Calgary Real Estate predictions?

[chemgear]

Originally Posted by Clarkey

Thanks, I tried to wait out the market a bit but at the end of the day I opted to pull the trigger on a house to settle into for my family. My wife's pregnant again and the nesting phenomenon cannot be ignored, regardless of where the market is headed!

Totally understand you - when you find something you really like, gotta go for it! (and hopefully get the seller to shave the price a little, or a lot.)

Meanwhile, please don't take my musings/thinking out loud numbers personally.

Originally Posted by cmyden

I believe it's somewhere in between, when it 'firms up' (the term I hear realtors use) and becomes unconditional. The deal becomes firm and binding, and both parties are waiting for the closing date. The sales info is then sent to the real estate board and the property is marked as sold.

On that same site, it shows pending sales actually picked up a bit at month end. Apparently there is a $5.9 MM pending sale in the pipe that should bump up "average price" this month perhaps(?)

[Slava]

I got so annoyed hearing about this housing "bubble" that I've penned an article on this:

http://www.examiner.com/finance-in-c...algary-housing

(Incidentally if you're interested in personal finance and investing related to Calgary/Calgarians in general you can subscribe and see my ramblings on the topic a couple of times a week or so.)

[Brewmaster]

Originally Posted by Slava

I got so annoyed hearing about this housing "bubble" that I've penned an article on this:

http://www.examiner.com/finance-in-c...algary-housing

(Incidentally if you're interested in personal finance and investing related to Calgary/Calgarians in general you can subscribe and see my ramblings on the topic a couple of times a week or so.)

I'm not so sure that I understand your argument about liquidity. If lending was increasing at an enourmous rate, wouldn't that mean more people were getting morgages, which would increase the demand for houses and thus the prices?

Also, I'm not so sure people are calling for house prices to be "cut in half". The article in the herald suggested 3 possible senerios for a correction, and the worst case was a 30% decline.

[Winsor_Pilates]

Originally Posted by Brewmaster

I'm not so sure that I understand your argument about liquidity. If lending was increasing at an enourmous rate, wouldn't that mean more people were getting morgages, which would increase the demand for houses and thus the prices?

Not to answer for him, but I think that's exactly what he's saying.
A bubble would look just like you're saying where prices would be going up, more people would be buying and lending would be going up at an enormous rate; all until some point where the bubble bursts.
All things not currently happening in Calgary.

[AFireInside]

Originally Posted by Winsor_Pilates

Not to answer for him, but I think that's exactly what he's saying.
A bubble would look just like you're saying where prices would be going up, more people would be buying and lending would be going up at an enormous rate; all until some point where the bubble bursts.
All things not currently happening in Calgary.

Aren't all those things EXACTLY what happened in 2006 and 2007 in Calgary? By lowering the interest rate the government delayed the bursting of the bubble?

For the record I don't think we are going to see housing prices cut in half. We are due for a pretty significant correction in my opinion.

[Slava]

Originally Posted by Winsor_Pilates

Not to answer for him, but I think that's exactly what he's saying.
A bubble would look just like you're saying where prices would be going up, more people would be buying and lending would be going up at an enormous rate; all until some point where the bubble bursts.
All things not currently happening in Calgary.

That is what I'm saying. The conditions were ripe for a bubble in 2007 (particularly) and we are now three years removed. Not saying that prices can't go down from here, but prices are certainly not sky-rocketing at this point.

Originally Posted by AFireInside

Aren't all those things EXACTLY what happened in 2006 and 2007 in Calgary? By lowering the interest rate the government delayed the bursting of the bubble?

For the record I don't think we are going to see housing prices cut in half. We are due for a pretty significant correction in my opinion.

The lowering of the interest rates should feed the bubble (and as a result delay the bursting). That didn't happen here though because the rest of the economy was also dropping and so what we've seen is more of a "deflation of the bubble" as opposed to a "popping of the bubble". (I'm using the word deflation here as in a balloon and not in its economic sense).

Its also important to recognize that a correction in prices doesn't equal a bubble bursting either. Corrections are part of the natural economic cycle and shouldn't induce panic and hysteria...which is what takes place in the sector where the bubble bursts.

