Calgary Real Estate predictions?

[pepper24]

Originally Posted by fotze

Its been pretty almost exactly 2 years since this thread started.

The average single family home in Jan 2008 was at $455,297.
The latest average is for November 2010 at $455,460

I've been waiting patiently for this bubble to burst. I'm starting to get blue bubbles.

The main reason is that interest rates are still at or near record lows.

[trew]

Originally Posted by chemgear

Hmmm, I must have missed this article earlier:

http://www.financialpost.com/Nobody+...099/story.html

TransUnion, one of the two credit rating agencies in Canada, says each Canadian consumer who is actively borrowing had average debt of $25,163 in the third quarter, excluding their mortgage. That's up 4.3% from last year.

I wonder how much automotive loans play into this... wouldn't shock me to find out that more people bought cars this year.

[Winsor_Pilates]

Originally Posted by pepper24

2. It's funny how posters that work in the industry and paid commision appear to make up a good chunk of the minority (not picking on you specifically). Just saying.

You say it's funny because you're convinced our opinions are due to personal financial bias; but what if we actually feel that way?

If I actually thought there was a burst coming, I would tell all of my clients/friends/family/myself to sell their homes now and buy back in after. Not only would I get a ton of sales commission now, but I'd get a ton of buyers after the crash, everyone would love me when they avoided the crash, and I'd have guaranteed repeat business & referrals for years to come.

If my intentions were completely selfish and motivated by commission, that's the tune I'd be singing.

[chemgear]

Meh, generalizations are tough. Sure, perhaps individuals with a vested interest might theoretically be more inclined to some sort of bias, everything else being equal. But real estate is a widespread as a topic of interest for the general population (70%? of adults own homes and you need to live somewhere.)

But let’s be honest, some suggestions are a little silly. Like “all real estate agents are evil incarnate and are purposely misleading the public” or that “bears in this thread have to be misrepresenting themselves (somehow) and need to hang out with more CEO’s of oil & gas companies.”

Omgomgomg, tinfoil hat conspiracies!!

At the end of the day, everybody has their opinion and is entitled to it. As mentioned before, why try to make it personal or add angst? There is no “I WIN” button or endgame finish line.

Opinions posted in the thread will have no material effect on the actual movement/result of the market; there is however possible education in the discussion. There has been some good data through the thread and I continue to hope to see the information upon which the various opinions are based; to educate myself and adjust my own investment conclusions as needed.

[AFireInside]

Originally Posted by Winsor_Pilates

You say it's funny because you're convinced our opinions are due to personal financial bias; but what if we actually feel that way?

If I actually thought there was a burst coming, I would tell all of my clients/friends/family/myself to sell their homes now and buy back in after. Not only would I get a ton of sales commission now, but I'd get a ton of buyers after the crash, everyone would love me when they avoided the crash, and I'd have guaranteed repeat business & referrals for years to come.

If my intentions were completely selfish and motivated by commission, that's the tune I'd be singing.

I'm convinced that those within the industry have a financial bias for the most part. Whenever I read a discussion like this or get into one, those who have recently bought, and those in the industry 9 times out of 10 try to convince that prices will never go down.

Doesn't necessarily mean you are biased, but that's often the case.

I'm involved in the real estate industry in a sense, the reason I think prices will decline is because the prices and the math don't add up. I'm waiting to buy, I CAN buy now, but I am choosing to wait until it makes more sense to me.

I have no financial bias because my position doesn't depend on a strong market, and I don't receive commission. I'm basing my opinion on the numbers and things I've read and seen.


That said I think this has been a pretty good discussion. People get very very emotional about real estate because so much of their worth is tied up in it. I'm surprised this has stayed so civil.

I've had discussions with people in my personal life that purchased during the peak, I told them my opinion and they instantly get very personal.

At the end of the day, if you can afford your property, and it's not completely breaking your bank, don't worry about it. If you are buying for profit etc, do your research.

[Slava]

Originally Posted by pepper24

1. There is tons of evidence for a correction from posters linking website along with their own analysis. Read the thread.

2. It's funny how posters that work in the industry and paid commision appear to make up a good chunk of the minority (not picking on you specifically). Just saying.

3. The unfortunate part of unsustainable growth is that the correction can be just as sharp. Yes, a lot of folks will be hurt by a correction but at the same time a lot of people were hurt by the boom. Not everyone works in cushy jobs that benefited from the boom and a lot are in worse shape today. Housing costs are most peoples biggest expense.

1. I've read the whole thread, just haven't commented all along the way. I'm not convinced there is a huge correction coming, and while that might put me in the minority I just wonder how long we have to have this conversation? As was pointed out today its been about 2 years....so how long do you guys plan on dragging this on to eventually say "I told you so"?

