Calgary Real Estate predictions?

[1stLand]

[QUOTE=AFireInside;2674232]

Originally Posted by 1stLand

This mentality is exactly the problem. 3 and 4 x's SHOULD be the benchmark. It's ridiculous to think anything else. There is a REASON that 3 - 4 x the median income was used over the years.

Being willing to go into massive debt to purchase a house isn't a good thing. It's a stupid thing. Yes you will have to go into to debt. But you shouldn't be house poor, and once you surpass the 4X income thats exactly what begins to happen.


That rule is definitely relevant. 30 years ago someone may have made 12 bucks an hour, and they could afford to buy a 75,000 dollar house. Today people are making 30/hr and they are buying houses that are 500,000. Those numbers don't add up.

The sooner people start getting real and using some common sense about how much debt and spending they are doing the better off we will all be.

The median income for a FAMILY in Calgary is roughly 91,000, when you factor in kids etc, there is no way, they should be purchasing a $400,000 property.

This is where things get deceiving.
Are they purchasing a $400,000 home or are they getting a Mortgage worth $400,000?

If the couple has existing equity to pull out of a condo or two (they might have had separate residences they owned before marriage) or a home, then common sense would dictate they would put that towards a home.
So if $100,000 downpayment was used, $300,000 mortgage would remain and then you would be closer to 3x income.

Dual income = dual savings prior to marriage most likely.

I am not advocating living beyond your means, but people will make sacrifices in other areas of their life to ensure they get a home in an area they and their children can feel safe and comfortable in.

[AFireInside]

[QUOTE=1stLand;2674254]

Originally Posted by AFireInside

This is where things get deceiving.
Are they purchasing a $400,000 home or are they getting a Mortgage worth $400,000?

If the couple has existing equity to pull out of a condo or two (they might have had separate residences they owned before marriage) or a home, then common sense would dictate they would put that towards a home.
So if $100,000 downpayment was used, $300,000 mortgage would remain and then you would be closer to 3x income.

Dual income = dual savings prior to marriage most likely.

I am not advocating living beyond your means, but people will make sacrifices in other areas of their life to ensure they get a home in an area they and their children can feel safe and comfortable in.

Once again you are trying to paint a rosey picture. A VERY LARGE portion of mortgages taken out from 2006 - 2008 were ZERO down mortgages. People buying $400,000 properties with no money down.

The dual savings prior to marriage isn't always the case either. In fact most people making $45,000/yr on their own would have a VERY VERY difficult time saving any significant amount of money prior to marriage. Many I know who bought put nothing down because they didn't have much saved.

Sure what you are saying can definitely be the case, it certainly isn't the norm. If it was there would be no need to offer zero down mortgages, or 5% down mortgages as is the case right now.

[Slava]

[QUOTE=AFireInside;2674286]

Originally Posted by 1stLand

Once again you are trying to paint a rosey picture. A VERY LARGE portion of mortgages taken out from 2006 - 2008 were ZERO down mortgages. People buying $400,000 properties with no money down.

The dual savings prior to marriage isn't always the case either. In fact most people making $45,000/yr on their own would have a VERY VERY difficult time saving any significant amount of money prior to marriage. Many I know who bought put nothing down because they didn't have much saved.

Sure what you are saying can definitely be the case, it certainly isn't the norm. If it was there would be no need to offer zero down mortgages, or 5% down mortgages as is the case right now.

Not saying that you're lying or anything, but do you have a link for this? Everything I've seen says that in Canada these kinds of mortgages make up a small amount of the borrowing.

[Mike Oxlong]

[QUOTE=Slava;2674296]

Originally Posted by AFireInside

Not saying that you're lying or anything, but do you have a link for this? Everything I've seen says that in Canada these kinds of mortgages make up a small amount of the borrowing.

That's exactly what I was going to ask. No doubt there were zero down mortgages taken out but a VERY LARGE PORTION of mortgages from 2006 to 2008 is stretching it quite a bit.

From my experience working with first time homebuyers a VERY LARGE portion of them used RSP's, Savings or a combination of both. A surprising amount of people also received gifted down payments from their parents.

[albertGQ]

Putting 5% down is virtually zero down anyway. At the time, you could go 40 years on a mortgage. After insurance premiums, you're already at 98.35% LTV.

And we all know alot of those "gifted" down payments are being paid back at some point in time.

[chemgear]

[QUOTE=Slava;2674296]

Originally Posted by AFireInside

Not saying that you're lying or anything, but do you have a link for this? Everything I've seen says that in Canada these kinds of mortgages make up a small amount of the borrowing.

Closest thing I can think of would be this - though not exactly perfect (and I didn't make the claim.)

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

I'm assuming some people are buying a larger second home (and selling the first) with some substantial dollars 20-50% maybe? If the average is kicking at 5-7% either such individuals they are not buying at all (obviously not) or there are a lot of low downpayments offsetting to more than bring the average down that much - mathematically speaking.

