Calgary Real Estate predictions?

[Flame On]

Originally Posted by trew

A couple of quick thoughts.

I find it funny how anyone associated with the real estate industry has only one piece of advice. Buy Now.

Good market:
- Buy now because prices are going up.

Bad market:
- Buy now because the selection is good and it is a buyers market.

I like Scott Adam's 9 point financial plan. In it he says: "Buy a house if you want to live in a house and you can afford it".

I guess it makes sense if you're in turn buying another place. Because sell now then would in turn mean buy now. But if you're building or speculating perhaps it's another story.

[Bobblehead]

Originally Posted by Radley77

The absorption rate is abysmal at 4.68 according to the website at: www.andrewkyle.com

Abysmal?

From the site you list (http://www.andrewkyle.com/mlsca/home...report#chart_a)

Over December, the Absorption Rate (AR) for houses was 4.59, and for condos, almost the same at 4.43, yielding a combined AR of 4.54. (See Chart A - Absorption Rate Trend) This is a significant improvement over the average AR of 5.23 in September, the "high water mark" of the fall '07 correction. And with January typically bringing out many buyers who otherwise sit on the sidelines in November-December, I expect we are on our way to being in a "balanced market" situation in late winter or spring.

That doesn't sound "abysmal" to me.

[Radley77]

aa

[Radley77]

Here are the condo sales:

http://www.bobtruman.com/Condo_Month...e_1869405.html

January 1-14 2008 sales: 146
January 2007 sales: 736

Here are the SFH sales:

http://www.bobtruman.com/SFH_Monthly...e_1869385.html

January 1-14 2008 sales: 386
January 2007 sales: 1497

[Winsor_Pilates]

Nice Doom and Gloom Radley...

I'm curious as to what your motives are...

There's absolutley no way the market will tank like you're saying. moderate growth and stabilization is "almost" a guarantee.

I would buy now in Calgary, last few months would have been even better. I bought in November.
Things are starting to look up now. Calgarians are just a little timid right now, but I don't think they need to be.

don't rememeber where I read it, but condo sales last year were only slightly down from crazy 2006. I think sales in 2008 will be slightly down from 2007, but that won't result in decreased values.

[Shin Pad]

The economic fundamentals in Calgary are just too strong for the housing market to tank. It is a good time to buy now as I don't think the prices will drop much more. By the same token, I think 10% increase in property value is a bit optomistic. If I were a betting man, I'd say the increase will be somewhere around 3%.

[4X4]

Well... I was at the conference today and I've got a big smile on my face after listening to Ed Jensen and Diane Francis. Ed's speech wasn't exactly profound (not a diss, just saying that us industry folk already figured around a 5% increase). A little off topic, but I have to say that Diane Francis sure made an impression on me. I've never heard her speak and I assumed that since the apple doesn't fall far from the tree, the tree in question was an idiot tree. Boy was I wrong. That woman is sharp. And her economic outlook was extremely well thought out and logical. To hell with the doom and gloom people, our fair city is sitting pretty. And real estate is one of the most secure forms of investment, so you might as well buy, and you might as well buy here. Because this city is going to be economically strong for awhile.
Radley, go buy land in Phoenix and save the rest for us.

[4X4]

Originally Posted by fotze

Because she was saying things that you already agreed with?

A little bit yes and a little bit no. She didn't just talk about calgary. She started with the entire world and localized it bit by bit. She covered pretty much everything that needs to be considered when making an economic forecast. Not like those idiot hacks that spew out the same old garbage about George Bush sucks, therefore the US economy is screwed.

[Radley77]

I take it she didn't talk about price to rent ratios (bubble) or affordability.

[4X4]

No, she didn't but Jennings did. What about them? People gotta work harder to afford stuff around here? So?

[Wookie]

I was at the Calgary Real Estate Conference in... October?

Really enjoyed myself, thought what people were saying was generally good. There was an overall positive view for real estate. Mostly commercial.

There was also concern about employment, too low cap rates, a lot of construction, increasing vacancies, lease rates having gone to high etc.

However the belief in the overall Calgary economy was very positive and supported strong growth. Things may slow down, they may correct a little. But overall I think Calgary has was a it takes to continue to be a good place to come and work. With that real estate prices should be fine.