[bizaro86]

Originally Posted by chemgear

August (unofficial) numbers from http://calgaryrealestatereview.com/

The month-end average price for SFH was $445,617. This was down 4.1% from July and down 1.9% from August 2009. The median was $395,000 which was down 1.25% from both last month and the previous August when it was $400,000.

There were a total of 867 transactions which was lower than the 915 recorded last month and down 32% from the 1277 in August 2009.


Condos are roughly similiar. Prices down about 6-8% (median versus average) in the last 3 months. Inventory is still pretty stable at 6 months of supply with about 250 listings expiring at month end - would one describe this as "pent up supply?"

One thing I would be interested in knowing is the median price per square foot, and how that's changed. I watch the condo market pretty closely, and its a lot of the cheap crappy stuff that's selling quickly right now, while the 400,000 new units are sitting on the market for a long time. So even if you use median numbers, that doesn't mean each unit is less valuable, it could just be a different distribution of types of housing is selling.

Michael

[macker]

Originally Posted by Slava

That is what I'm saying. The conditions were ripe for a bubble in 2007 (particularly) and we are now three years removed. Not saying that prices can't go down from here, but prices are certainly not sky-rocketing at this point.



The lowering of the interest rates should feed the bubble (and as a result delay the bursting). That didn't happen here though because the rest of the economy was also dropping and so what we've seen is more of a "deflation of the bubble" as opposed to a "popping of the bubble". (I'm using the word deflation here as in a balloon and not in its economic sense).

Its also important to recognize that a correction in prices doesn't equal a bubble bursting either. Corrections are part of the natural economic cycle and shouldn't induce panic and hysteria...which is what takes place in the sector where the bubble bursts.

Regardless though I would still bet my house that the next 20% is down and not up. Just a matter of time. Might not be a bubble but I would make this bet. Then again what is a bubble these days.....maybe 20% gets you there? That could incite enough panic/emotion that it just snowballs from there and when people go to renew they can't etc.

[cmyden]

Originally Posted by bizaro86

One thing I would be interested in knowing is the median price per square foot, and how that's changed. I watch the condo market pretty closely, and its a lot of the cheap crappy stuff that's selling quickly right now, while the 400,000 new units are sitting on the market for a long time. So even if you use median numbers, that doesn't mean each unit is less valuable, it could just be a different distribution of types of housing is selling.

Michael

At the bottom of Mike's stats page he has the average / sq ft...

http://www.findcalgary.ca/listings?p...=127&pageId=19



He takes the average price / sq foot of each home individually, and then take the average of all those numbers.

I'm not sure why he doesn't use the median of all those numbers instead of the average. But I guess by taking the avg / sq ft of each home individually it might lessen the chance of the numbers being too skewed one way or the other.

[bizaro86]

One great way to strip out all the differences in types of home, statistical variations, etc, is to compare the price of a house to the earlier sale of that same house. Granted this isn't perfect either, as the house could have been improved (renovated, etc) in that time period. But it also could have become more worn out/dilapidated/no orange shag carpet hasn't come back.

National Bank/Teranet keep an index of house prices using this method. It can be found at this link: http://www.housepriceindex.ca/Default.aspx and then click on Calgary. It shows the most recent month being up 8.27% from last year, but they only have data up to June so far.

Michael

[AFireInside]

Originally Posted by Slava

That is what I'm saying. The conditions were ripe for a bubble in 2007 (particularly) and we are now three years removed. Not saying that prices can't go down from here, but prices are certainly not sky-rocketing at this point.



The lowering of the interest rates should feed the bubble (and as a result delay the bursting). That didn't happen here though because the rest of the economy was also dropping and so what we've seen is more of a "deflation of the bubble" as opposed to a "popping of the bubble". (I'm using the word deflation here as in a balloon and not in its economic sense).

Its also important to recognize that a correction in prices doesn't equal a bubble bursting either. Corrections are part of the natural economic cycle and shouldn't induce panic and hysteria...which is what takes place in the sector where the bubble bursts.

I think you are right. The conditions were right in 2007. I think it would have burst in 2008 if the interest rates weren't lowered. There will be a correction, however it will be more drawn out because of government interference with the interest rates. Will it pop? I don't think so. But I do think you will end up with at the same place with housing prices, whether there is a bubble or not.

