Andrew Kyle’s Blog - Calgary Real Estate

by Andrew Kyle, B.ASc., Realtor

The Calgary real estate market continues to slow, moving into territory not seen in a generation. It is an extremely difficult time to sell, and conversely an extremely good time to buy. The overall absorption rate (houses and condos combined, within city limits only) stands at 7.15 at the end of October. This is up dramatically from 5.29 at the end of September. What was driving the market for much of 2008, affordability issues, lower migration to Calgary and oversupply due to building activity, has now been joined by major economic upheaval in the form of the September-October 2008 financial crisis, and confirmation of a worldwide recession. The result was a nearly “perfect storm” causing a dramatic worsening of the market (from a seller’s perspective) in October, but the worst may be behind us, and the next two to three months may be the best time to buy in Calgary in a generation.

Looking forward there is reason to see a silver lining. The October numbers reflect a short-term mortgage availability problem that was caused by the worldwide financial crisis. For a brief time, some banks stops lending to each other, and the availability of mortgage funds was uncertain. This seems to have worked itself out. In addition, October to December are, historically, slow for home sales in Calgary - with things picking up after the holidays. So I am expecting that January 2009 will see at least a bit of a rebound (call it a “stabilization”) in the market.

Between now and the end of the year will be a great time for buyers, particularly if having a wide selection suits you. Many sellers will remove their properties from the market between now and the end of the year, so if you are a buyer, I think selection is peaking now at the same time that fixed mortgage rates are at the lowest that they are predicted to be for the remainder of 2008 and 2009. A great combination for serious buyers.

Condos:
The absorption rate for condos in October 2008 was 7.09 - a new high. So that is more than 7 months of inventory of condos currently listed on the MLS system at the current sales pace. The median price for 2 and 1 bedroom condos now stand at $265k and $231k respectively. This is down from $289k and $255k 12 months ago - price drops of 8.3% and 9.4% respectively in the last 12 months. See Chart A - Absorption Rate and Chart C - Median Prices.

If there is a silver lining in the condo market it is twofold:

1. The gap between houses and condos has closed for now. For much of the last year, the condo market has lagged behind the Single Family (SF) House market (see my Feb 2008 report for a detailed explanation of why), but the dramatic events of the last 6 weeks seems to have closed this gap. Perhaps this is just a statistical fluke due to volatility, or it may reflect that house buyers are more sensitive to the recent economic turmoil than condo buyers (possibly because of the higher values involved).
2. We are starting to see a slowdown in new condo units under construction (source: CMC Housing Now - October 2008 ). This is due to a slowdown in projects being started, a number of projects being stopped and a number of projects being completed. This is the first glimpse of the light at the end of the tunnel as far as condo oversupply mentioned in my Feb 2008 report, but we still have 12 to 24 months to go I think.

Houses:
The absorption rate for houses in October 2008 was 7.17 - like condos, a new high water mark since I have been tracking this key market indicator. The median price continues to fall. The median price now stands at $390k, down from $413k (-5.6%) 12 months ago. Median prices typically lag behind absorption rate somewhat, so I expect fairly dramatic price drops in November. See Chart A - Absorption Rate and Chart C - Median Prices.

Advice For Sellers:
My advice to sellers continues to be to focus on the critical importance of pricing your property for the new economic reality. It is absolutely crucial to get ahead of the price drops in this market. With only 1 out of every 7 properties on the market selling last month, only the best priced properties are selling. Many good properties priced at their “market value on paper” are not selling because they are not among the really well-priced properties. This is what I mean by urging sellers to get ahead of the market.

Advice For Buyers:
Between now and the end of the calendar year will be an especially great time to buy, particularly a condo. I think many sellers who aren’t especially motivated to sell will be taking their properties off the market over the next 6 weeks. And come January, I think additional buyers will jump into the market - this historically is what happens in Calgary. The two effects should return some balance to the market early in the new year. So November-December will be a great time to buy property in Calgary.

Additionally, expect mortgage rates to rise slowly over the next 6 months or so. I am told by Jason Dodd at Canada Mortgage Direct that it’s a good time to lock in a 1-year fixed rate. Expect interest rates (both fixed and variable) to be higher next year.

See my market report from September 2008 where I discuss in detail some of the other factors you should consider in deciding whether now is the time to buy for you.

Mortgage Availability Stabilizes, Variable Rates Rise

After a short-term issue with mortgage availability in October, things seem to have stabilized in the lending industry, and the issue of mortgage availability which I mentioned last month is gone for now. For a short time some banks were not lending to each other leading a short-term credit crisis here in Canada corresponding to the high profile one in the US. This seems to no longer be the case and mortgage availability has stabilized.

The fallout from the October ‘08 financial crisis has been a steep jump in variable mortgage rates. It was, for a time, possible get a variable rate mortgage at 0.5 to 1.0% below prime. For the time being the best variable rate mortgages are at prime to prime plus 0.5%. The average posted variable rates from my weekly survey of Canadian banks and mortgage brokers stands at 5.13% on November 1.

We also saw a short-term spike in the average 5-year fixed rates in October from 6.15% to 6.50% - a fairly dramatic 1-month jump.

And as I said earlier, 1-year fixed rates are stable for now at about 6.0% on average.

See my weekly mortgage rate chart here

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