Radly comes across as someone who wants to buy a house but can't. Or who can but wants things to be cheaper and as such can only see the neagtives.

[4X4]

Originally Posted by Wookie

However the belief in the overall Calgary economy was very positive and supported strong growth. Things may slow down, they may correct a little. But overall I think Calgary has was a it takes to continue to be a good place to come and work. With that real estate prices should be fine.

And that is what Calgary is going through. Some people have such short memorys. Like 2006 is supposed to repeat itself forever.
A nice, stable real estate market is what we're headed toward. 2006 was an anomoly to correct for an undervalued market. Any increase in interest rates is a coiincidence mostly caused by uneasiness in the US and abroad.
Rest assured that barring WWIII, Calgary is far and away one of the best places to own realestate in the world. Very few places have what we have in natural resources (proximity), political stability and general comfort.
The secret is out. Calgary is the place to be. Buy now, retire earlier. Just be wise and don't bite off more than you can chew. All economies fluctuate.

[photon]

No doubt some numbers aren't nearly as strong as they were, but then again those numbers were totally unrealistic to sustain anyway.

Some things like price-rent ratios sure they don't look great right now, but the question is will it burst or will it be a soft landing as things adjust (i.e. rents continue to go up)?

And affordability is relative.. sure we might not be as affordable as some cities in Canada, but we're not off the charts by any means and wages in Calgary and Alberta are going up far faster than elsewhere in the country as well. Compare internationally and it's still not unreasonable. Inmigration has tailed off (rather outmigration has increased) but immigration is still strong.

The days of buying any piece of real estate and expecting a great return are gone I think. Not every city and town in Alberta is going to be the right place to invest anymore. But the there are still good places to be invested in in Alberta, there's still good properties to buy that can make money. It's just now it'll require a bit more research than simply plunking down the cash for a place and raking in the return.

Eventually though Alberta will be not a great investment, and the wise investors will move their $$ somewhere else, but I don't think we're at that point right now. If we were I'd be doing some changes to my properties.

[Eric Vail]

I agree that Calgary is one of the best real estate markets in the world. I believe it so much, I bought a revenue property 5 years ago, and now I have begun investing in farmland on the city's edges anticipating further growth. The bad thing about owning a revenue property is the many hassles of finding good tenants and dealing with bad ones. The nice thing about land investment is there aren't any hassles. If anyone wants any information about land investments, pm me, and I can pass on some information.

[photon]

Originally Posted by 4X4

And that is what Calgary is going through. Some people have such short memorys. Like 2006 is supposed to repeat itself forever.
A nice, stable real estate market is what we're headed toward.

I'd be happy with 5% year after year. Not as nice as a 45% pop though.

Just be wise and don't bite off more than you can chew. All economies fluctuate.

Good advice.

[Flames in 07]

R squared of .56 = poor model

[flamesfever]

Keep an eye on the Dow Jones.

[Flames in 07]

Keep an eye on interest rates.

[photon]

Wouldn't interest rates go down with the US economy going south? To keep our dollar down vs. theirs, and to make sure our economy doesn't cool too much? Inflation is an issue in Alberta, not not really nation wide so they won't raise rates just for Alberta.

[SeeGeeWhy]

Originally Posted by Mike Oxlong

Never said anything about an interest free loan. However at current interest rates it is a very cheap way to borrow money. When you buy a house it's not like the interst accumulates every month and starts increasing. If you buy a house for $100,000 you don't owe $101,000 the next month. (I think you know that but not sure after reading your post)

If you rent and are paying $1000 a month rent that is $1000 you will never see again.

If you buy and are paying say $1400 a month some of that money is interest and some of the money goes towards principal which contributes to your equity. Meanwhile when the value of the property goes up that is also contributing to your equity.

I'd rather pay interest and get some equity in a place than pay a landlord and get nothing. That's just my opinion. Everyone is entitled to their own and obviously there are many varying opinions.

Mike, I see what you're getting at, but you need to temper your view on real estate as an investment. It is a good way to leverage yourself into a position of wealth, but it's returns are not good.

