Calgary Real Estate predictions?

[Winsor_Pilates]

Originally Posted by Claeren

Baby Boomers are passing their peak earnings, they will start saving and rationing far faster than the generation behind them can ramp up spending. With more supply of homes (as they die, down size, sell second, third, forth properties, etc) and less demand lonf term prices have to fall regardless of what it costs to build a new home.

I'm still trying to grasp your baby boomer argument and the collapsing Canadian economy.
All economic forecasts I've read seem to think Canada's economy will grow, GDP will rise and population will increase.
Calgary and Alberta in general seem to have even more favorable forecasts than the rest of the country.
Is this just your personal theory? or do you have economic sources to substantiate this upcoming doom?

I am sure there are plenty of people in Japan who thought 20 years ago there was no way you could build an apartment for the cost they do today...

Japans housing issues seem to be part of much larger economic issues they've had. Decreasing population, no immigration, lowered GDP etc.
Since you're expecting Canada to follow Japan, are you expecting all of these things to happen in Canada as well?

[Claeren]

Originally Posted by Winsor_Pilates

I'm still trying to grasp your baby boomer argument and the collapsing Canadian economy.
All economic forecasts I've read seem to think Canada's economy will grow, GDP will rise and population will increase.
Calgary and Alberta in general seem to have even more favorable forecasts than the rest of the country.
Is this just your personal theory? or do you have economic sources to substantiate this upcoming doom?


Japans housing issues seem to be part of much larger economic issues they've had. Decreasing population, no immigration, lowered GDP etc.
Since you're expecting Canada to follow Japan, are you expecting all of these things to happen in Canada as well?

You already asked this question and I already answered it.

Posts 1363 and 1365.




And I want to reemphasize that I am not saying it is all domo and gloom, what I am arguing is that there is very little upside to the market. And since rents are substantially below carrying costs it makes far more sense to rent than buy until fundamentals significantly change - which may not happen for 5 or 10 years (or much longer).




Claeren.

[1stLand]

Originally Posted by Claeren

Wow, how did I miss this post...

This is exactly the type of thing a realtor would say. It makes sense on the surface but does not stand to much scrutiny. (And I too have worked in/with land bankers, developers and commercial real estate types - although funny enough they are generally the last people I would go to as experts on the matter.)

These developpment costs are constant in all home markets around the world yet Calgary now has some of the more expensive homes in North America. This despite no limit on land, a massive oil/gas funded road infrastrucutre already in place, etc. I see very little reason why a prolonged deflation could not push new homes into the $260,000 range.

This is not to say that there are no costs of development but there is plenty of room for prices to drop. Right away as prices fall and demand plummets, speculative land bankers take a huge hit, labour costs plummet and material costs plummet. Deflation means that the profit margins stay the same but those with huge leveraged home loans fall further behind, having already borrowed/spent dollars that are gaining, instead of losing, purchasing power.

More importantly, and also addressing your comments about some new world where dual income allows more expensive homes, there is a huge inventory of homes already built. The cost of construction is a sunk cost and is now seperate from the bottom in the market. There is no reason why home prices could not go below there repalcement cost as they have in almost all of North America. Baby Boomers are passing their peak earnings, they will start saving and rationing far faster than the generation behind them can ramp up spending. With more supply of homes (as they die, down size, sell second, third, forth properties, etc) and less demand lonf term prices have to fall regardless of what it costs to build a new home.


I am not anticipating a huge drop from where we are now, but saying that it is expensive to build/develop new homes is in no way an argument for buying a home in this market. There is simply very little potential upside and there is subtantial potential downside...

I am sure there are plenty of people in Japan who thought 20 years ago there was no way you could build an apartment for the cost they do today... they have simply rented from the bank for twice the cost that they could have rented from a desperate 'real estate investor'/Japanese baby boomer.

And the last few years in Vegas or Phoenix should tell anyone how much construction costs matter in terms of a bottom in housing prices....




Claeren.

When you say new homes can come down to $260,000 what types of new homes are you referring to?
You need to be more specific.
In 2008 a new home builder was selling a detached single family home with no garage on a small lot for $270,000.
Now that home is being Marketed for $340,000 (built new) - which I believe overshoots the real value of that home.

The reason for such a low price in 2008 was because of the widespread panic in the economy coupled with the fact that it was a newer phase and the developer gave a significant discount to the builder to get through their lot inventory.