2. I don't work in the real estate industry. I have a vested interest here in that I own property and a lot of people would be screwed if the Armageddon of real estate happens as some seem to allude to in this thread. I have friends and family here and who knows how badly some of their plans would be hurt? I also run a business and while I don't make a living on real estate, my business clearly fares better when people are not having their homes foreclosed on!

3. I understand market cycles and understand that a correction could come suddenly and without warning. I also note that the talk now of a "correction" is funny to me. How long ago was the idea that we were feeding a bubble here? A correction is completely normal though, and that shouldn't be something that an average homeowner fears.

I'm still waiting for someone to admit in this thread that they sold their real estate because of this impending correction/crash though? Surely the real estate geniuses out there aren't going to follow everyone else down for the ride are they?

[AFireInside]

Originally Posted by Slava

1. I've read the whole thread, just haven't commented all along the way. I'm not convinced there is a huge correction coming, and while that might put me in the minority I just wonder how long we have to have this conversation? As was pointed out today its been about 2 years....so how long do you guys plan on dragging this on to eventually say "I told you so"?

2. I don't work in the real estate industry. I have a vested interest here in that I own property and a lot of people would be screwed if the Armageddon of real estate happens as some seem to allude to in this thread. I have friends and family here and who knows how badly some of their plans would be hurt? I also run a business and while I don't make a living on real estate, my business clearly fares better when people are not having their homes foreclosed on!

3. I understand market cycles and understand that a correction could come suddenly and without warning. I also note that the talk now of a "correction" is funny to me. How long ago was the idea that we were feeding a bubble here? A correction is completely normal though, and that shouldn't be something that an average homeowner fears.

I'm still waiting for someone to admit in this thread that they sold their real estate because of this impending correction/crash though? Surely the real estate geniuses out there aren't going to follow everyone else down for the ride are they?

I had an offer in on a place in late 2007 early 2008... Was on the fence, and eventually backed out telling my realtor that I thought it would decline. I have saved myself about 50,000 last time I checked. That may have changed by now.


I think there are very few who think there is going to be an armageddon. I don't think 10 - 15% is out of the question.

Who knows, it's hilarious to me how people on each side act like they know all.

Truth is VERY VERY few can predict what will happen accurately. If they could, they would be extremely wealthy. No one in this thread is in that situation by the sounds of it.

Those who early on stated that the market would increase/stay the same, have just gotten lucky in their prediction and can now say things like, this has been going on for 2 years we are right blah blah blah. It could completely turn around tomorrow that side of the fence would be wrong.

It seems to me like those who think there will be a decline are just basing it on numbers. It just comes down to the fact that those numbers say to me that the market will eventually correct. Those numbers may speak differently to you.

I'm not sitting here hoping people lose their shirts, but I certainly dislike the fact that society is clearly relying more and more on credit to get by.

Not to mention the bigger issue being that CMHC mortgages are backed by the taxpayer. If that goes to hell then I'm clearly going to take issue with people buying properties they couldn't afford and the with the banks for lending the money.

[Slava]

Originally Posted by AFireInside

Who knows, it's hilarious to me how people on each side act like they know all.

Truth is VERY VERY few can predict what will happen accurately. If they could, they would be extremely wealthy. No one in this thread is in that situation by the sounds of it.

I snipped away the other points, but quoted this for truth. I certainly don't think that I know everything. Far from it! It might come across that way here, but that is just posturing and debating.

The other downside of any of us knowing everything is that we would have to find something else to debate though. Thats the glory of the internet...none of us know what is going to happen and pretty clearly enjoy arguing about it!

[burn_this_city]

http://www.calgaryherald.com/busines...473/story.html

Sales of SFH and Condos lowest in 10 years, despite low interest rates.

[kevman]

Originally Posted by pepper24

The main reason is that interest rates are still at or near record lows.

After reading this I thought it'd be interesting to put a graph together that looks at housing as a function of monthly payments instead of median or average price. Unfortuantly I can't share this for I haven't figured out a good way to upload my graph somewhere while I'm at work...

However the highlights are:

June 2007 (Peak)
Median - $439,000
Interest Rate - 6.51%
Monthly Payment - $2,796

January 2008 (Thread creation leading to fotze's bubble balls)
Median - $410,000
Interest Rate - 6.8%
Monthly Payment - $2,680

December 2010 (Lowest since April 2006)
Median $389,000
Interest Rate - 4.7%
Monthly Payment - $2,086

That means house prices are down a whopping 25% as a function of monthly payments since the peak and a slightly better 22% from the start of this thread.


