrest will increase (hey, no job, might as well overthrow the government ) making places like Africa, Venezuela, the Middle East, etc less stable. Where's one of the biggest most politically stable reserves on the planet? In our back yard.

I think that's why despite all the turmoil, layoffs, and uncertainty you don't see companies actually pulling the plug on their huge projects, just pushing them off. There's still $168billion worth of projects for Alberta in active development, that's nothing to sneeze at.

That's a pretty big mitigating factor on external forces isn't it?

[Red]

Originally Posted by Slava

I guess as far as real estate goes the nagging question is basically this:

A) You bought a house in 2007 for $500,000

B) Would you list that home for $425,000 today?

C) Are you going to want to list in another 6-8 months for $350,000?

That is essentially what you are suggesting that the market will do here. Whether you factor in the projected growth or not at that point makes little difference in some ways. The only time a guy with a $500,000 house is selling for those types of price is when he has no choice....its sort of an artificial floor on the market in that sense?

What if you bought in 2002 for 240K and were just laid off. And there is a job for you back home, sask or ont?