I am not disputing that $340,000 could go down to $280,000 or $290,000.

But if you think a new built - in a nice part of the city that has a front attached garage and is a two-story building - will go down to $260,000......well I just dont agree with you.

But I appreciate your comments on this thread. It is good to have healthy discussion. I am not personally threatened by negative comments about the housing market and I am not working a war-room or running a progaganda printing press!

[pepper24]

[QUOTE=1stLand;2674117]

Originally Posted by chemgear

There was a completely different philosophy 20 years ago, regarding the use of credit for the average consumer.

People more willing to go into debt to buy what they want today than they were 10, 20, 30 years ago.

I don't think 3x's or 4x's the average household income as a benchmark for housing prices is as relevant as it once was

With the 10 year boom from 1997 to 2007 we've managed to get in a situation of housing prices becoming 4-11 times median income. Historical it's been 3-4 times median income. You can factor in dual incomes, built up home equity, growing job market etc. but you could also counter that with record low interest rates which can only go one way which is up along with much better investments out there than real estate. At record low rates, people are in huge debt with unsustainable mortgages. Not a fun life being house poor. People can only "sacrifice" for so long before that changes. It's a losers game that I want no part of either hence living within my means.

The changing views about debt are unfortunately correct but it's the main cause of why we're due for a big mess. In our grandparents generation debt was a a bad thing which was frowned upon therefore you saved up and bought what you could afford. You lived within your means. Our parents generation with the introduction of credit changed that and my 25-34 demographic (Generation Freedom 6/49) is even worse. The cycle has to end.

[Winsor_Pilates]

Originally Posted by Claeren

You already asked this question and I already answered it.

Posts 1363 and 1365.

Sorry, missed that.
I don't agree Japan was in as good a situation as you wrote, and I think there issues are due to many factors Canada doesn't seem to have right now or in the forecasted future.
That's not to say housing declines can't happen here, just if they do Canada will have to see our own economic reasons for it and we don't mimic Japan.

And I want to reemphasize that I am not saying it is all domo and gloom, what I am arguing is that there is very little upside to the market. And since rents are substantially below carrying costs it makes far more sense to rent than buy until fundamentals significantly change - which may not happen for 5 or 10 years (or much longer).

I don't think we're gonna see the upsides we've seen in Calgary before, but I wouldn't be surprised if Calgarians get excited when oil prices come up and Calgary starts booming again in the business sector/immigration in.
If Calgarians income remains highest in the Country and Calgary leads the country in good economic growth, I can't personally see major declines in RE values.

I think a short term (2-4 years) buy and sell of the right properties at the right times can still make a good investment if the timing is right. And losses if your timing is off.
And to be very clear: this is my personal thinking as an investor, not advice I try to give clients as a Realtor.
That's not my job

[Winsor_Pilates]

Originally Posted by pepper24

With the 10 year boom from 1997 to 2007 we've managed to get in a situation of housing prices becoming 4-11 times median income. Historical it's been 3-4 times median income.

To say 11X median income is very misleading.
There are people who make 11X the median income who can afford that price relative to how others afford theirs.
What that really signifies is the Calgary has an extremely wealthy sector it historically didn't have who are increasing the range of home prices. The variation in Calgary home prices is much wider than ever before but so it the variation in income.
The wealthy are buying at prices much higher than the average, and historically the disparity was much closer.

More telling is to look at actual median income and median price. Those numbers are about $90,000 and $350,000 which comes to 3.9.

[1stLand]

Further to this discussion, This Report just released by RBC is a worthwhile read:

http://www.rbc.com/economics/market/pdf/house.pdf

[gottabekd]

Originally Posted by 1stLand

Further to this discussion, This Report just released by RBC is a worthwhile read:

http://www.rbc.com/economics/market/pdf/house.pdf

Thanks for the read.

Nothing major, just though worthy of quoting (considering the past history of this thread):
In regards to 2010 in Calgary

In the second quarter, prices actually fell for most housing types.

It's wording like that that is easy to jump all over...

[macker]

Originally Posted by gottabekd

Thanks for the read.

