The latest market conditions:

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.

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.

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).

But if I were a person who was waiting for the absolute best time to buy a property according to the market stats I might take careful note of my last weekly Absorption Rate trend update:

(click chart to enlarge)

The Absorption Rate may have hit a highwater mark last week and may be starting to move toward balance. The very best time to buy may be upon us now. I think this is the result of the effects I predicted in my last Monthly Market Report:

• discouraged and show-weary sellers removing their properties from the market;
• sellers with the option of renting doing so;
• low fixed interest rates (possibly the best they are going to be in the next 12 months);
• and buyers feeling the bottom may be upon us.

Who knows what 2009 holds, but the stats certainly suggest that now is a great time for buyers to buy.

See the full set of weekly stats here: http://www.andrewkyle.com/mlsca/home_page.php?page=weekly_stats

And here’s a bit of Batman humour about perfect timing:

(From Bully’s Comics Oughta Be Fun, http://bullyscomics.blogspot.com/2007/10/batman-master-of-timing.html)

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

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.

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

“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