Calgary Real Estate predictions?

[cmyden]

It's been interesting to watch this year, I follow a few blogs and throw my $0.02 in from time to time.

Around January, the number of single family homes for rent took a real nose dive, by about 25%. I know this because I use the rentfaster.ca database to track the number of properties and the median price of rents.

At first I thought it was seasonal fluctuation, but it started becoming very obvious that those houses were being put up for sale on MLS. Often they were up for rent and for sale on MLS at the same time. That chunk of rental inventory remains missing to this day. Median price of rent is up about 50 bucks, after dropping throughout most of 2009 and then flatlining in the last 4 months of '09 and the early part of '10.

The sale price of homes never really changed though, and rose a bit as it usually does in the spring. Overall, nothing really exciting in that department.

Then for the past few months, we've started to see large month-to-month increases in the levels of inventory. The last time this happened was 2008, and it went like this:

Jan -> Feb ~ +24%
Feb -> Mar ~ +19%
Mar -> Apr ~ +15%
Apr -> May ~ +3% (finally peaking at 7,099 SFH on the market)

From there, prices started to nosedive. Then emergency interest rates came into play, sellers retreated from the market, and the bleeding stopped.

Flash forward to 2010, and we have....

Jan -> Feb ~ +24%, - 3106 SFH at month end
Feb -> Mar ~ +29% - 4014 SFH at month end
Mar -> Apr ~ +30% - 5100 SFH at month end (estimated based on current pace, we currently sit at 4700 as of today)

So, some of this is seasonal of course, during normal periods in Calgary, we often see about 500 additional homes added to the inventory each month, particularly in spring.

It's when we start adding 1,000 or more a month, that things start to look interesting. If we are to have another month or two of this, we'll be back to 7,000 SFH or more on the market, which as history has shown us, does not bode well for home prices in Calgary.

The other factor of course, is demand. Sales have been mostly blah so far. I thought there would be a bigger rush of people looking to 'get in before the rates go up'. It's looking like we won't even beat the number of sales in March (1396 SFHs sold), with 822 homes sold so far this month.

The number of pending sales seems to be flat lining, and the median price of 'sales pending' has taken a hit this month which is unusual for April, when it usually goes up.

This large increase in inventory is not just in Calgary, but nation-wide. Kevin over at Edmonton Housing Bust, someone who's opinion I respect, has called this the 'Death Rattle' ...

http://www.edmontonhousingbust.com/2.../death-rattle/

He's obviously a certified bear when it comes to real estate in Alberta, but he usually refrains from making predictions such as 'this is it, it's over.' But he's always maintained that the next wave of inventory was going to signal the end, so he's sticking to his guns.

Here's his latest graph, showing the volatility of month over month inventory change....



You can read it almost like an EKG heart monitor device of how 'excited' the market is which usually leads to something interesting in terms of prices.

The same story also appears to be playing out in markets right across the country this spring. Even the CREA acknowledged the massive wave of listings, almost 100,000 nationwide. We in Alberta has seen this show just three years ago, we know how it plays out… now the rest of the country is going to get unfortunate opportunity to find out for themselves.

[photon]

Originally Posted by cmyden

I know this because I use the rentfaster.ca database to track the number of properties and the median price of rents.

How do you do that? Do they have an API to get that info?

Interesting post. I'm not sure what "it's all over" really means though, that could be anything from flat growth for the next five years to real estate prices going down by 40%.

[cmyden]

Originally Posted by photon

How do you do that? Do they have an API to get that info?

Interesting post. I'm not sure what "it's all over" really means though, that could be anything from flat growth for the next five years to real estate prices going down by 40%.

No, they don't have an API, you just have to be a little, uhm, creative

I follow Kevin's blog pretty closely and I know his views are pretty much 100% similar to my own (probably why I enjoy reading it), and likes to refer to long term fundamentals, long term prices after adjusted for inflation, etc. As well as metrics such as price/rent ratios, median income to home price ratios, etc.

The amount of work he puts into his blog is immense, and he does a good job of taking large amounts of data and interpreting it for the masses. And it's actually a pretty funny read from time to time. One of the more 'personal' posts he made recently was regarding the inevitable real estate conversations that would come up when gathering with his friends...

"Unpopular Opinion"
http://edmontonhousingbust.com/2010/...pular-opinion/

Which was a great for all involved… until a little later in the evening when the doc-to-be’s wife mentioned they were in negotiations to buy a house, and my girlfriend, who has an unfortunate habit of talking in an elevated manner when she’s got a few drinks in her, loudly proclaims that, “Kevin thinks buying a house now is idiotic.”



Amazing how she never has any interest in discussing such things with me, and other than peaking over my shoulder now and again while I’m writing something, would never waste a moment of her time actually reading my stuff… but evidently she’s picked that much up, I guess what she lacks in tact she makes up for in osmosis.

