Andrew Kyle’s Blog - Calgary Real Estate

Strong Buyer’s Market Continues

The Calgary real estate market remains in territory that I think is best described as a “very much a buyer’s market” according to the July 2008 MLS stats. Total Calgary Metro listings at the end of July was 9217, and properties sold was 1848, yielding an overall Absorption Rate of 5.15. (See Chart A and Chart A2) Although the number of listings continues to come down since the “high water mark” of 10,617 in May 2008, there are still far more properties on the market than there are buyers to absorb them. This continues to bring prices down as sellers who are serious about selling adjust to the facts of the market.Single Family (SF) House sales continue to outpace condos. The absorption rate for SF Houses stands at 4.92 at the end of July and for condos it is 5.72 a difference of 0.8. This is a significant gap and something condo owners need to consider when selling. Overall the market is very slow, and for condos it is even slower. This is not a monthly statistical “blip” - this divergence of the SF house and condo markets began in December 2007 and the gap has grown since. I predict condos will continue to lag behind houses in both sales and price for another 12 months or so, until the inventory of new condos coming on stream is absorbed. This bodes very well for condo buyers, as prices are coming down, but obviously bodes ill for condo sellers for the same reason.

(For interactive versions of all the charts in this report click here)

Median prices stand at $408,500 for houses, $267,500 for 2-bed condos, and $235,000 for 1-bed condos at the end of July. In July 2007 median prices stood at $435,000, $295,000, $255,000, for SF Houses, 2-bed and 1-bed condos respectively. So the drop in median prices over the last 12 months: $26,500 (6.1%), $27,500 (9.3%), and $20,000 (7.8%) for SF Houses, 2-bed and 1-bed condos respectively. Note that the drop in median price of 2-bed condos is greater than that of SF Houses - evidence that the lagging condo market is already showing itself in fairly dramatic price drops in condos. See Chart C.

For Sellers:
So my advice to sellers is the same as last month but perhaps with stronger emphasis; It is crucial that you price your property for the new reality - not just taking into account the price drops of the last year, but that even with those price drops, the market is still no where close to being in balance with respect to supply and demand. So in this market, if you are a seller, you want to get ahead of the curve - if you price your property incorrectly, it will simply sit there, and by the time you reduce the price, the market will have adjusted further and you will still be behind the game. Consider your list price very carefully - you want to be ahead of the curve, not behind it, in this market.

Sellers should also consider spending money to sell their home which they wouldn’t in a more balanced market. For example, staging a vacant home or bringing in a staging consultant to “freshen up” a furnished home. These can be expensive services, but with so many homes on the market - a $300 to $5000 staging can often have a greater effect than a further list price adjustment of say, $10,000. Bringing in handyman to do minor repairs and upgrades can also be a wise expenditure in this very competitive market.

For Buyers:
My advice to buyers is that if the time is right for you personally to buy a new home then do it - you’ve got a great selection, and you can get more for money (almost 10% more to be precise) than last year. It is called a “buyer’s market” for a reason - this is your market!

I get some buyers asking me if they should wait to see if prices drop further. My answer is that it depends on your personal situation and your priorities. If getting the lowest possible price was the only consideration in when to buy a home then there is really only one time to buy a home - when the market bottoms out before it begins to rise again. But there is problem with that; we never know when this instant in time is upon us - we only know looking back after the market bottomed out. But even more significantly, getting the lowest possible price is just one of the important considerations in when to buy. For example, you also want to consider the selection out there - the more homes on the market, the more likely you are to get everything you want in a new home. Also, if a first time buyer, you want to consider whether the amount you will save by waiting will be more or less than the amount you will save in rent by buying now. Also, you will want to consider your motivation for buying - if you want your own place, for example, to get away from an annoying roommate, then is it really worth putting off this dream for another 6 months to potentially get a better price?

So the answer to the “when to buy” question is a very personal one - it all depends on your priorities. But that is what good Realtors help their clients do - examine your priorities, talk about the pros and cons, and give you all the information for you to make the right decisions. If you are thinking of buying, call your favorite Realtor (suggestion: me) and schedule an appointment to discuss the market and your situation.

Mortgage Rates Steady
Only minor changes in mortgage rates this month. The one-year and five-year closed rates (average of all lenders) stand at 6.18% and 6.38% respectively. The variable rate is 4.35%. In the July, the Bank of Canada declined to change its trend-setting overnight lending rate - the Board of Governors is not scheduled to meet again until early September, so expect no significant changes in August unless there is an unexpected surpise in the financial markets. See my Mortgage Rate Chart here.

