Andrew Kyle’s Blog - Calgary Real Estate

The Calgary real estate market continues to be very slow according to the August 2008 MLS stats. Total Calgary Metro listings at the end of August was 8,612, and properties sold was 1,669, yielding an overall absorption rate of 5.33. (See Charts A2 and A) The number of listings has fallen fairly dramatically for the third straight month since the “high water mark” of 10,617 in May 2008, but the number of sales has also fallen from 1,945 in May to 1,669 in August. The result continues to be a very strong Buyer’s market.

Single Family (SF) Houses continue to outperform Condos with absorption rates of 5.12 for houses and 5.82 for condos (see Chart A). The median price for a SF House in Calgary now stands at $398k - this marks the first time since January 2007 that the median price has been below the $400k mark. Median prices for 2- and 1-bed condos respectively are $261.5k and $239.7k. See Chart B. Median prices are down $32k in the case of houses, $42.5k in the case of 2-bed condos, and $14k in the case of 1-bed condos, in the last 12 months.

So in short, the significant market correction continues. Many predicted it would happen after the meteoric rise in prices in the first half of 2006, but after a lag of a year through to the midpoint of 2007, the correction is clearly here. And indications are that the correction is not yet done - prices will continue to fall until the absorption rate numbers come into line with a balanced market (under 3.5).

For Sellers:
My advice to sellers continues to be an emphasis on the critical importance of pricing your property for the new reality. It is crucial to get ahead of the curve in this market. Most sellers instinctively want to err on the high side when choosing a list price - it is natural to do so. It is also a mistake in this market. If anything you want to err on the aggressive side with respect to list price in this market.

Sellers need to put themselves in the shoes of buyers… Buyers know it is their market and they are looking for properties that exceed their expectations when they see them in person - they expect to be able to walk into a property and be pleasently surprised by what they can get for their money. And their expectations are not unrealistic because those properties are out there in this kind of market. If your property is not one of these well-priced properties then it will get lost in the sea of homes on the market and it simply will not sell - you will end up lowering your price eventually, but after the market has fallen further, and after buyers have stigmatized the property as overpriced or flawed in some way (”why has this property been on the market so long?”). Fight that instinct to list too high - trust the number your Realtor recommends for this market - be serious about selling, and you will be one of those whose property sells for a good price.

For Buyers:
My advice to buyers is essentially the same as last month… 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 significantly more for money 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 are a few problems with that:

1. We never know when this instant in time is upon us - we only know looking back after the market begins to rise again. Our look at the market is always in hindsight.

2. The bottom may be 18 months or more away - is the delay in moving on to the next phase of your life worth the money you may save even if your timing could be perfect?

And getting the lowest possible price is just one of the important considerations in when to buy, for example:

3. 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.

4. 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.

5. Also, you will want to consider your motivation for buying - if you want your own place for the first time in your life to celebrate your personal success, for example, then is it really worth putting off this dream for say another 6 or 12 months to potentially get a slightly 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.

Fixed Mortgage Rates Fall Slightly
Small drops in fixed mortgage rates this month. The one-year and five-year closed rates (average of all lenders) now stand at 6.06% and 6.17% respectively - down about 0.15% each from the beginning of August. The variable rate is 4.33% - only marginally less than last month.

The Board of Governors of the Bank of Canada is scheduled to meet again next week, so there may be changes to the trend-setting overnights rates at that time in response to the latest economic data.