Calgary Real Estate predictions?

[guzzy]

Originally Posted by Johnny 99

Housing prices are going nowhere but down. Good luck. Calgary simply isn't a major city like Vancouver or Toronto that can support itself on the basis of it's own population. I simply can't understand why people were so gung ho to buy houses at hugely inflated prices the way they have the past couple of years. Did they really think prices were going to stay that high?

This has to be nominated for moronic post of the year.

Calgarians makes an average of $12000 a year more than citizens of Vancouver and Toronto. Yes their economies are more diversified but as long as ft mac is booming Calgary will do well. Guess what? For Ft mac to recess means oil has to return to $30/bbl. Most economists believe we will never see oil below $50/bbl ever again.

But you go ahead and make ridiculous statements saying that city of over 1000000 people isn't a major city and can't compete or support itself. Maybe you should put the video games away and go back to school.

Most people believe that the housing correction in Alberta already happened two years ago when the market increased 55%. If people in Calgary make more money than those in Vancouver and Toronto wouldn't it make more sense for the price of housing to be at least at par? Just a thought.

[Red]

Originally Posted by Dan02

I think you're confusing the US with Calgary, yeah the Calgarys market is high but we don't have near the issues the US has which has lead people, particularily in California, to be walking away from their homes.

For people to start walking away the market needs to take a massive dive, people don't walk when their house is worth 10k less then their mortgage, they walk when it's 50k+ less then their mortgage.

When you consider at very least as far as i know in Canada even with a high ratio mortgage you need to put 5% down, you already have built in equity so the market needs to drop 70k for your 400k house to be worth 50k less then your mortgage.

The US real estate crash was as result of bad lending policies from the banks, such problems are not nearly as prevalent in Canada. subprimes loans were a great option to start but then suddenly your rate jumps and your payments bloom and people couldn't afford them anymore, this lead to a glut of houses on the market as people who couldn't afford their payments tried to dump their homes. Then you've got people with 100% financed loans who have no equity in the house at all.

If you seriously expect the Calgary home market to take such a hit people are just walking away from their homes I think you need to get your head examined, Calgary is not experiencing all the same downward pressures that the US has.

Regardless(irregardless??), this thread is worthy of a bookmark so 6 months from now we can serve out some crow pie al a mode whoevers right

I didn't say it was going to happen so hold your horses.

Regardless(irregardless??), this thread is worthy of a bookmark so 6 months from now we can serve out some crow pie al a mode whoevers right

Why does it have to always be about being right or proving someone else wrong? People are so angry these days.

[Sylvanfan]

Well lets face it in the U.S. there is pretty much zero incentive to ever own a house. You get to write off the mortgage interest so people kept pushing and pushing to borrow against their house. In Calgary most people have bought their house as a place to live and with the way Canadian tax laws and mortgage lending work most people aren't paying 65% of their wages to service debt and houses are like a forced savings vehichle. Anyone who bought their house for the purpose of having a place to live and intends to be in the city for a few more years will be fine. They may not make big money, but over a 5-7 year period they'll come out ahead than if they'd rented.

The people getting burned are investors who held the idea that houses always go up no matter what and that the trends of the past 5 years had to apply to the next 5 and bought second property's thinking they'd flip them for 100k without ever making a payment on them type of thing. Unless you are really well versed and know what you're doing....playing with borrowed money in the investment market is a dangerous thing. Always has been always will be. But with the risk does come potential reward.

[Wookie]

Originally Posted by Dan02

.

Regardless(irregardless??), this thread is worthy of a bookmark so 6 months from now we can serve out some crow pie al a mode whoevers right

While 6 months would be a good fun time to give an I told you so, or a nice time to look back, I think a few years would be a better gauge.

[Dan02]

Originally Posted by Wookie

While 6 months would be a good fun time to give an I told you so, or a nice time to look back, I think a few years would be a better gauge.

possibly true that a longer period would be a better guage, but most of the negative nancies here are suggesting that a crash is immenent this spring, well it was winter before then it stabalized, then defying the usual pattern of a increase in value during the spring, predicted that the market will crash this sping because of all the people waiting to put their house on the market.

Read Reds post, if as he suggests people will start walking away from their houses then a market has taken a massive downturn, not a slight decline or a lull in sales, but a outright crash.

[Wookie]

Originally Posted by Dan02

possibly true that a longer period would be a better gauge, but most of the negative nancies here are suggesting that a crash is immanent this spring, well it was winter before then it stabilized, then defying the usual pattern of a increase in value during the spring, predicted that the market will crash this spring because of all the people waiting to put their house on the market.

Read Reds post, if as he suggests people will start walking away from their houses then a market has taken a massive downturn, not a slight decline or a lull in sales, but a outright crash.

Oh I know, it would be nice to say come June, "look, everything is fine" to the people who seem intent on implying that buying is stupid, a crash will come, etc. But as we've seen, 6 months is hardly a big time frame to look at things. The inventory, people's motives for selling, the large amount of multi-family coming on, could all take a few years to play out.

That said, I bought my place in August and would love to see things shoot way up! I don't think it'll happen though. But I bought my place for what I think was a good deal, and still think I could fetch that in today's market. So a minor fluctuation I'm not too worried about.