Andrew Kyle, B.ASc., is a REALTOR^® with Royal LePage Foothills and a Certified Condominium Specialist.

Below is my weekly market stats update. I call your attention to a growing gap between the condo and house markets (see the second chart and the red arrrow). If this trend continues I’ll write in detail about it in next month’s Monthly Market Report (in about 2 weeks). In the meantime… my advice is be careful if you are selling a condo - it is crucial that it be priced right if you are serious about selling it. For background you may want to read my Monthly Market Report from February 2008 or my blog post here from a few weeks ago where I talk about predictions regarding this emerging trend.

The Bank of Canada declined to change its trend setting interest rate (aka “key policy rate” or “overnight rate”) on Tuesday July 15. It stands at 3.00% where it has been since April 22.

The Bank says that three major developments are affecting the Canadian economy at this time:

• the protracted weakness in the U.S. economy;
• ongoing turbulence in global financial markets (ie subprime mortgage fallout);
• and sharp increases in many commodity prices.

The Bank says that the first two developments are evolving roughly in line with their expectations, however commodity prices are continuing to outstrip earlier expectations resulting in higher than desired inflation.

Bond yields have come down slightly as a result of the Bank’s announcement which may bring fixed mortgage rates down slightly in the coming weeks.

Current average mortgage rates are as follows:

Click here for my weekly update of average mortgage rates.

Thinking of doing some renovations on your Calgary area home, but concerned about the horror stories you have seen and heard, such as on “Holmes on Homes”, the popular HGTV show? The Calgary Region Home Builders Association (CRHBA) , part of the Canadian Home Builders Association (CHBA) may have the answer for you.

CRHBA has rolled out it’s participation in Renomark (http://www.renomark.ca/Calgary) a non-profit website it says will help refer home owners to reputable home renovators in Calgary.

Renomark works, they say, by ensuring that all member contractors do the following:

• They must be members in good standing of the CRHBA, must abide by it’s Code of Ethics, and attend 4 CRHBA training sessions per year to maintain their level of knowledge.
• They must provide clients with detailed written contracts and scope of work. And they must return all phone calls to clients within two business days.
• They must provide a minimum two-year warranty on work.
• They must have WCB coverage where required and must only work with subcontractors who have the same.
• They must carry all applicable business licenses and liability insurance.

I’ve begun referring clients who ask me for a referral to a renovation company to renomark.ca. It seems like a good system that weeds out the fly-by-night disaster contractors. To learn more visit http://www.renomark.ca.

The Finance Department of the Government of Canada announced on July 9 that they are changing the rules regarding government guaranteed mortgages (aka insured, or “high-ratio”, mortgages) which they say aim to at protect and strengthen the Canadian housing market.

The new measures include:

• No more 40 year amortizations. The maximum amortization period for new government-backed mortgages will be 35 years;
• No more 100% financing on new government-backed mortgages – the minimum down payment will now be 5%;
• Establishing a consistent minimum credit score requirement, which will be 620;
• Setting a maximum of 45 per cent on borrowers’ Total Debt Service (TDS) ratio.

The new rules are to take effect October 15, 2008 and will apply to all CMHC mortgages.

The finance department says the motivation for these changes is “…to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada.”

See the Finance Department press release here.

The market has moved toward a more balanced state after 4 months of sliding farther into a buyers market, according to the MLS stats for June 2008. The overall Absorption Rate stands at 5.11 at the end of June, with Condos lagging behind at 5.89 and Single Family Houses (SF) leading the way at 4.81. That is a fairly significant gap between houses and condos, 1.09, and in fact the biggest gap since I have been tracking the statistics in this way (July 2006). Condo sellers, in particular it seems, continue to struggle with a lack of buyers willing to pay their asking price. See Chart A.

In the 12 months from June 2007 to June 2008 the median prices for a house, 2-bedroom condo and 1-bedroom condo have dropped $31k, $28k and $19k respectively. In terms of percentage: 7%, 9%, and 7.5% respectively. See Chart C.

In spite of the prices of oil and natural gas being at all-time highs, there are economic factors that seem to be keeping buyers, particularly condo buyers from buying. Theses include the North American economic recession, lower migration to Alberta than in recent years, inflation fears, threats of rising interest rates, and housing affordability issues. All this economic uncertainty seems to be weighing heavily on the minds of buyers.