From everything I've gathered, he's of the belief that Edmonton is about 20-25% overpriced relative to long term fundamentals. He's also of the belief that when corrections occur, or bubbles pop, they tend to overshoot by a bit, and things actually become undervalued.

20-25% is also exactly how much I feel Calgary is overvalued at the moment. Just based on our own long term fundamentals as well, price/rent ratios, long term price increases, median wages, etc. Pretty much every fundamental I can think of points to us being around 25% overvalued.

Of course, we all know that predictions are meaningless, and markets are anything but rational.

[photon]

Originally Posted by cmyden

No, they don't have an API, you just have to be a little, uhm, creative

Screen scraping, tsk tsk.

[Wookie]

Originally Posted by cmyden

No, they don't have an API, you just have to be a little, uhm, creative

I follow Kevin's blog pretty closely and I know his views are pretty much 100% similar to my own (probably why I enjoy reading it), and likes to refer to long term fundamentals, long term prices after adjusted for inflation, etc. As well as metrics such as price/rent ratios, median income to home price ratios, etc.

The amount of work he puts into his blog is immense, and he does a good job of taking large amounts of data and interpreting it for the masses. And it's actually a pretty funny read from time to time. One of the more 'personal' posts he made recently was regarding the inevitable real estate conversations that would come up when gathering with his friends...

"Unpopular Opinion"
http://edmontonhousingbust.com/2010/...pular-opinion/

From everything I've gathered, he's of the belief that Edmonton is about 20-25% overpriced relative to long term fundamentals. He's also of the belief that when corrections occur, or bubbles pop, they tend to overshoot by a bit, and things actually become undervalued.

20-25% is also exactly how much I feel Calgary is overvalued at the moment. Just based on our own long term fundamentals as well, price/rent ratios, long term price increases, median wages, etc. Pretty much every fundamental I can think of points to us being around 25% overvalued.

Of course, we all know that predictions are meaningless, and markets are anything but rational.

Maybe the factor that will change is the value of money? Maybe instead of falling house prices we'll have quite a bit of inflation and other things will catch up

[cmyden]

Maybe the factor that will change is the value of money? Maybe instead of falling house prices we'll have quite a bit of inflation and other things will catch up

Yep, who knows, or governments could figure out a way to bail out homeowners, or things could just move sideways, so many possibilities and likely nobody's prediction will be completely accurate.

"Demand Driven Downturn"
http://edmontonhousingbust.com/2010/...iven-downturn/

^^ literally just posted right now, told you the guy was prolific.

[photon]

Originally Posted by fotze

What does that mean?

Screen scraping is basically writing a program that views a webpage just like a person would, and records all the relevant data on the page.

Basically a way to get all the data on a site without having access to the data.

Some sites disallow it in their terms of service, but I don't know if that's even enforceable.

I wonder if rentfaster.ca actually does anything with their data, maybe we should ask them to create some reports.

[cmyden]

I wonder if rentfaster.ca actually does anything with their data, maybe we should ask them to create some reports.

Mike, from FindCalgary.ca has asked them, they've said they plan to, but it's been a while since he asked.

The median price of a SFH for rent in Calgary is currently $1600/month if anyone cares.

July 2009: $1650
August to November 2009: $1600
December 2009: $1550
January 2010 to present: $1600 (spiked quite quickly after the quick drop in inventory)

For a 2 bedroom apartment....

July 09: $1200
August to September 09: $1150
October 09: $1100
November 09 to present: $1095

[Winsor_Pilates]

Originally Posted by chemgear

Interesting little site: http://crackshackormansion.com/

I found a ton more on mls.ca

(Didn't somebody say you can't possibily go wrong investing in real estate?)

Nice, I got 13/16.
The response:
"Congratulations, you a now a certified Realtor. Go out there and sell some houses!"

Spot on, I already am a certified Vancouver Realtor, hopefully this is a sign of a boost in sales to come!

[Claeren]

Originally Posted by Wookie

Maybe the factor that will change is the value of money? Maybe instead of falling house prices we'll have quite a bit of inflation and other things will catch up

I think this (value of money, inflation, etc) is more important when you look at energy prices.


No matter what the rest of Canadian (or American) real estate market does over the next 1-2-5-10 years, Calgary will be different because of oil and gas pricing.

Oil (not gold) is the new inflation hedge on the American dollar, and so there are a lot of scenarios where most of North America is screwed while Calgary would be supported (falsely, no actual demand fundamentals) by inflated oil pricing.

Which leaves a scenario further into the future where oil prices finally collapse, helping the rest of North America recover but hurting Calgary big time.

With the wild card being Natural Gas prices.



I think there is little denying that there is not much UPSIDE in Calgary real estate anymore. The big question in my mind is whether there is down side.... I think there is, and I think baby boomers here are going to be in the exact same situation they were in Japan 15 years ago (self inflated demographic bubble doomed to collapse), but that's me....