Not sure if this is proof of zero percent down but certainly lower and lower downpayments over time perhaps? Not sure - haven't completely thought it through.

EDIT: Upon further thinking on that graph, that's ridiculous. Average downpayments on a home went from 45% to 6% on average? Heck, that's not even median. How many 5% (or less as per previous posts) do you need to bring the average down to 6% if there is the random dude buying a house outright in cash the odd time? Or the very typical family selling their home to buy a larger one with a substantial payment of say 25% equity after selling their first home. That seems like a lot of low downpayments for a whole lot of borrowing . . . unless I'm reading those numbers wrong.

It wouldn't be so bad I guess if that money was diverted into savings I guess, but the consumer debt numbers and savings rates would suggest that's not the case at all.

Am I reading this trend incorrectly?

[Winsor_Pilates]

So I'll be selling a new development called Drake, in Calgary starting October. I've made a thread about it in the power ring incase anyone is interested.
Thought I'd just link it here as many people likely don't check that section and might want some information.
http://forum.calgarypuck.com/showthread.php?t=95491

With respect for all of your differing opinions on the market that get shared in this thread, please keep those here.

/end plug

[SeeBass]

I thought I would run this question by you guys:

I have a friend that has a $400K, 1956,1100sq ft bungalow home in one of the better streets in Thorncliffe.

They are looking at either knocking it down or renovating it and creating a much better bungalow home at about 1500sq ft with about an investment of $150k to $250K to do it.

They dont plan on moving for many years but the concern is... is this not smart to do this in this area or will the investement pay off when it is time to sell in 10-20 years? He is worried he will have a house that should be worth $600K but the area can't bear it right away in case for unseen reasons it has to be sold and he could lose a lot of money.

Your thoughts please

[1stLand]

Originally Posted by SeeBass

I thought I would run this question by you guys:

I have a friend that has a $400K, 1956,1100sq ft bungalow home in one of the better streets in Thorncliffe.

They are looking at either knocking it down or renovating it and creating a much better bungalow home at about 1500sq ft with about an investment of $150k to $250K to do it.

They dont plan on moving for many years but the concern is... is this not smart to do this in this area or will the investement pay off when it is time to sell in 10-20 years? He is worried he will have a house that should be worth $600K but the area can't bear it right away in case for unseen reasons it has to be sold and he could lose a lot of money.

Your thoughts please

Well for starters, knowing what I know about the area and the square footage you indicated, I can tell you that it is likely the home is worth less than $400,000 especially if renovations need to be done.

This is ofcourse assuming that there is no legal suite downstairs.
If there is, it might be more palatable to investors and might bring the price up closer to the high 300's.

It depends on your friends short term / long term plans.

If he plans on staying in it for atleast another 5 years, then some significant renovations might be warranted. The easist most effective renovations I find are: changing flooring and kitchen cabinets, counter tops, appliances and renovating the bathrooms. I wouldnt advise tearing down a house like this and building two separate infills. This is very costly and risky. It's also a big investment.

If he has a horizon less than 5 years, I would advise making minor repairs.

You will never get back 100% of your renovation investment when it comes time to sell.

Just my two cents

[SeeBass]

Originally Posted by 1stLand

Well for starters, knowing what I know about the area and the square footage you indicated, I can tell you that it is likely the home is worth less than $400,000 especially if renovations need to be done.

This is ofcourse assuming that there is no legal suite downstairs.
If there is, it might be more palatable to investors and might bring the price up closer to the high 300's.

It depends on your friends short term / long term plans.

If he plans on staying in it for atleast another 5 years, then some significant renovations might be warranted. The easist most effective renovations I find are: changing flooring and kitchen cabinets, counter tops, appliances and renovating the bathrooms. I wouldnt advise tearing down a house like this and building two separate infills. This is very costly and risky. It's also a big investment.

If he has a horizon less than 5 years, I would advise making minor repairs.

You will never get back 100% of your renovation investment when it comes time to sell.

Just my two cents

thanks for the imput

they plan on staying long term and renovating completly as they are tired of the house but keeping it as a bungalow but larger if possible.
It is just a trypical bungalow floor plan with a wall in front of your face every 10 feet they want to open up the space and create a master bedroom that you can put a king bed in with an ensuite. It will probably need an extension or a complete knockdown. It is valued a around 400K though.

I guess I would like to know if do you guys think that Thorncliff could justify a home that could be valued at $550K+ and if not today in the future?

[bizaro86]

Originally Posted by SeeBass

I thought I would run this question by you guys:

I have a friend that has a $400K, 1956,1100sq ft bungalow home in one of the better streets in Thorncliffe.

They are looking at either knocking it down or renovating it and creating a much better bungalow home at about 1500sq ft with about an investment of $150k to $250K to do it.

They dont plan on moving for many years but the concern is... is this not smart to do this in this area or will the investement pay off when it is time to sell in 10-20 years? He is worried he will have a house that should be worth $600K but the area can't bear it right away in case for unseen reasons it has to be sold and he could lose a lot of money.