[Red]

Originally Posted by Dan02

possibly true that a longer period would be a better guage, but most of the negative nancies here are suggesting that a crash is immenent this spring, well it was winter before then it stabalized, then defying the usual pattern of a increase in value during the spring, predicted that the market will crash this sping because of all the people waiting to put their house on the market.

Read Reds post, if as he suggests people will start walking away from their houses then a market has taken a massive downturn, not a slight decline or a lull in sales, but a outright crash.

Why don't you read my post again and tell me where exactly I say that this WILL happen?

Don't put words in my mouth positive nancy, K?

[Red]

Originally Posted by Wookie

Oh I know, it would be nice to say come June, "look, everything is fine" to the people who seem intent on implying that buying is stupid, a crash will come, etc. But as we've seen, 6 months is hardly a big time frame to look at things. The inventory, people's motives for selling, the large amount of multi-family coming on, could all take a few years to play out.

That said, I bought my place in August and would love to see things shoot way up! I don't think it'll happen though. But I bought my place for what I think was a good deal, and still think I could fetch that in today's market. So a minor fluctuation I'm not too worried about.

Just because the market will be fine 5 years down the road doesn't mean that the purchase in 2006/7 was a wise one. As you can see it today you'd be better off buying a house this week and you will probably get a better deal in the summer. And the difference isn't just a few thousands, it could be 50 or more K which is no spare change.

[Radley77]

Originally Posted by fotze

I think everyone needs to put their own situation in this thread because almost everyone's prognostications seem pretty darn motivated by their hopes and not reality.

People with Real Estate holdings feel its going to go up up up.
People who can't afford to get into the market foresee double digit losses.
People from other major centers who have a rivalry with Calgary see dark days ahead.
People hoping for the petroleum industry to collapse predict grim days.

In the spirit of full disclosure, I work as a petroleum engineer, so it is not that I want the petroleum industry to collapse. Nor is affordability a problem as my better half is a senior manager at an oil and gas service company. We can afford a house, but we see it as an extremely poor investment decision.

It is moreso that the mortgage carrying costs (taxes, interest to the bank, maintenance, utilities) is significantly more expensive than renting. Therefore the benefit of building equity is relatively gone. In fact, if you invest the difference between renting and buying, you'd be significantly ahead over 30 years by renting.

This does not bode well for the Calgary real estate market. There should be an economic payoff after 10 years by owning instead of renting, because there are greater risks involved.

Sales are down by 30-40% year over year, and we have record amounts of housing construction. Supply/demand should dictate that the correction isn't over. I would not be suprised to see house prices fall 10-15% (another $50,000) by this time next year.

Prices will continue falling until they are supported by rental yields.

[Radley77]

I like buying assets with a solid revenue stream, with upside potential, rather than a low revenue stream, with a lot of downside risks.

I hope that explains my risk thresholds and my rationalizations.

[Wookie]

Originally Posted by Red

Just because the market will be fine 5 years down the road doesn't mean that the purchase in 2006/7 was a wise one. As you can see it today you'd be better off buying a house this week and you will probably get a better deal in the summer. And the difference isn't just a few thousands, it could be 50 or more K which is no spare change.

Actually my purchase was exactly what it was meant to be. A place that I could afford at the time, for what i thought was a reasonable price, close to everywhere I need to be, at a time when I needed somewhere to live. This week, this coming summer mean nothing to me. Probably's, could have's, should have's don't play into my decision making.

It would have been wise for you (or someone else, or everybody else) to sell their house in the spring last year and buy this coming summer! ???... Make sense? Yeah - doesn't work that way..

[Slava]

Originally Posted by Wookie

Actually my purchase was exactly what it was meant to be. A place that I could afford at the time, for what i thought was a reasonable price, close to everywhere I need to be, at a time when I needed somewhere to live. This week, this coming summer mean nothing to me. Probably's, could have's, should have's don't play into my decision making.

It would have been wise for you (or someone else, or everybody else) to sell their house in the spring last year and buy this coming summer! ???... Make sense? Yeah - doesn't work that way..

Exactly. Plus, some people (including me) don't consider their home an investment in the traditional sense of the word. Its a place to live and if you make some cash long-term that is great. Truthfully though as a pure investment there are better things around than residential housing!

[Bend it like Bourgeois]

Originally Posted by Radley77

It is moreso that the mortgage carrying costs (taxes, interest to the bank, maintenance, utilities) is significantly more expensive than renting. Therefore the benefit of building equity is relatively gone. In fact, if you invest the difference between renting and buying, you'd be significantly ahead over 30 years by renting.

Over 3 years maybe. 30, not a chance. That defies experience. Unless you figure we're all going to be living in pods or something.

[Sylvanfan]

Originally Posted by Radley77

In fact, if you invest the difference between renting and buying, you'd be significantly ahead over 30 years by renting.

Well for what rents are today I'd be looking at $1800 a month plus utilities to rent the house I live in. My cost is $1300 a month for the mortgage (house bought 2 years ago) and taxes are an additional $250 and maintainance is likely another lets say $500 to account for any reno's I'd do over the next 25 years. If I can invest $200 a month and have $400 grand....Please tell me Where the bleep I find such a fantastic investment.