Fine Print
Median house prices from dailystats.ca.
Interest rate from BOC average Canadian mortgage.
Monthly payment based on a mortgage payable monthly over a 25 year ammorization with 5% down.
I'm aware that 0 down/40 year mortgages made homes appear cheaper at the height of the boom but for comparison sake I wanted to look at what a house would have cost using a more conventional term.

[Winsor_Pilates]

Originally Posted by burn_this_city

http://www.calgaryherald.com/busines...473/story.html

Sales of SFH and Condos lowest in 10 years, despite low interest rates.

Yup, IIRC SFH sales were actually the lowest since 1995 so it's really 15 years.

Question now is whether this means we're at the bottom of a valley with sales volume set to rise, or are prices poised to come down to follow sales volume.

[Slava]

Originally Posted by fotze

Isn't it possible that there are some places that just don't follow "the fundamentals" as closely as others. Places with less diverse economies.

A very important metric in all of this that seems to be ignored is the employment. I don't think there will ever be a correction if oil remains at the price it's at. I think that number trumps all the inventory numbers. Yes, not everyone works in the industry but when the price is like this, we are underemployed and the excess money filters to all other places in the economy.

In Calgary the oil price is the most important thing, interest rates are second, mortgage rules are a distant third and inventory fourth.

That is a great point. In an oil city the economics of housing are a little different, and prices can be a little inflated as a result. I don't work in oil and have clients who do and do not. When the price of oil is $85 they all feel a lot better than they do at $45!

[Slava]

Originally Posted by kevman

After reading this I thought it'd be interesting to put a graph together that looks at housing as a function of monthly payments instead of median or average price. Unfortuantly I can't share this for I haven't figured out a good way to upload my graph somewhere while I'm at work...

However the highlights are:

June 2007 (Peak)
Median - $439,000
Interest Rate - 6.51%
Monthly Payment - $2,796

January 2008 (Thread creation leading to fotze's bubble balls)
Median - $410,000
Interest Rate - 6.8%
Monthly Payment - $2,680

December 2010 (Lowest since April 2006)
Median $389,000
Interest Rate - 4.7%
Monthly Payment - $2,086

That means house prices are down a whopping 25% as a function of monthly payments since the peak and a slightly better 22% from the start of this thread.


Fine Print
Median house prices from dailystats.ca.
Interest rate from BOC average Canadian mortgage.
Monthly payment based on a mortgage payable monthly over a 25 year ammorization with 5% down.
I'm aware that 0 down/40 year mortgages made homes appear cheaper at the height of the boom but for comparison sake I wanted to look at what a house would have cost using a more conventional term.

I'm not sure if I'm looking at something different here, but doesnt this show that since the creation of this thread the drop has been about 5%?

[chemgear]

Originally Posted by Winsor_Pilates

Yup, IIRC SFH sales were actually the lowest since 1995 so it's really 15 years.

Question now is whether this means we're at the bottom of a valley with sales volume set to rise, or are prices poised to come down to follow sales volume.

I think you're right, time will tell which way things will swing. There seemed to be a lot of homes that never sold but were taken off the market in 2010, will they be put back on the market or do they just give up completely/sales increase enough to pick up all the slack?

Originally Posted by fotze

Isn't it possible that there are some places that just don't follow "the fundamentals" as closely as others. Places with less diverse economies.

A very important metric in all of this that seems to be ignored is the employment. I don't think there will ever be a correction if oil remains at the price it's at. I think that number trumps all the inventory numbers. Yes, not everyone works in the industry but when the price is like this, we are underemployed and the excess money filters to all other places in the economy.

In Calgary the oil price is the most important thing, interest rates are second, mortgage rules are a distant third and inventory fourth.

That might be true - and it would make the applicable term a lot less "fundamental." I agree, there also has to be a lot of "trinkle down" through oil & gas like you say, but I always got the impression Calgary got bashed by a lot of people for NOT having a diverse economy.

Nice summary of some information here from the government:

http://www.energy.alberta.ca/Org/pdf...y_Overview.pdf

I'm not sure it's all just about oil price though, Calgary/Alberta is still pretty well weighted to gas as well. On a total Alberta production BOE basis, it's over 50% gas in 2009 - not insignificant volumes. And of course from page 2 you can see a lot of the crude oil being produced won't even get the full sweet WTI/Edmonton light oil price (being of medium/heavy API, bitumen or the more cost intensive synthetic variety.)

That being said, oil production will continue to grow with the various projects developing further. Views on oil prices are also good for the most part from most of the analysts I have seen. Gas volumes will probably be lower for 2010/2011 but most companies can't afford to just shut it all in without hitting cashflow too much. Gas still makes up a lot of production and future drilling potential for many companies. Unfortunately, low gas prices still matter quite a bit, like the recent gas department layoffs at Conoco.