Your thoughts please

Whoever valued it at $400,000 was painting a bit of a rosy picture I'm afraid. Why wouldn't a buyer buy http://www.realtor.ca/PropertyDetail...dKey=933755975
or http://www.realtor.ca/PropertyDetail...ey=-1773488977 instead? These equivalent houses are listed at 338k and 354k. Keep in mind those are list prices, not sales prices. So if equivalent houses are available for less, that's what his is worth as well.

I think doing that reno is actually a really bad idea. You're basically ripping down a house which has value. Why not sell what he has now and buy something that meets their needs? For example, this 1500 sq ft bungalow in Thorncliff is 445k. Sell the existing house, buy this one and do a cosmetic reno. That would be a way cheaper way to upgrade.

http://www.realtor.ca/PropertyDetail...Key=1657833150

[SeeBass]

Originally Posted by bizaro86

Whoever valued it at $400,000 was painting a bit of a rosy picture I'm afraid. Why wouldn't a buyer buy http://www.realtor.ca/PropertyDetail...dKey=933755975
or http://www.realtor.ca/PropertyDetail...ey=-1773488977 instead? These equivalent houses are listed at 338k and 354k. Keep in mind those are list prices, not sales prices. So if equivalent houses are available for less, that's what his is worth as well.

I think doing that reno is actually a really bad idea. You're basically ripping down a house which has value. Why not sell what he has now and buy something that meets their needs? For example, this 1500 sq ft bungalow in Thorncliff is 445k. Sell the existing house, buy this one and do a cosmetic reno. That would be a way cheaper way to upgrade.

http://www.realtor.ca/PropertyDetail...Key=1657833150

the last house is just down the block but has a east face backyard so it is wrong for outdoor entertaining (sorry should have mentioned that)
it is also on a busier street, the alley is not paved, and it is not that much nicer than the current house.

I like the thought though.

thanks

[chemgear]

Originally Posted by bizaro86

Keep in mind those are list prices, not sales prices. So if equivalent houses are available for less, that's what his is worth as well.

Numbers vary from sale to sale but the average sales prices to list price has been pretty solid at 96% for months.

[chemgear]

CIBC World Markets just came out with a interesting report just when inventory (6ish months) looks to be ticking up very slightly along with sales numbers.

http://research.cibcwm.com/economic_...oad/fsep10.pdf

It’s no secret that house prices have been falling recently, but less noted is that the performance of the housing market is already approaching levels seen during the recession.




And the Fed finance minister appears to be okay with the way things are going:

http://www.calgaryherald.com/busines...641/story.html

[1stLand]

Link to a blog posting I wrote:
http://www.facebook.com/notes.php?id...56803871014028

- Understanding The Role of a Listing Agent

[DemolitionCat]

Taking financial advice from a real estate agent is like hiring pedobear to manage a daycare.

[Claeren]

Originally Posted by 1stLand

I disagree.
Working for a Land Development company for two years taught me the real costs of development. Infrastructure isn't cheap, and if you think the city builds roads, sanitary and storm sewers, electrical cables, then you are sadly mistaken. These are developer responsibilities.
The farther out you go from the core, the more expensive these utilities cost.

The cost of land acquisition alone is astronimcal, as speculators have bought up parcels and acerages and driven up the price of raw land.

Developers make a handsome profit, so do homebuilders as it stands now. But if you think their profit margins are anything over 20%, you are probably wrong. Tradesman and the cost of materials have already adjusted their prices to reflect the recession and a further drop in the cost of these components is unlikely.

Couple that with the city of calgary proposed levy of $10,000 per new house built and you have a fairly high cost to build.

Therefore, new housing and new housing prices can't go down much further, and if the market doesnt support bringing on new developments or projects, developers will mothball new phases/developments and sit and wait until it comes back.

As for your comment about builders having the capacity to build 20,000 - 30,000 units per night (should there be demand).....I hope you are kidding.
There is a process developers have to follow in terms of getting subdivision approval, development approval, servicing agreements etc.

It takes over a year in some cases to bring on a new phase, more if its a new development altogether.

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.

[Winsor_Pilates]

Calgary to lead Canada in Economic Growth
http://www.calgaryherald.com/busines...megadrop_story

http://www.calgaryherald.com/busines...707/story.html

[newts]

Originally Posted by Winsor_Pilates

Calgary to lead Canada in Economic Growth
http://www.calgaryherald.com/busines...megadrop_story

I'm sitting an open house right now, and the only 3 couples that have walked through are people migrating to the city in the next couple of months for career purposes. A small sample, but interesting nonetheless.

[Winsor_Pilates]

Originally Posted by newts

I'm sitting an open house right now, and the only 3 couples that have walked through are people migrating to the city in the next couple of months for career purposes. A small sample, but interesting nonetheless.

Yesterday had the most sales since the end of June, so good luck.
1 day is a small sample as well, but perhaps signs of increased activity vs the summer months.