Calgary Real Estate predictions?

[Cowboy89]

Originally Posted by fundmark19

I am sure this is the bottom!

Since the us promised to keep its rates low again can Canada really afford to raise ours? By raising our rates with the US not raising theirs our Dollar value will rise which in turn makes our sales of goods to the US lower making our economy struggle again? Does anyone have any more insight on this? Seems like Canada is stuck between a rock and a hard place so to speak

Managing the money supply is really a balancing act. Right now the latest GDP data has growth on an annualized basis at 5%. Numbers over 3% generally suggest inflationary pressure. Should the Bank of Canada hike rates, it will be with the intention of slowing down the economy to rein in inflation. The hope would be that the amount that they hike rates by will not be so great that the economy goes back into the toilet and GDP growth numbers struggle again but rather just take the edge off.

[Jonrox]

Originally Posted by Sylvanfan

The Okanangan is a weird market. The fundamentals are brutal as pretty much no working person here can afford their house. But due to the high number of retiree's it drives prices up. I know I've been looking for a place in the South and I balk at the piece of crap that you have to pay 350 grand for. Pretty much any place under 400 needs 100 grand worth of building materials to bring it up to date. It's sad.

The HST is really only going to affect new houses as on an existing house you'll only pay it on the realtor commissions from what I understand. But BC is expensive with that land transfer tax.

I'll agree that it's weird in Kelowna.
- There's a disproportianate number of higher-end and million dollar homes given the population size.
- There are very few (if any) areas where you can build a home for less than $500,000. Thus, the only option in the $300-350,000 range are older homes.
- This results in the price of these homes being inflated as there's a gap in houses that actually deserve to be priced between $300-400,000.
- A lot of money is spent here, but not earned here, thus Kelowna being named one of the least affordable cities to live in.

I think for higher-end homes your dollar goes about as far in Calgary as it does in Kelowna. But you get much less for your money on less expensive homes here than in Calgary.

But I do think it has bottomed out in Kelowna. A lot of the people who have their homes for sale have the financial ability to wait out the market until prices improve, so don't feel pressured to move their homes quickly.

Plus, you're likely not going to get interest rates like we currently have a few years from now. Even if we haven't quite hit the bottom and prices fall a bit further, you're going to end up paying more in interest costs on your mortgage (assuming you will have a mortgage). You'll need prices to fall a lot further to make up the difference.

[chemgear]

Originally Posted by fundmark19

I am sure this is the bottom!

Since the us promised to keep its rates low again can Canada really afford to raise ours? By raising our rates with the US not raising theirs our Dollar value will rise which in turn makes our sales of goods to the US lower making our economy struggle again? Does anyone have any more insight on this? Seems like Canada is stuck between a rock and a hard place so to speak

Really? You sure? I'm not sure - where do you get your assurances?

Hehe, I'm no expert but the impression I get from mls and chatting with agents is that the mid/upper end real estate market is pretty slow/not really moving. Lower end/first time home buyers seem to be running around desperate to buy something, anything - it's free money time!

http://www.financialpost.com/news-se...tml?id=2690063

The US promised to keep their rates low. We've pretty promised that it's going up soon and fast when it does. Should be interesting to see the effects.

[Sylvanfan]

Originally Posted by Jonrox

I'll agree that it's weird in Kelowna.
- There's a disproportianate number of higher-end and million dollar homes given the population size.
- There are very few (if any) areas where you can build a home for less than $500,000. Thus, the only option in the $300-350,000 range are older homes.
- This results in the price of these homes being inflated as there's a gap in houses that actually deserve to be priced between $300-400,000.
- A lot of money is spent here, but not earned here, thus Kelowna being named one of the least affordable cities to live in.

I think for higher-end homes your dollar goes about as far in Calgary as it does in Kelowna. But you get much less for your money on less expensive homes here than in Calgary.

But I do think it has bottomed out in Kelowna. A lot of the people who have their homes for sale have the financial ability to wait out the market until prices improve, so don't feel pressured to move their homes quickly.

Plus, you're likely not going to get interest rates like we currently have a few years from now. Even if we haven't quite hit the bottom and prices fall a bit further, you're going to end up paying more in interest costs on your mortgage (assuming you will have a mortgage). You'll need prices to fall a lot further to make up the difference.