I understand that prices may correct a bit, and if your house is an ivestment than yeah....there are better things to invest in. But by owning it is a lifestyle choice for some people. Me for example there isn't a person around who will rent to me because I have 2 big dogs. They'd rather rent to a crack addict with no pets even though I can pay the rent. So my choice is own a house or get rid of my dogs.

[Radley77]

Originally Posted by Bend it like Bourgeois

Over 3 years maybe. 30, not a chance. That defies experience. Unless you figure we're all going to be living in pods or something.

Try this rent vs. buy calculator:

http://www.ic.gc.ca/epic/site/oca-bc.../ca01821e.html


Also, here is a rental yield calculation for a two bedroom condo in Calgary:

December 2007 Calgary Condo Price = $304,719
Residential Tax Rate = 0.0054614
Annual Taxes = $1,664
2007 Calgary Two Bedroom Condo Rent =$1089/month
Condominium Fees = ~$150/month
Calgary Rental Yields = (1089*12-150*12-1664)/304719 = 3.15%

That yield is less than many safe investments like savings accounts, long term bonds or GIC's that can earn up to 5.00%.

Rental yields are only marginally above inflation (2%). And if you were to consider that Calgary inflation is likely 3 or 4% you would be looking at a rental property that is actually a loss in wealth.

That is why there is a financial advantage of renting vs. owning even over an extremely long time horizon.

[Bend it like Bourgeois]

Originally Posted by Radley77

Try this rent vs. buy calculator:

http://www.ic.gc.ca/epic/site/oca-bc.../ca01821e.html

Doesn't that prove my point?

What reasonable numbers numbers would make that negative?

Should add too - it doesn't appear to adjust for rent increase either. They aren't going to stay level for 30 years.

[Bring_Back_Shantz]

Originally Posted by Radley77

Try this rent vs. buy calculator:

http://www.ic.gc.ca/epic/site/oca-bc.../ca01821e.html


Also, here is a rental yield calculation for a two bedroom condo in Calgary:

December 2007 Calgary Condo Price = $304,719
Residential Tax Rate = 0.0054614
Annual Taxes = $1,664
2007 Calgary Two Bedroom Condo Rent =$1089/month
Condominium Fees = ~$150/month
Calgary Rental Yields = (1089*12-150*12-1664)/304719 = 3.15%

That yield is less than many safe investments like savings accounts, long term bonds or GIC's that can earn up to 5.00%.

Rental yields are only marginally above inflation (2%). And if you were to consider that Calgary inflation is likely 3 or 4% you would be looking at a rental property that is actually a loss in wealth.

That is why there is a financial advantage of renting vs. owning even over an extremely long time horizon.

Okay, sure, that's great if you're talking about owning a secondary property for rental purposes, but how exaxtly does that pertain to the rent vs buy arguement?

[Cowperson]

Originally Posted by Bend it like Bourgeois

Doesn't that prove my point?

Should add too - it doesn't appear to adjust for rent increase either. They aren't going to stay level for 30 years.

I noticed that too. Essentially renders the calculator useless.

According to TD Economics in 2006, the previous 25 years would have seen an average Canadian home appreciating tax-free at 5.6%. In the next 25 years, they were looking at a 4% tax free increase.

Obviously certain areas will be different than others.

However, in 25-30 years, our friend will no doubt be one of those creaking seniors being booted out of a downtown apartment building and forced to rent in Oyen, complaining all the way how he's been wronged.

I looked at a yahoo calculator for a $304,000 condo, $30,000 down, etc, etc but which allowed for rent inflation at the same rate as real estate inflation, 4%, and came out roughly $1 million ahead on home ownership over 25 years.

Don't be an idiot. Buying a home, a place for yourself, is probably the key bedrock in your financial life. And once you pay that sucker off, really, in a lot of ways, you're set. And nobody can kick you out of there as long as you pay your taxes.

Cowperson

[Radley77]

It can be done from a net present value standpoint using the rent vs. buy calculator. It's a game of which is the lesser of two evils:

Is it worse to throw money at the banks in interest charges and maintenance cost?
or
Is it worse to throw money at the landlord?

I find that it is relatively in favour of throwing money at the landlord at this point, house prices would need to come down about 30% or rent to go up by 30% in order to make buying a house financially economic.

I think it's going to be a combination of the following two things happening and meeting somewhere in the middle (increasing rent and decreasing house costs).

Negative interprovincial migration, condo speculation, and the highest rent in the country will work at keeping rent low. Albeit, high housing costs should lead to higher rents as people arbitrage differences in the real estate market.

Until this process is complete, I see now point in buying. e.g. Housing affordability is at the worst since previous bubbles.

I think it will be some time before one can determine whether the end of this real estate cycle is going to be a soft or hard landing.

[Bend it like Bourgeois]

Originally Posted by Radley77

It can be done from a net present value standpoint using the rent vs. buy calculator. yada yada yada

So you're saying you can't make it negative with reasonable numbers either?