Bob Truman, First Place Realty

This is why buyers are on the sidelines:

Bubble and burst

A housing bubble consists of a boom followed by a bust. Prices rise rapidly during the boom, and people buy homes on the assumption that prices will keep rocketing upward. The bubble bursts when home values fall. A burst bubble hurts homeowners who have to sell at a loss or who remain in their homes longer than intended, stubbornly waiting for values to return to previous levels.

Bubble believers maintain that low mortgage rates, combined with a mass delusion that property values will skyrocket forever, have inflated a bubble. They predict that rising interest rates will pierce the bubble, causing mass psychology to reverse: As houses take longer to sell, homeowners will put their homes on the market before the bottom falls out, panicking still more homeowners into dumping their homes on the market to limit their losses. In this scenario, potential buyers take their time, because they know prices will drop next week or next month. A deflationary spiral ensues.

As evidence that home values have moved out of whack, bubble partisans note that house prices have far surpassed rental rates.

Billy, when we we see the bottom of prices?  In your opinion?

Here is a "What are Buyer's Thinking".  I had an offer on my place yesterday.  The guy tried to offer 40k below asking on my 400k house.  I know that isn't all the facts but we are already below the price of all the other prices on the block that are smaller.  Only issue is that there are TONS in our area for sale.  This is my small rant for the weekend.

Btw Bob, nothing personal about not asking you to list my place.  Just that when I moved here two years ago my realtor went over and above to help me through my initial deal.

Vinny; I'm a big believer in being loyal to one realtor if he/she is doing a good job for you. Good luck with your sale.-Bob

It does create urgency to buy for sure. You don't feel confident to let a property "sit" for a long time as you don't want to lose it. If sales are down, listings are up I don't see how DOM is 40 days from 51, must be a lot of "new mls re-list numbers" or something. But I agree, HOMES ARE SELLING quicker on average out there. Or at least in the prices I'm looking at. Even homes that need $100-250k in reno's are not staying on the market.

Billy said:  "This is why buyers are on the sidelines:

Bubble and burst"

Yes, your definition of bubble isn't bad. Although I don't see that happening in the Calgary market to the extent you imply.

You know, I was talking to my wife last night about the "doom-and-gloomers" and I think the boom has created 2 camps of people. Those who own real estate and made a wheel barrel full of money on it and those in 2004 who said "$180 is unaffordable for a home!; the prices can't go up much more!; it's going to crash!; keep renting, don't buy!" listened to that, didn't buy and now are angry with themselves they didn't. Thus the latter group wants home prices to go back down to 2004 levels so they can "get in the action".

Think the $450k average price is a lot in Calgary? Check out Vancouver, Toronto or London, UK. Both cities cost more to live in, you make less and you pay a lot more for a lot less of a house. Does this mean Calgary is "amazing value" no, although it WAS in 2004. Now, $450k is just the "normal" price of doing business. Pre-04 Calgary real estate was CHEEEEEEEEEAP and on sale! Now, it's a "fair deal". You can still buy an inner-city home in Calgary in the $300's. Toronto, $500k, Vancouver, $700k, London, $2 million.

Bob/Al - I think you need to remind us again what a "normal" maket means... DOM, selling price % vs list price, % over sale price, how many competitive bids on a home. The months listings usually ramp up, peak and then go down. Our market for the past 2-3 years has been abnormal in many ways and people I think need a "refresher" on what "Normal" is.

Mike

Mike; Regarding the DOM going from 51 to 40, there were substantially fewer re-lists in February than in January. If those were accounted for, DOM would have seen an even bigger differential. -Bob

I've heard this mentioned a few times so I thought I would bring this up.  Toronto housing is still a fair bit cheaper than Calgary.  This is just one of the links I've seen this on:

http://www.canadian-housing-price-charts.235.ca/canadian_housing_price_chart.htm

vinny - Good luck on the selling of your house. If you just listed it and got an offer already, WOW, that's fantastic. $40k under as the FIRST offer is ok, unless you are selling at a loss at that?

I always believe, WORK THE DEAL. It's an offer, so counter. You may get it sold for just $25 under your asking.

--Toronto housing is still a fair bit cheaper than Calgary --

Thanks for the chart. It's a great example of data that is accurate, but does not show the accurate picture. I'm from Toronto (lived there for 28 years). The Toronto data they are using MUST be for the WHOLE GTA + outskirts (pickering, Ajax, brampton, whitby, Oshawa, etc). In the GTA, the average home price IS NOT that cheap. Ok, Scarboro, yes, but there are FEW homes below $350 even in Scarboro.

Toronto home prices are very expensive vs Calgary. Few people I knew could afford to own a home in TO. The vast majority (in my family) rented. And people in TO rent for 40 years.