[Claeren]

I also read this thread without posting much, a few general thoughts about the current market:

1) Pricing may have been flat but you are comparing apples to oranges. You can buy a LOT more house for $500k today than you could 3 years ago, or 2 years ago.

Most suburban condos I know that peaked around $320k are now closer to $220k IF they have a good condo board, etc. And most homes that peaked around $450k I see now closer to $380k, IF they are desirable in some sense of that word and can sell at all.

2) With fewer houses selling, you can only sell if your house has some desirable characteristic. Anything less prime takes a huge hit and likely cannot be sold at all. Far too many people have not panicked into selling because they mistakenly believe that $500k home that sells today is just like their home they paid $500k for a few years ago. It is not.

3) As mentioned, low interest rates cannot last forever. If we are simply going to lend for free forever then your home is not actually worth anything at all - and neither is the money in your pocket. To restore rates to long term norms is to restore value to the other assets in your life.

4) There is a massive demographics shift taking place that WILL have an impact on the market. The most alarming aspect being the number of people counting on the 1-5 homes they own to be their retirement savings.

5) Even if you can buy the same house today for $500k as you could a few years ago, you can still still rent that home for a fraction of that amount of carrying cost. Even more so with condos. By renting today instead of buying you are likely ahead at least $1000/month relative the total carrying cost of mortgage/interest (especially when factoring in a future rise in rates), insurance, property tax, condo fees, and maintenance. The same house needs to be worth $12,000+/year for it to have been better to buy it. Without factoring in interest or value of liquidity in those saved dollars. (With my employer matching my savings 1:1, it would actually need to be $24,000/year in price growth and I am not the only one with a set-up like that.)


The list goes on, but that is how I see it....



I suppose the one chance for those that own currently is if they do keep things going on and on like this (as I think they intend on doing). Your house will not rise in any meaningful way relative to the value of money but it wont drop a lot either. With so few people properly adding up their costs associated with the asset, and preferring the intangible 'joy of ownership' over renting, homes could well just stagnate and sit for years and years as they have at other times in history. Often for decades at a time.

And yes, I agree, oil and gas prices will always have a chaotic affect on home pricing in this city, but long term trends do not change. If anything, I would be worried (not excited) about what will happen with the world energy economy over the next 30 years... short term gain (by a spike in pricing) may be balanced heavily against a long term loss (by a chance in energy sources/usage).



Claeren.

[chemgear]

Originally Posted by Slava

I'm not sure if I'm looking at something different here, but doesnt this show that since the creation of this thread the drop has been about 5%?

No idea, I joined the thread/CP around 9 months ago I think?

[Travis Munroe]

Originally Posted by pepper24

If 5% is a good chunk of change for many of your buyers then these buyers are going to be in trouble when rates eventually start trending up putting downward pressure on the market.

I work with several first time home buyers. They have just recently entered the work force and will be making more money in no time. It is smart of them to get in right now even if it means a couple less bar nights or vacations.

[Slava]

Originally Posted by chemgear

No idea, I joined the thread/CP around 9 months ago I think?

Well if the thread was started and the price was at $410 and now its at $389 then we're looking at about 5%? I don't know though...maybe I'm missing that posters point or missing something there.

It is definitely worrisome how many people are counting on their home(s) to fund their retirement (to get back to a point made by Claeren on this page). I've talked to a lot of boomers who all feel that way, and while that might work for some people it can't support them all.

That demographic issue leaves me unsure of how best to play it though....I just don't want to rent!! Probably that is more based on mindset as opposed to anything else.

[Bill Bumface]

I think counting on retiring off of rental properties is safe if you expect them to be paid off and worth what they currently are in 25 years or whenever the mortgage is done.

Realistically in 25 years rent should be up and you should be pulling in a bit of profit month to month, and if your house is $400,000 now, I think it's a safe assumption it will be $400,000 then.

Counting on it to be worth $1,000,000 you could be screwed.

[Cowboy89]

Originally Posted by Realtor 1

I work with several first time home buyers. They have just recently entered the work force and will be making more money in no time. It is smart of them to get in right now even if it means a couple less bar nights or vacations.

On the optimistic side sure. That might generally have been true in the recent past and present in Calgary, but considering that many professional's job fortunes are in many ways tied to Oil and Gas and the general Alberta economy, wouldn't a hypothetical downturn push down real estate values and thus create a wealth trap for 20 somethings who go 5/35 or (even worse) employ cashback mortgages for virtually a 0 down 35 year mortgage?

What's smart about that? It would only appear smart if real estate values took off at a sustainably higher rate than their incomes/savings appreciated (But wouldn't the simple existance of prices moving higher in proportion to incomes be by definition 'unsustainable'?). I italicized 'appear' because even if that plays out it doesn't make the decision smart because to foresee that today you would be needlessly speculating.