Andrew Kyle’s Blog - Calgary Real Estate

Last week the Calgary Real Estate Board (CREB) issued its forecast for 2009 - this is the last organization expected to issue a forecast for the 2009 Calgary real estate market so I thought it might be useful to summarize them all - that will be today’s post which I am calling “Part 1″. In Part 2, to follow in a couple of days, I am going to comment on these forecasts, and weigh in on the controversy around them.

There are 5 major organizations that forecast the Calgary Real Estate Market each calendar year. In addition to CREB, there is Royal LePage, Re/Max Canada, CMHC, and Toronto Dominion (TD) Economics.

Royal LePage predicts that after a slow start in 2009, Calgary’s market will return to a growth state later in the year. They predict that over the year the average home price will drop 1.0% in Calgary. This forecast was issued on January 6, 2009.

Re/Max predicts housing activity to be “somewhat static” in the first 9 months or so of 2009, and like RLP, recovery later in the year. Re/Max predicts net no change in the average home price over 2009. This forecast was issued in late November 2008.

Canada Mortgage and Housing Corporation (CMHC) predicts an increase in average (resale) home price of 0.7% in 2009. Part of CMHC’s rationale is a predicted 29% increase in net migration to Alberta in 2009. This forecast was issued in December 2008.

CREB, the only organization that makes separate predictions for houses versus condos predicts a 2% average price drop for houses, and 5% for condos. Combined, this is a predicted 3% drop in average sale price across the entire market. This forecast was issued on January 21, 2009.

And TD Economics predicts a 15% drop in average sale price in all of Alberta, which I am taking liberty with and calling “Calgary”. This forecast was issued in late November 2008.

In my next blog post I am going talk about the integrity of these forecasts (or lack of?) and the controversy surrounding them.

Back on November 25 I made a post (“So You Want To Time The Market”) where I pointed out that the market seemed to have turned a bit in the previous week. It turned out to be wishful thinking (for my sellers) and just a blip in the weekly numbers as December was extremely slow for home sales in Calgary. But since I am glutton for punishment I am back again to point out that the absorption rate has again turned in the last week.

Is this really the bottom? Well it may be for absorption rate, but I don’t think it is for prices. As long as the absorption rate is higher than the number of months that the average seller considers acceptable to have their home on the market (maybe 4 months?) then prices will fall.

Click chart to enlarge

Calgary’s real estate market continued to be stuck in a morass of very slow sales relative to MLS inventory levels in December as it has been for much of the Fall. MLS inventory continues to fall as anyone who doesn’t need to sell or isn’t serious about selling takes/ keeps their property off the market. But since the financial crisis of late September sales have also dropped off considerably, outstripping even the declining inventories. The overall result is far more properties for sale than there are buyers. a VERY strong buyer’s market, perhaps the strongest since the early 1980s, and falling prices.

The overall absorption rate (houses and condos combined, within city limits only) stands at 9.98 at the end of December. But there is something to keep in mind about December Absorption Rates… a lot of listings expire at midnight at the end of the year (it just seems like a convenient date), and also sales are always very slow in December (people have other things on their minds), so December Absorption Rates are always a bit skewed. So I urge people not to read too much into December Absorption Rates - nonetheless December’s stats generally confirm the November and October numbers: a VERY difficult time to sell and a VERY strong buyer’s market

Click Chart to Enlarge

Click Chart to Enlarge

Year-to-year here’s what we saw as far as price drops (median prices) in 2008:

Single Family Homes: $406.4k to $380k, a drop of $26.4k or 6.5%
2-Bed Condos: $288.5k to $257.5k, a drop of $31k or 10.7%
1-Bed Condos: $234.5k to $210k, a drop of $24.5k or 10.4%

And from the peak in June 2007 to present (end of December 2008):

Single Family Homes: $439k to $380k, a drop of $59k or 13.4%
2-Bed Condos: $310k to $257.5k, a drop of $52.5k or 17.0%
1-Bed Condos: $253k to $210k, a drop of $43k or 17.0%

Click Chart to Enlarge

Click Chart to Enlarge

January to March will bring out buyers, as it does historically in Calgary. Whether this will stabilize the market or simply slow the decline remains to be seen.

There was no significant difference between the SF House and Condo Absorption Rates in December, but we know from broader trends that the condo market continues to lag behind houses due to oversupply. it has been 12 months since the spread between the House and Condo markets became noticeable. It will likely continue for another 12 months.

A new feature this month in my market report… below are the 20 communities in Calgary with the best Absorption Rate in the last 6 months. These are the communities that are bucking the trend. What do they all have in common? I think 2 things:

1. They are NOT condo communities. Condos continue to move VERY slowly.
2. These are commuter communities - communities with a reputation for having a good price relative to the commute time to downtown.

Advice For Sellers:
Although more buyers will enter the marketplace in the first quarter of 2009 providing some welcome relief and showing activity for sellers, the cards will continue to be heavily stacked against sellers. I have been recommending for about 5 months that sellers be sure to get ahead of the curve and price their properties aggressively. I am revising that advice this month to advise serious sellers to be STRONGLY aggressive on price. All forecasts suggest more price drops in Calgary in 2009 - the buyers who are out there looking are expecting some of this price drop to be given to them now. We are starting to see some very good prices on properties from sellers who are very serious about selling and those are the properties which are selling (my office has even seen some multiple-offer situations on well-priced properties). If you are not an aggressive seller with respect to price the odds are very good your property will not sell at this time and you are looking at the prospect of selling later at a lower price.

Advice For Buyers:
Things continue to trend in the direction of favouring buyers. Prices are dropping and selection, although not as good as in the Fall of 2008, is still pretty good. It is not clear how much farther prices will drop but the consensus from the forecasts seems to be that prices will drop at least a bit farther in 2009. If you are waiting for me to tell you that we have hit bottom and it is the absolute perfect time to buy then I will do so… 6 months after the fact, because that is when I will know.

One consideration for buyers is be sure you have an active line of communication going with your mortgage broker/banker. Much has changed in the world of home financing in just the last 4 months. It is crucial that you have a good mortgage broker/banker and are communicating well with them and they understand the particulars of your situation while you are home-hunting.

Mortgage Rates Drop

Mortgage rates, fixed and variable, took a nice drop in December, about 30 to 40 basis points (0.3 to 0.4%) on average in December. There are some good mortgage deals out there.

On the negative side though, there is still some uncertainty on the side of credit availability. It is crucial, especially if you are self-employed, have a checkered credit history, are a non-citizen of Canada or are an unusual situation in any other way that you have a great mortgage broker/banker to work with.

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