I'm down in Osoyoos, and this is a really tricky market. Income stats mean nothing in a town where the average age is 57. You really have to fish to find out who's trying to move into the old folks home and which people are just trying to make fast money.

But it's a nice area, land is in short supply and there is a large looming demographic of retirees to be who made out well in the last boom, would love to hit the golf course in February, and like the fact that you only have to shovel snow 5 times a year if it's a harsh winter.

[macker]

[The US promised to keep their rates low. We've pretty promised that it's going up soon and fast when it does. Should be interesting to see the effects.[/QUOTE]



I like to think Canada is more like Austrailia (economically) where they have been raising rates for months now but if the US has the second wave this year as many fear it could splash our economy also regardless http://www.globalresearch.ca/index.p...t=va&aid=17451
http://personalmoneystore.com/moneyb...shiller-index/
Governments force feeding economies is a little concerning and it will be months before we know how sustainable it is. Not a good time to buy real estate imo as there is way more potential for a market crash vs capital appreciation in Calgary or most other markets for that matter. Poor visibility. Globally there are some good bargains I guess if you like Greece or Detroit

[username]

Well the BOC could care less really what the value of the dollar is seeing as though their number 1 mandate is controlling inflation. There are several other factors that affect the value of the CDN $ vs the USD $, commodity prices being a big one. I would expect rates to gradually rise this year, but not at an alarming rate unless inflation takes hold which many don't predict right now.

As for home prices, I don't think you're going to see much other than prices moving with the year over year rate of inflation once we return to normal interest rates. Until that time, I'm sure you're going to see prices climb while interest rates are still lower than their historical averages.

[Potty]

Originally Posted by Jonrox

I'll agree that it's weird in Kelowna.
- There's a disproportianate number of higher-end and million dollar homes given the population size.
- There are very few (if any) areas where you can build a home for less than $500,000. Thus, the only option in the $300-350,000 range are older homes.
- This results in the price of these homes being inflated as there's a gap in houses that actually deserve to be priced between $300-400,000.
- A lot of money is spent here, but not earned here, thus Kelowna being named one of the least affordable cities to live in.

I think for higher-end homes your dollar goes about as far in Calgary as it does in Kelowna. But you get much less for your money on less expensive homes here than in Calgary.

I agree with all of this.

Originally Posted by Jonrox

But I do think it has bottomed out in Kelowna. A lot of the people who have their homes for sale have the financial ability to wait out the market until prices improve, so don't feel pressured to move their homes quickly.

Perhaps, but they'd better be pretty patient then. At the end of 2009, there were 308 $1M+ homes on the market and only 64 sales. That's 5 years worth of inventory on the market right now, not to mention how many owners would like to sell but are waiting for conditions to improve before listing. For comparison, there were 141 $1M+ sales in 2007 with an ending inventory of 257 units, less than 2 years inventory.

Originally Posted by Jonrox

Plus, you're likely not going to get interest rates like we currently have a few years from now. Even if we haven't quite hit the bottom and prices fall a bit further, you're going to end up paying more in interest costs on your mortgage (assuming you will have a mortgage). You'll need prices to fall a lot further to make up the difference.

First, you only get the lower rates for the first term of your mortgage. After that, you will be refinancing at a higher rate with a bigger balance than if you waited and prices end up falling.

The scenario belows assumes a 10% fall in real estate prices and a 2% rate increase, which to me seems like a fairly reasonable potential outcome.

Ex 1. Buying now at lower rate.

Loan = $500k, Amort = 25 years, I = 3.85%

Payments = $2,600

After 5 years refinance at I = 5.85%, Payments = $3,075


Ex 2. Buying later at lower price, higher rate

Loan = $450k, Amort = 25 years, I = 5.85%

Payments = $2,860

After 5 years refinance at I = 5.85%, Payments = $2,860


After 10 years, you will have paid $340,500 with a balance of $367,800 in Ex. 1 and $343,200 with a balance of $342,000 in Ex. 2.

