Andrew Kyle’s Blog - Calgary Real Estate

This is a Re/Max USA commercial that sums up my thoughts on the current market:

The latest market conditions:

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.

Even in a very slow housing market some communities buck the trend. Below is a table of the hottest 20 communities in Calgary in the last 6 months (in terms of MLS inventory turnover, aka Absorption Rate). Starting next month I will be including a similar table in my regular Monthly Report

What do all these communities have in common? Well, I think 2 things:

1. They are NOT condo communties. The condo market is very slow (see my past market reports for the reasons why).
2. Generally, these communities have reputations for being good value for their distance from downtown. In otherwords, for the most part these are affordable commuter communties (the exception, being Scarboro at #1, which has prices well above the city average).

I’ve been meaning to do this for a while… I want to post a strong recommendation for Jason Dodd of Canada Mortgage Direct (CMD) and his boss, Greg Williamson, President of CMD.

I do a lot of work directly with Jason - he is the Mortgage Broker/Associate I recommend to all my clients. I’ve never known a Mortgage Broker who knows his business as well as Jason. Good Mortgage Brokers are worth their weight in gold, particularly for clients/situations which are slightly unusual such as the self-employed, folks moving here from other countries, young people whose parents are going to be involved in the financing of the purchase and so on. In my experience, Canada’s major banks tend to mess up any situation with a bit of added complexity to it. But Jason knows his stuff so well, he makes it look easy. I highly recommend Jason even if you have a bank or Mortgage Broker you are working with now.

Jason and his boss, Greg Williamson, are the source of much of the background info on the economy and housing market that you read in my monthly market reports. Greg is a “big picture” guy - he really knows economics and what is driving the finance and housing markets and interest rates. I get weekly in-person updates from Jason and every couple of months or so I have the privilege of hearing Greg’s take on local and national economic trends.

Part of serving real estate clients very well is having a good network of experts in various fields at your finger tips that you can consult with and refer clients to. Jason and Greg are invaluable to me and my clients in that regard. So check out the CMD website, Greg’s blog and Jason Dodd if you want outstanding mortgage expertise. I’ve now linked to Greg’s blog from my own, see the link to Greg’s blog to the top-right.  ===>

Jason Dodd can be reached by phone at 403-815-0565 or via his email address: jason@canadamortgagedirect.com

For the second week in a row I feel it might be useful to make a blog post about the latest market data. This is because the Calgary housing market seems to have undergone a “significant event” in the last 4 weeks (that event being the effect of the turmoil of the financial markets). Sales have come to a screeching halt. See chart below (click to enlarge):

The full set of weekly stats can be found here: http://www.andrewkyle.com/mlsca/home_page.php?page=weekly_stats

Two interesting articles in the financial post yesterday regarding condo overbuilding in Canada’s major centres and a housing correction that is starting to look very similar to what has been happening in most US markets the last year or two:

“Cracks appearing in condo land”:
http://www.financialpost.com/most_popular/story.html?id=917523

“Canada’s housing market ‘tracking’ U.S. boom and bust”:
http://www.financialpost.com/news/story.html?id=914783

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 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