Nothing major, just though worthy of quoting (considering the past history of this thread):
In regards to 2010 in Calgary


It's wording like that that is easy to jump all over...

http://daryld.com/economist-jokes/ I don't remember a time where these jokes rang more true. This is truely one of those times in history where nobody really knows and all the experts can agree on this no doubt....nauseating stuff with all of the conflicting "expert reports/predictions....trying to apply logic to the emotional swings of the housing market

[Winsor_Pilates]

Originally Posted by 1stLand

Further to this discussion, This Report just released by RBC is a worthwhile read:

http://www.rbc.com/economics/market/pdf/house.pdf

Unless I'm reading it wrong, RBC is saying Calgary and Manitoba are actually more affordable now than their 25 year average.

[1stLand]

www.universitycity.ca



Interesting project.

This is planned near Brentwood C-Train as part of the LRT Transit Oriented Development (TOD)

[AFireInside]

Originally Posted by Winsor_Pilates

Unless I'm reading it wrong, RBC is saying Calgary and Manitoba are actually more affordable now than their 25 year average.

Of course Calgary is more affordable if you put $100,000 down on a $400,000 house....

The report is based on 25% down on a 25 year mortgage.

6 years ago putting 25% down on a 150,000 house was a little easier...... The only ones putting 100k down for a down payment are those who were in the market before the boom and made a killing. Wages haven't changed that much in the past 10 years to make up the difference. People saving up for a house aren't putting down 100k. 7 years ago could they have saved up 35 - 40 k over several years, or by selling a property for a small gain? Yup... Pretty tough for those who bought after 2005 to make 100k on their properties right now.

25% down is the only way someone making 90k a year can get approved for a 420,000 mortgage right?

[chemgear]

Originally Posted by Winsor_Pilates

To say 11X median income is very misleading.
What that really signifies is the Calgary has an extremely wealthy sector it historically didn't have who are increasing the range of home prices. The variation in Calgary home prices is much wider than ever before but so it the variation in income.
The wealthy are buying at prices much higher than the average, and historically the disparity was much closer.

There are people who make 11X the median income who can afford that price relative to how others afford theirs.

More telling is to look at actual median income and median price. Those numbers are about $90,000 and $350,000 which comes to 3.9.

I'm not sure I understand what you are saying in regards to the median. The median is the sorted phyical numerical middle; for that to work wouldn't these higher income people be the only/most of the people buying and the rest with less income sitting on the sidelines statistically speaking? In theory, these outliers can't skew the median as much - which is why many like the median versus the mean/average metric.

Where does the $350,000 come from? I think the Calgary SFH median is currently $390,000ish (down from $425,000ish a few months ago.) Interestingly, inventory is going back up again in Calgary - pending the people who give up at the end of the month.

Originally Posted by AFireInside

Of course Calgary is more affordable if you put $100,000 down on a $400,000 house....

The report is based on 25% down on a 25 year mortgage.

6 years ago putting 25% down on a 150,000 house was a little easier...... The only ones putting 100k down for a down payment are those who were in the market before the boom and made a killing. Wages haven't changed that much in the past 10 years to make up the difference. People saving up for a house aren't putting down 100k. 7 years ago could they have saved up 35 - 40 k over several years, or by selling a property for a small gain? Yup... Pretty tough for those who bought after 2005 to make 100k on their properties right now.

25% down is the only way someone making 90k a year can get approved for a 420,000 mortgage right?

Can't seem to embed this image, but basically the average/median sure as heck isn't putting 15% down - let alone 25%. (I had linked it earlier.)

http://2.bp.blogspot.com/_0YOsyi5WbL...quity+5%25.Bmp

[Winsor_Pilates]

Originally Posted by chemgear

I'm not sure I understand what you are saying in regards to the median. The median is the sorted phyical numerical middle; for that to work wouldn't these higher income people be the only/most of the people buying and the rest with less income sitting on the sidelines statistically speaking? In theory, these outliers can't skew the median as much - which is why many like the median versus the mean/average metric.

I understand what median is; here's a better explanation.

The household income being compared is median and that's why it's not overly skewed by the outliers. (Good!)

On the other hand, the "4-11" being compared is a home price range, not median prices and ranges are skewed by the high end outliers (aka the 11's).(Bad!)

The stat that was thrown out in the thread is comparing a median to a range which is not consistent comparison and why it's misleading.
One number is dramatically skewed and the other isn't, making it look like average people are buying homes 11 times their income. NOT TRUE

We could reverse this and compare median home prices to income ranges and get similar skewed results. People with income of 10 million buying houses at $390,000. How affordable!!