If the bubble would have popped in 2007, I think you would have ended up at point A for housing prices within a year or two. Now I think you will eventually end up at point A, but it will likely take several years.

The market will regulate itself, by lowering interest rates, the government encouraged people to buy, it will just draw out and delay any correction. While numbers may not have increased at that point compared to 2007, had the government not lowered interest rates, it would have been a much much larger decline at that point.

I don't know, just my opinion.... People who own, or affiliated with the real estate industry, or even the financial industry, tend to have bias, because a major decline in housing prices hurts their business.

Those who can't afford a house right now are biased because they want prices to come down. No one is going to sway the other side...

Almost everything I'm seeing points to a pretty significant correction right now. Call it a bubble, call it a correction, it is what it is. Thats RIGHT NOW though, this could all change within months.....

[cmyden]

Just for kicks I ran the following search queries on the Google News Archives ...

housing bubble usa



(the graph is the same for 'housing bubble us' or 'housing bubble united states')


housing bubble uk





housing bubble canada





housing bubble australia






housing bubble calgary




housing bubble vancouver




housing bubble toronto




cM

[bizaro86]

Originally Posted by cmyden

Just for kicks I ran the following search queries on the Google News Archives ...

Interesting. Do you think queries like that are predictive or backward looking? I wonder if anyone has done any research on that in other areas.

Michael

[Winsor_Pilates]

Originally Posted by AFireInside

Aren't all those things EXACTLY what happened in 2006 and 2007 in Calgary? By lowering the interest rate the government delayed the bursting of the bubble?

For the record I don't think we are going to see housing prices cut in half. We are due for a pretty significant correction in my opinion.

I agree, that's what was happening in 2006 and 2007.
I wouldn't, and never have called it a bubble. I think people who throw "bubble" around a lot are just getting overly excited. It's no less fear mongering than the "buy now or be priced out forever" crowd.

I see it as just ups and downs of a market. Buyers (especially investors) were overly excited back then, the economy in AB was too good, and prices reflected that. People have come back down to earth now and so have sales figures and prices.

Will there still be significant reductions on pricing?
It's a billion dollar question. I don't think so, but that's just my biased opinion.

[cmyden]

Originally Posted by bizaro86

Interesting. Do you think queries like that are predictive or backward looking? I wonder if anyone has done any research on that in other areas.

Michael

My gut would say backward looking, I think markets are just too irrational to be predicted accurately. Here's an interesting study by Google researchers on what they found using Google Trends to try and forecast economic activity.

http://tinyurl.com/2eaq7de

[chemgear]

Originally Posted by Winsor_Pilates

Will there still be significant reductions on pricing?
It's a billion dollar question. I don't think so, but that's just my biased opinion.

Some really good informational posts here. And I'm sure I'm biased in some manner as well (being a potential buyer/all around numbers cynic/a regular human being.)

But as a realtor or a financial advisor, at what threshold do you normally call something as being "significant?" Perhaps even outside the housing context - I'm not very familiar with the financial terminology in this application.

Overall, I still get kinda twitchy when Canada versus US we have roughly the same median family incomes, but roughly double the housing cost. I realize the high level comparison is not perfect, but probably not totally irrelevant. Sorta, kinda, maybe?

[Winsor_Pilates]

Originally Posted by chemgear

Some really good informational posts here. And I'm sure I'm biased in some manner as well (being a potential buyer/all around numbers cynic/a regular human being.)

But as a realtor or a financial advisor, at what threshold do you normally call something as being "significant?" Perhaps even outside the housing context - I'm not very familiar with the financial terminology in this application.

Overall, I still get kinda twitchy when Canada versus US we have roughly the same median family incomes, but roughly double the housing cost. I realize the high level comparison is not perfect, but probably not totally irrelevant. Sorta, kinda, maybe?

Good question, I was thinking after I wrote that I should define significant.

I don't personally have any set number I think of as significant. Really depends on the situation and person; even 2% can be significant for some people and 20% be insignificant to others.