The bottom line for me is that even with all the incentives to buy right now, ie. historically low rates, beat the HST, beat the new CMHC rules, the numbers in Kelowna are still horrible. What happens to them when these incentives are all removed in the next 6 months? Will they even maintain their current level?

I think a pullback in real estate prices is very likely unless for some reason the numbers really start turning around this Spring, which I see as unlikely as like you said Kelowna residents can't afford the prices and I don't see as many buyers coming from out of province as have in the past.

[Winsor_Pilates]

Originally Posted by hmmhmmcamo

Both Bob Rennie and the City of Vancouver disagree with you:



City Hall is banking on the real estate market staying hot through the Olympics and rich tourists wanting to buy in.

Note the slogan "Own the ultimate 2010 souvenir" plastered all over the village .

They weren't disagreeing with me, they were doing exactly as I said, even if they claim differently in the media. Banners and a few thinly staffed sales centers is all we had during the Olympics. Very minor sales efforts, and the whole Real Estate industry pretty much took 2 weeks off.
The goal was to get attention of people who may come back to the Vancouver market after, not to sell many homes during the games. Sales during the games sucked. Sales since have been back to a steady pace.

edit: To add thoughts on Kelowna. Agreed it is a strange market, and it's almost entirely driven by outside investment from the Vancouver area and Albertans. I don't think it's at the bottom yet, but it's hard to call. I sold a building in Penticton last summer and it was almost impossible to sell, even with greatly reduced pricing. Overall, I thinks it's a really risky market and I wouldn't buy into it at all for investment. I'd only buy there if I really wanted a summer place there or was moving there long term.

[AFireInside]

Originally Posted by fundmark19

I am sure this is the bottom!

Since the us promised to keep its rates low again can Canada really afford to raise ours? By raising our rates with the US not raising theirs our Dollar value will rise which in turn makes our sales of goods to the US lower making our economy struggle again? Does anyone have any more insight on this? Seems like Canada is stuck between a rock and a hard place so to speak

It's not bottom. A house typically should be about 3 - 4 times your income. that is not the case in Calgary. Interest rates have nowhere to go but up, and when that happens prices will come down, and there will be fewer buyers. Add in the fact that the boomers begin turning 65 and many will be looking to downsize/move away it could be very interesting.

I'm not saying I know when it will happen, but interest rates will start to increase this summer, and I think it will gradually rise to about 8%.... This is going to hurt a lot of potential buyers and will all but eliminate the majority, UNLESS housing prices come down, which is what will ultimately happen, unless wages increase I guess.

[fundmark19]

I don't think housing prices are going to come down unless oil does to. There is still to much money in this city. But if rates do increase I see them around 6 percent then it will make owning a rental property that much easier because people always need a place to live and they won't be able to qualify for a mortgage.

[AFireInside]

Originally Posted by fundmark19

I don't think housing prices are going to come down unless oil does to. There is still to much money in this city. But if rates do increase I see them around 6 percent then it will make owning a rental property that much easier because people always need a place to live and they won't be able to qualify for a mortgage.

With all the money in this city it's strange how houses are still overpriced. Like I stated earlier, a house should be about 3 times your income, this is not the case here in Calgary, and a study on affordability was done recently and Calgary was considered to be quite unaffordable.

It's all going to depend on rates. People will still qualify for a mortgage, a smaller one. If people are selling and need to sell they will have to lower their prices.

I completely disagree that interest rates are going to stop at 6% but who knows for sure.. The historical average is something like 8%. This is part of the problem right now. There are a lot of people out there who've purchased in the last couple years who have not seen an interest rate higher than 6%. It happens, and it likely will happen again (obviously not tomorrow or anything) but I think it will gradually get there..

Also even at 6% there are going to be a lot of people up for renewal of their mortgage, that was at 3%, that's a significant increase.. I don't know, real estate is hard to predict, I don't see a complete meltdown, but it doesn't look good to me.

[photon]

Which study was that, do you have a link? The last study I read still had Calgary at just a hair over 4 times income.

There are cities that run much higher than 3 and 4 all the time too, it depends on other factors as well.

[username]

Ya the last study I saw did say Calgary was around 4 times earnings however we were about average in terms of affordability in Canada.