In reality, if the extremely wealthy class was getting larger and started building/buying homes well beyond the traditional Calgary price range; this would result in a change from the narrow range (3-4X) to the wide range (4-11X) as the initial article indicated.

That's why it's much more accurate to compare median and median which is what I did. Even using just SFH, it's $390,000 to $90,000; a ratio of 4.3. Not nearly as bad as 11!!!

Where does the $350,000 come from? I think the Calgary SFH median is currently $390,000ish (down from $425,000ish a few months ago.)

$350,000 includes condos and is the August numbers, which is nearly unchanged from the same time last year. I find it more accurate to include condos as well, as the median income includes everyone not just SFH buyers.
But we can use $390,000 if prefered; my point was about the misleading 4-11 stat, so this doesn't change much. A ratio of 4.3 is still what we're looking at.


edit: Went through the original "4-11X" article to do some further research and it confirmed my theory that it's BS: The fine print in the article

"It may however that wealthier Canadians who did capture much of the income growth over the past 30 years have been enabled by this additional income to speculate in real estate markets, thereby pushing up prices. The concentration of income with wealthier Canadians does not significantly alter the median income, but it would create an additional pool of capital that might be used for real estate speculation."

I know as a Realtor I'm supposed to provide the spin doctoring, not find it; but there you go

[pepper24]

The 4-11 times is comparing median income to home prices. Not mortgages. Historically, this stat has been 3-4 times. It’s a legit stat comparing apples to apples. Proof of this stat is that from 1997 to 2007 home prices increased 198%. Besides realtors (pay linked to home prices) what other professions had salary/wage spikes that kept pace? I’ll try to track down stats but I don’t know of many that had similar increases. To stay at 3-4 times, salaries would have had to increase by the same rate which isn’t the case.????

[bizaro86]

The extremely wealthy had huge income gains over the last 10 years. Think corporate executives, high end lawyers, entrepreneurs, finance types. Then they they took their new money and did things like built Aspen Estates with it. Someone who used to make $250,000 increasing their income o 2.5MM per year doesn't increase the median income by even one dollar, since they were well over the median before as well. But it makes it likely that they'll move from a $600,000 house to a new $5MM house, which increase the average house price dramatically, and the range of house prices as referenced below.

That ultimately doesn't have anything to do with the "average" family whose income increased from 80k to 90k (or whatever) and whose housing costs went up a slightly larger percentage. The 4-11 is bogus for that reason. Income disparity went up, but that doesn't make the average 2 storey less affordable.

Michael

[The Yen Man]

Originally Posted by pepper24

The 4-11 times is comparing median income to home prices. Not mortgages. Historically, this stat has been 3-4 times. It’s a legit stat comparing apples to apples. Proof of this stat is that from 1997 to 2007 home prices increased 198%. Besides realtors (pay linked to home prices) what other professions had salary/wage spikes that kept pace? I’ll try to track down stats but I don’t know of many that had similar increases. To stay at 3-4 times, salaries would have had to increase by the same rate which isn’t the case.????

What about all the people working in the oil companies downtown? I know a few people who are engineers who couldn't even find a job back in the early 2000's, and now make over 100K. It seems the average engineer or accountant coming out of post secondary is making at least twice as much as they were 10 years ago.

[Fobby]

Originally Posted by The Yen Man

It seems the average engineer or accountant coming out of post secondary is making at least twice as much as they were 10 years ago.

Not everyone sold their soul... errr.. i mean works for O&G..

[burn_this_city]

Originally Posted by Fobby

Not everyone sold their soul... errr.. i mean works for O&G..

If they were sensible they would

[chemgear]

Originally Posted by The Yen Man

What about all the people working in the oil companies downtown? I know a few people who are engineers who couldn't even find a job back in the early 2000's, and now make over 100K. It seems the average engineer or accountant coming out of post secondary is making at least twice as much as they were 10 years ago.

Here is the 2009 salary survey thing that APEGGA puts together every year.

http://www.apegga.org/pdf/SalarySurvey/SSH_09.pdf

They used to have a "by graduation year" chart - most recent is 2008 I think:

http://www.apegga.org/pdf/SalarySurvey/SSH_08.pdf

Not sure about where I can find accounting stats to play with.


Doing some quick math for the whole "engineer - all industry" body average rounded numbers:

2001 - 81,000
2009 - 108,500

I think that's roughly 3.5%ish increase per year? (sorry, short time frame for me to slap this together.)