The average Days on Market (DOM) of properties sold in June was 45, but keep in mind this is simply the properties that DID sell, most of which were priced well for the market in order to sell. See Chart B. The Absorption Rate tells us that there are 5.1 months of properties in the MLS system. For sellers, it is important that you understand that the era when most properties in Calgary would sell in 30 to 45 days or less are gone for now, and you should lower your expectations, and most importantly build this new reality into your moving/job/step-up plans accordingly. If you are serious about selling, it is crucial that you price the property for the new market - properties that are priced well are still selling - there are buyers out there, it’s just that they have the pick of the market at this time, especially in the condo market, so they are simply bypassing overpriced properties.

For buyers, it is a great time to buy - you have a great selection and prices have dropped. I know some are predicting more price drops in the future but I think this is uncertain - as of this month the market seems to have stabilized for now. It is unclear to me if prices will fall further in Calgary - it is strange times we live in with what I am calling a “bipolar economy” here in Canada. I’m advising my buyer clients to look at their personal situation AND the numbers: if they want or need to buy a new (or first) home, then don’t hesitate because it is a GREAT buyer’s market, but if they aren’t certain that a new home is right for them at this time, or if they are uncomfortable with the thought that their new home might fall in value in the short term, then they may want to sit on the sidelines for now. In short, it is a great time to buy in Calgary, but only if your situation is such that you aren’t going to lose sleep over the economic speedbumps that seem to be the reality for now.

Mortgage Rate Report: Rates May Have Bottomed Out For Now

Average interest rates in western Canada stand at 6.37% and 6.16% for five-year and one-year close mortgages respectively. And the variable rate is 4.33%. See chart here. I am told by my mortgage broker network that interest rates have probably bottomed out for now, or nearly so, and should rise slowly for the second half of the year. If you are thinking of buying, go get that mortgage pre-approval now to lock in at the lower rates.

Andrew Kyle, B.ASc., is a REALTOR^® with Royal LePage Foothills and a Certified Condominium Specialist.

The Xenex on 12th is nearing completion - a sure sign of that is they took the crane down on Saturday (see image taken from my balcony on the 10th floor of the Emerald Stone). Another sign is, well, they told me so… move-ins are scheduled to begin November-December of this year. ;o)

This building, built by Bucci Developments, features central air conditioning, titled single parking stalls, and non-titled storage lockers. One thing I like about this building, and I think they are fulfilling a niche demand here, is the units are larger than most newer highrises in Calgary - most of the 1 bedroom units are in the 700 sqft range, and the 2+dens are 1200 to 1500 sqft - these are not tiny condos!

But here is the real reason I am bringing up this building at this time… they are now offering to pay Buyer Realtor commissions, meaning you can be represented by a Realtor in the purchase of one of their remaining units. If you have been shying away from buying a new condo because the developer won’t pay Realtor fees, thus encouraging you to go unrepresented into a complex purchase then this building might be for you.

Why would you need a Realtor representing you in the purchase of a NEW condo you might ask? Well here is just one example. There is a new building in Calgary, which I won’t mention by name, which opened a year or 2 ago where each unit in the building, from the small, inexpensive 1-bed units near the ground floor, to the two 2,000 sqft penthouses, pays the exact same condo fee. So regardless of size, and value, each unit pays the same condo fee - in effect the small 1-bedroom units are subsidizing the heating bills of the penthouses which are 4 times the size and 6 times the value. Do you think this will eventually affect the value of those 1-bedroom units? I would think so. Is this legal? Yes, in Alberta it is. Was this specifically pointed out to the buyers of those 1-bedroom units in advance? I don’t know, but if they were my clients you bet it would have been pointed out to them as we poured over the condo docs together!

That is just one reason you might want a Realtor representing you when you buy a new condo. Other reasons include:

• An assessment of the fair market value of the unit you are considering buying for comparison to the developers asking price.
• An opinion on the neighbourhood and exact location of both the building and the unit within the building (is the garbage chute going to be beside your bedroom?!).
• To point out things you may not otherwise think of such as noise and light considerations with the unit.
• And help with a proper inspection/walkthrough when the developer turns over the unit to you.

Another interesting feature of this building is the layouts are very much oriented toward “work from home” people. Most of the 1+den and 2+den units have the large den by your front door so you can meet clients without them seeing your sink full of dirty dishes. Ideal for the increasing number of folks (like Realtors amd Mortgage Brokers) who meet clients at a home office.