Claeren.

[Tron_fdc]

I'm starting to think that the huge "blips" in the market in Calgary are due to a few different factors, but have a lot to do with the average income in this city. People so far have been able to either rent out their spec home, or can afford to hang onto it until the market "corrects" itself.

This would kinda make sense, as we can see that according to those graphs there are wild spikes in inventory, which IMO are people trying to dump rentals/spec homes to get out of the market, but have been waiting for the right time to do it.

I would think that if our economy completely collapsed like Vegas or Atlanta did over the last few years (approx 15% unemployment), we would have been SCREWED. People would be foreclosing and dumping inventory like crazy, and the housing market would have collapsed.

Thank god for oil I guess!

[Wookie]

Originally Posted by Tron_fdc

I'm starting to think that the huge "blips" in the market in Calgary are due to a few different factors, but have a lot to do with the average income in this city. People so far have been able to either rent out their spec home, or can afford to hang onto it until the market "corrects" itself.

This would kinda make sense, as we can see that according to those graphs there are wild spikes in inventory, which IMO are people trying to dump rentals/spec homes to get out of the market, but have been waiting for the right time to do it.

I would think that if our economy completely collapsed like Vegas or Atlanta did over the last few years (approx 15% unemployment), we would have been SCREWED. People would be foreclosing and dumping inventory like crazy, and the housing market would have collapsed.

Thank god for oil I guess!

Agreed, with you and Claeren.

I think there is enough money in Calgary that prices will be much more sticky on the downside. I don't think anyone is going to make out swell in the market any time soon. But I think there is enough money, long term employment opportunities that things could be okay. How high interest rates go is the one "WTF" that could really do some damage. That said, I think people will get by. I think people that do get into trouble and have to sell will find a buyer (interest rate spike ignored) at a price above a STEEP discount and that will keep things rosey.

[chemgear]

Looks like interest rates could be bumped even soon than July. And 50 basis point jumps haven't been ruled out.

http://www.financialpost.com/news-se...tml?id=2928442

[fundmark19]

Looks like 50 basis has been taken off the table inflation report came back lower

http://www.thestar.com/business/arti...-hike-pressure

[chemgear]

Here is some more "it's totally different here/it won't happen here" talk (where was that picture of the Iraq Information Minister again?)

http://www.edmontonjournal.com/busin...374/story.html

And is "a marked weakening in the housing market" as close as any central banker will say that there is a bubble without saying the word "bubble?"

http://www.theglobeandmail.com/repor...rticle1548762/

Heck, even realtors are being forced to acknowledge that prices will probably ease, though not crash down. Previously it was prices will always go UP, UP, UP! Market fundamentals show NO bubble. Buy now or be priced out forever omgomgomgomg! (Kinda like the Lord Marshal in Riddick - "CONVERT NOW - OR FALL FOREVER!")

Seems like there is more and more talk in the mainstream media about real estate these days. Though watching realtors squirming while being interviewed about the issue is always popcorn worthy, hehe.

[macker]

http://www.theglobeandmail.com/repor...rticle1548082/

Edward Jones weighs in....

[macker]

In addition to the interest rate elephant in the room I think Natural Gas prices could be just as concerning going forward. What will happen to the average household if natural gas prices revert back to 2006 or 2008 levels. There is a way to hedge against this....


http://futures.tradingcharts.com/chart/NG/M

[red sky]

Originally Posted by macker

In addition to the interest rate elephant in the room I think Natural Gas prices could be just as concerning going forward. What will happen to the average household if natural gas prices revert back to 2006 or 2008 levels. There is a way to hedge against this....


http://futures.tradingcharts.com/chart/NG/M

With all of the cheap shale gas now being extracted I doubt we will see those levels for some time now.

[macker]

Originally Posted by red sky

With all of the cheap shale gas now being extracted I doubt we will see those levels for some time now.

Could be. But one of these years it is going to get really really cold. We have been very lucky so far and the next 3-5 years I am sure this luck will change. Everyone always talks about interest rates but house affordability has many inputs. http://www.energyshop.com/es/homes/g...ceforecast.cfm
Watch the futures market and especially the volume.

[Wookie]

Originally Posted by macker

Could be. But one of these years it is going to get really really cold. We have been very lucky so far and the next 3-5 years I am sure this luck will change. Everyone always talks about interest rates but house affordability has many inputs. http://www.energyshop.com/es/homes/g...ceforecast.cfm
Watch the futures market and especially the volume.

Sorry, I might be missing your point. But high NG prices? Causing a problem in Calgary housing? Aren't high NG/oil prices -> a lot of cash -> speculation what got housing to it's current pricing?

I thought the income and earnings and jobs from high energy prices is what got Calgary booming? I'm sure (most) people could offset the increase in heating