There are four types of home ownership in my mind - personal use, revenue, speculation, development.

"Personal use" is buying a house and living in it as your primary residence (obviously). Lots of people argue whether it is better to buy or rent. A mortgage is split into a number of equal payments on the principle over a long period of time. Let's say you buy a house that is worth $300,000 with a $75,000 down payment (25% down), and amortize it over 35 years at 6.5% interest rate. You end up paying $300,000 for the house, and $340,000 in interest over that time period. So, in order to not lose money, your house will have had to appreciate at 2.58% per year. That is the return on the asset (your property). The return on your investment is $0, since your house has appreciated to a value equal to the interest you paid over that time. Every dollar that you make over that can be compared to your initial $75,000 down payment as your return on invested capital, which is the important figure for all investors to look at. Fortunately, the average return on property in Calgary historically has been 3% per year, so our home owner in this case, at the end of 35 years, will have a house worth $856,000, and will sell for a profit of $116,000. On a $75,000 down payment over 35 years, that is a return of 1.3%/year - a modest return at best.. and likely not much relative to what inflation would have been during that period. Fortunately, the homeowner will not be taxed on that sum when they sell. Is this a good investment? No. You could have made a better return by putting that $75,000 into a government bond and renting at a cheaper cost over the same period. So what is the benefit? In the case of home ownership, you have more options - such as investing in improvements that allow you to rent a suite out, or developing the land at the end of your time of use. That, and the gains are tax free, and the house is an asset you can borrow against for other investments.

"Revenue" is buying a house that is not your primary residence to rent it out to help cover your costs. Depending on your financing and the rental market, you will need anywhere from 25 - 40% down payment to have an 'income neutral' property. This means that your rental income will cover your financing and operating costs. Two things are significant about this scenario. 1. The interest payments on the loans that are used to finance this purchase are a tax deduction in Canada. 2. Any capital appreciation on the property will be taxed when/if you sell it, and transferring this asset onto family tax free is not really possible (I don't think).

"Speculation", like you mentioned above, is a situation where a person buys a piece of property on the idea that it will be worth a lot more very soon, and they hope to flip it over before they actually start paying for the property. Obviously, this is a very risky thing to do, and the investor may be stuck in a bad situation. There are a lot of people doing this with the condo buildings going up in Calgary. Get in for a $10,000 deposit, and hope to cash in 3 - 5 years later on the difference in values between the time at sale and the time at purchase. The problem with this is that short term, real estate can be volatile, and you are not guaranteed to make money. Nor are you guaranteed that you will not be cash called during construction, or that you will have a person willing to buy or rent when the property is completed. You get taxed on the gains that you make in this situation.

"Development" is the type of investment where you buy a property to either renovate it, or re-build. This, in my mind, can be the most consistently lucrative option... but as anything else that can generate returns, it requires heavy investments of time, labour, capital, material, before it will work out. And even still, you can do everything right, but if you pick the wrong location, or do it at the wrong time, you can really screw yourself over. The other problem with this is that you are limited as to how much you can make unless you have good organizational skills and can start a business that can do a significant enough volume to make you real money. Again, you get taxed on the income earned upon sale.

Now, the "returns" vary in each case, as does the level of work required to ensure that your investment is a good one. Real estate rarely has a good return on asset rate, and unless you strike it lucky and can move quickly, it is difficult to make a good return on invested capital, especially when tax is taken into consideration.

So, when you make a blanket statement and say that there are not many better investment options than real estate, I would have to beg to differ. Real estate has a purpose in any investor's portfolio, but it is not to generate high rates of return. There are a number of investment options that give you better rates of return than real estate... but it all depends on what you are looking for as an investor.

In my mind, real estate is good for accumulating "securable" assets (things to offer for collateral to get a loan), that may or may not be able to pay for themselves. You can use that money to go for real growth without ruining yourself if you fail.

This is why I focus on purchasing small businesses. A business can consistently deliver a return on asset rate of 25% per year, and depending on your financing, can give you a 100% return on invested capital, tax free (as growth of retained earnings on the balance sheet - which can in turn be used to acquire other businesses). Obviously, this is not for everyone.