In the context of that quote I was talking in terms of what the last dozen or so posts on the thread were talking (20%-30%). I personally don't believe house prices in Calgary will drop further in this sort of range. At least not for any prolonged period; maybe drop and come back up. I don't they'll go up in that range either.

Personally, I think 3 years from now Calgary home prices will be within 10% up or down from where they are now with fluctuations in between. I don't view Calgary real estate as a great or bad investment right now; more just a good city to buy the right home for yourself when the time and place is right for you.

As discussed in this thread, it's not really part of my expertise as an agent to advise clients in the mid-long term market prospects, but if a client asked me strictly as my opinion that's where I'm at.
I would personally be comfortable buying real estate in Calgary right now if I was looking for a home, but I wouldn't be shelling out my life savings on a bunch of investment properties either (unless they cash flow now).

[pepper24]

Originally Posted by AFireInside

I think you are right. The conditions were right in 2007. I think it would have burst in 2008 if the interest rates weren't lowered. There will be a correction, however it will be more drawn out because of government interference with the interest rates. Will it pop? I don't think so. But I do think you will end up with at the same place with housing prices, whether there is a bubble or not.

If the bubble would have popped in 2007, I think you would have ended up at point A for housing prices within a year or two. Now I think you will eventually end up at point A, but it will likely take several years.

The market will regulate itself, by lowering interest rates, the government encouraged people to buy, it will just draw out and delay any correction. While numbers may not have increased at that point compared to 2007, had the government not lowered interest rates, it would have been a much much larger decline at that point.

I don't know, just my opinion.... People who own, or affiliated with the real estate industry, or even the financial industry, tend to have bias, because a major decline in housing prices hurts their business.

Those who can't afford a house right now are biased because they want prices to come down. No one is going to sway the other side...

Almost everything I'm seeing points to a pretty significant correction right now. Call it a bubble, call it a correction, it is what it is. Thats RIGHT NOW though, this could all change within months.....

You couldn't have said it any better and my thoughts exactly.

Call it a bubble or correction but it'll happen. When stocks crash, it's quick because of liquidity. Real estate crashes are more gradual but can be just as severe. When the market is in tough it can take months to sell your place and often at a steep discount. Rates are at record lows and can only go up. Rates might not increase quickly but instead of the balloon popping right away it's slowly running out of air. The end result will be the same

Low interest rates after 9/11 gave way to cheap money and when the recession happened rates continued to stay low prolonging the inevitable. Currently house prices are anywhere from 4.7 to 11.3 times median income. Historicaly, it's in the 3-4 range. From 1997 to 2007, houses rose 200%. A lot of people are over their head and unfortunately it's not going to end well.

[Clarkey]

Originally Posted by fotze

The part that I don't fully understand that seems to be omitted from the bubble analyses that seems to me to be just as important as sales and inventory numbers is the employment numbers. What we have in Alberta that Miami and Vegas did not, is healthy employment.

If a person could afford their overpriced home at the start why could they not continue to afford it if they still have their job. Plus people get raises and bonuses etc as time goes on. We all know that when you first start on your mortgage and what you can afford 5 years later are two different things. Your mortgage payment becomes a piece of cake. Sure there are exceptions.

I tend to agree with you on the employment side, the wild-card is what the government does with interest rates.

Even if you're a double income no kid engineer couple if you bought a house based on locking in for 5 years at 3.5% you might have a suprise 4-5 years from now if the interest rate is 8% when your term is done, even if you still have your job.

With that said, not everybody in this city is a dink geophysicist couple. There are a lot of people who will remain employed but won't be making anything near what they were making when they signed up for their mortgage, compound that with higher interest rates and you could see a further bubble deflation. But the reality is that if people are going to feel the hurt Alberta will likely be the last in the country. If things start to hurt too much in Ont, the BOC will back away from the rate increases.

[chemgear]

Originally Posted by Clarkey

If things start to hurt too much in Ont, the BOC will back away from the rate increases.

But isn't the Bank of Canada essentially (semi) autonomous from the government in power? (ie. the whole government deals with fiscal policy and BoC sets monetary policy.)

With their mandate to control inflation I wonder how willing they would be to jack rates if inflation required it, in spite of the housing situation at the time. (Of course housing would be just a part of the economy that would certainly affect the inflation measurements.)