Ya, some people would definitely be in trouble if mortgage rates did go up to 8 percent or higher but I don't think that would cause a crash in Calgary. It's not like people were given subprime mortgages or anything of that nature. As long as incomes increase with at least the rate of inflation then when renewal time comes around people should be able to afford their new payments.

[The Yen Man]

I just don't see the reasoning behind the government hiking interest rates to 6-8% in the next few years. That will cause the housing market to crash, and deflation to set in. It will also drive up the Canadian dollar past the American dollar. The government will basically tank the economy if they increased it to 8% in the next few years. Now, say 10 years down the road, I can't really say, I mean, who can predict what's going to happen in 10 years. But for now, I see interest rates staying relatively low.

[username]

Well the number reason why interest rates could hit 8% plus in the next few years is because of inflation. While it's still relatively tame right now (report comes out tomorrow), with all the money that's been pumped into the global economy over the last few years it's inevitable that inflation starts to pick up once that money starts to move. Once inflation gets going, so do interest rates. I'm not sure how old you are, but check out what rates were like in the early 80's when oil caused global inflation to take off.........you'll understand why so many people just walked away from their homes and the government instituted the dreaded NEP.

[chemgear]

Hmmm, looks like the real estate talk has moved to this thread.

Calgary ratio of house price to income is kicking around 4.6 - Vancouver at 9.3 LOL.

http://www.demographia.com/dhi.pdf





I would suggest rates will be "relatively low" only in the context of the low current rate as they increase them. It won't happen overnight, but I seriously doubt they'll keep giving out free money for another 10 years - haha, can you imagine the bubble scenario then?!

[OldDutch]

Originally Posted by username

Well the number reason why interest rates could hit 8% plus in the next few years is because of inflation. While it's still relatively tame right now (report comes out tomorrow), with all the money that's been pumped into the global economy over the last few years it's inevitable that inflation starts to pick up once that money starts to move. Once inflation gets going, so do interest rates. I'm not sure how old you are, but check out what rates were like in the early 80's when oil caused global inflation to take off.........you'll understand why so many people just walked away from their homes and the government instituted the dreaded NEP.

I think rates went up around 18% at one point, for an extended time. I remember this because my parents bought a bungalow in Millrise for $64,000. It was 80% finished, and the construction company just walked away, and it was a bank repo.

Imagine buying a house on your credit card, that is how bad the rates were...

[amorak]

The BoC won't hike to 6-8%. It's all just talk to cool the economy off without actually increasing rates. There was in interesting study issued by the Globe and Mail a few days ago that showed that the Canadian economy has never, ever done well when the BoC moves to increase interest rates ahead of the Fed.

With that said, we're in very new times, where the Canadian economy, thanks to our more highly regulatated banking industry, is much sounder in principal than the American economy. If we continue to follow the Fed's benchmark, we may see an untenable increase in inflation while we await the American economy's full recovery.


I foresee a 4-6% interest rate within the near-to-medium term. That's enough to cool the market off, but shouldn't:

A) Cause anything beyond a minor correction in the housing market

B) Cause our dollar to increase in value much further ahead than the Americans, assuming the expected US rate of 2-3% in the near-to-medium term occurs alongside my predicted rate.

[chemgear]

Originally Posted by OldDutch

I think rates went up around 18% at one point, for an extended time. I remember this because my parents bought a bungalow in Millrise for $64,000. It was 80% finished, and the construction company just walked away, and it was a bank repo.

Imagine buying a house on your credit card, that is how bad the rates were...

That's the interesting thing, the current first time home buyers (and people with selective memory ) can't really imagine not being able to pay their mortgage - free money!!! For the chart below, I would imagine you need to add the offset/additional portion the banks charge on "their prime" above and beyond BoC prime.

[The Yen Man]

I guess at the end of the day, no one really knows what's going to happen in the future. Some people think interest rates will increase dramatically, some people don't. Even professional analysts can't seem to agree, so it's not surprising the wide range of opinions reading through this thread.

My completely non professional opinion is that yes, interest rates will inevitably go up, but probably to the 4-6% range max in the next 5 years; enough to cool down the housing market, but not enough to tank the economy. I just can't see it hitting the 8% mark when the US economy is still in shambles.