Check out the official website for more details, and then contact me for a rundown of the floorplans/units left and asking prices.

The June 2008 edition of CMHC’s “Housing Now” report for Calgary and area was issued on Sunday.

June 2008 Housing Now - http://www.cmhc-schl.gc.ca/odpub/esub/64167/64167_2008_M06.pdf

We have reached a new record of multi-family (apartment condos, townhouses and semi-attached homes) homes under construction. The total in May was 11,915, of which 9,432 were apartment-style condos. This is worrisome considering the condo market stands at an Absorption rate of 5.2 this week, There are already considerably more condos on the market than buyers. The silver lining though is that the inventory of “completed but not occupied” units actually decreased from April to May – 655 new units were completed but 673 units were absorbed (by sales or rentals). The fairly healthy rental market (2.0% vacancy rate currently) is perhaps saving most condo investors from grief in the short term.

It remains to be seen if the record number of multis under construction is going drive the condo market down even further. The construction of apartment-style condos in particular are very susceptible market slowdowns as we are in right now. This is because of the long construction times of these complexes. Developers simply cannot react to market swings when the development time of a complex is 3 years or more.

So expect to see more and more developers of new condos offering to pay Realtor commissions to buyers who chose to have the protection of being represented by one, This is to ensure they do not get stuck with too many units that they cannot sell. An example is the “Xenex on 12th“ which is now offering Realtor commissions for Buyer’s Realtors. So it is a great time for the buyer who has been interested in a new condo but has stayed away from them for want of the protection a condo Realtor can give them.

As for the question I asked in the title of this article, “Too Many Condos Coming on Stream, Too Few Buyers?” The answer right now is clearly “Yes” as evidenced by the Absorption Rate for condos being 5.2, but it remains to be seen if the situation will get worse before it gets better because of the record number of condos under construction. Can young professionals migrating to the city for all the jobs the oil boom is providing absorb the record number of new apartment condos currently under construction? That is the key – time will tell.

- Andrew Kyle

Figures are copyright CMHC.

I added a cool new feature to all the listings on AndrewKyle.com this morning - a Walkscore^TM assessment. Walkscore is a site that estimates the walkability of a given property by it’s proximity to stores, entertainment, restaurants, parks and so on.

Here’s an example for the Emerald Stone condo in Connaught:

And here it is on my listing pages:

There was a nice rundown in the Calgary Herald today on the city’s farmers markets. And since I am a GoogleMaps nut, I decided to put all of them on a Google map - see below. Left-click on the icon for the market’s hours and directions.

View Larger Map

If you think this is a useful map then please click on “View Larger Map” and then “Rate This Map”, so it will show up for others on GoogleMaps.

Happy and healthy shopping! Remember, it’s all about quality of life!

- Andrew

It looks like the trend to a more balanced market continues. Solds are up and inventories are coming down. You can say you heard it hear first - 2 weeks before you will read about it in the Herald.

- Andrew Kyle

I love this website:
http://calgaryrealestatemarketblog.wordpress.com/

He has some really cool examinations and opinions on real estate trends in Alberta. If you have an interest in the finer points of real estate market trends then I think you will find it very interesting.

I think it is the best non-Realtor real estate website in Canada.

- Andrew Kyle

The Fraser Institute recently released it’s take on Alberta Schools based on 2006-07 provincial testing results.

You can look up any school by name in their database and see it’s report card. It’s a great tool for checking on neighbourhoods you are considering moving to.

Look up an Elementary School:
http://www.fraserinstitute.org/reportcards/schoolperformance/schoolfinder.aspx?prov=AB&lv=E&l=A

Look up a High School:
http://www.fraserinstitute.org/reportcards/schoolperformance/schoolfinder.aspx?prov=AB&lv=S&l=A

The database includes, public, seperate and private schools.

The Fraser Institute uses Grades 3 and 6 test results to grade elementary schools, and uses diploma examination results, grade-to-grade transition rates, and graduation rates to grade high schools.

The Institute itself urges parents not to put too much emphasis on the last year’s score or ranking, and I agree. Look at the last 5 years scores to get a more accurate picture. Also the Institute uses arrows (up or down) in the right-most column to indicate trends (if any) in the school’s performance over 5 years - that can be more useful than just the last year’s ranking or score.

- Andrew