Here is a good example of CHEAP $400k innercity Toronto RE: http://www.mls.ca/PropertyDetails.aspx?vd=&SearchURL=%3fPage%3d1%26Mode%3d0%26vs%3dResidential%26ret%3d300%26sts%3d0-0%26beds%3d0-0%26baths%3d0-0%26aid%3d3333%252c3334%252c3339%252c3340%26MapURL%3d%253fAreaID%253d6367%26tte%3d1%26tt%3d1%252c2%26mp%3d0-0-0%26mrt%3d0-0-4%26trt%3d2%26of%3d1%26ps%3d50%26o%3dA&Mode=0&PropertyID=6254523

Yes, the WHOLE house IS the lot.

or something like this for $770k inner-city: http://www.mls.ca/PropertyDetails.aspx?vd=&SearchURL=%3fPage%3d3%26Mode%3d0%26vs%3dResidential%26ret%3d300%26sts%3d0-0%26beds%3d0-0%26baths%3d0-0%26aid%3d3333%252c3334%252c3339%252c3340%26MapURL%3d%253fAreaID%253d6367%26tte%3d1%26tt%3d1%252c2%26mp%3d0-0-0%26mrt%3d0-0-4%26trt%3d2%26of%3d1%26ps%3d50%26o%3dA&Mode=0&PropertyID=6314645

Now, there ARE deals in TO, just like Calgary, but if you want to have less than a 1h 30m commute (like I had), then your shelling out $600k+

Mike

Mike,

Good joke comparing Calgary to London, UK (and Calgary is more expensive than Toronto). If you have ever been to London you know why real estate is ridiculous - zoning laws where you can't make high towers in many parts of the city and one of the highest city densities in the world (ie, they are actually running out of space). This is opposite to Calgary.

Next income, go to statscan and pull up the latest numbers, Calgary income is 17% higher than the national average. Are houses here 17% higher than the average? According to CHMC as of 2006 the Canadian avg was 276k. I guess the average Calgary price of 323k would make that work perfectly.. oh wait.. Calgary prices are way higher than 323k.

Basically you argument doesn't hold water because while incomes affect housing prices to some degree it isn't linear. For example, Vancouver real estate is really expensive even though people's incomes aren't that high. On the other hand, real estate in NWT and Yukon are cheap as dirt even though their income is one of the highest in Canada (higher than Alberta as of 2005, mainly due to gov't subsidies). Why is that? Answer is quite simple, people WANT to live in BC because the weather is great, it is by the ocean and is a "big city." While Alberta is no Yukon, you can see how the allure is much less pronounced.

Secondly, the supply/demand factor is totally against Calgary. I challenge you to name a single city in the developed world that has higher average housing price with a lower density than Calgary (similar size, ~1mil). Lets compare apples to apples here, Calgary isn't NY or Paris; go compare Calgary against cities of similar size and you will see how ridiculous prices are (or even against moderate sized US cities like Atlanta or the real energy capitals of North America: Houston/Dallas).

PS. I am not calling for a big crash, but anyone who expects to see double digit gains going forward needs to rethink their logic.

Vinny, Toronto housing specially closer to downtown Toronto is way much expensive than Calgary's areas closer to downtown. If you want cheaper housing in Toronto then it's outside of downtown BUT then you need to drive at least 2 hours to get into downtown.

:)

Thanks for the info guys.  I haven't been to TO for sometime so I can only really rely on website stats.  Therefore I don't have the full picture of TO.  It looks like Toronto must have a lot wider range of pricing.  For the average pricing to be lower than Calgary yet its core being much more expensive than Calgary's it's satellite communities would need to be much cheaper than Calgary's.  I don't have all the numbers to do the math but in theory that's how averages have to work right?  

So we did counter a bit to see how serious these guys were.  They only came up 5k.  I think they were basically testing us to see if we were desperate.  The house has been on the market for 3 weeks now.  We'll keep trying but luckily we're not in any situation where we need to sell, just the wife wants a bigger house.  Some of you guys probably understand that.  My coworkers (many female) have taught me "Happy wife = happy life".  I hope it's true  =)

As a first time buyer myself last fall. I wasn't rushed to buy I was simply ready to buy. Tired of paying someone else's mortgage, and ready to use some savings to purchase. Maybe somewhere on the very outskirts of my mind I thought about prices increasing if I waited another year,(I never thought they'd keep popping but even a 2 or 3% gain YOY was in my price range going to be another $10,000) but mostly it was simply because I was ready.

I think for myself when a first time buyer is ready they are ready. For me that was the driving force not what was being said about the market or the DOM

has anyone kept track of the # of people moving out of alberta back to newfoundland or wherever they came from for their DREAM.. i personall know alot of people that came to alberta for the good jobs and realized how expensive it is to live here.. PLEASE.. don't compare calgary to vancouver and london. not even close in lifestyle and housing.. these are international cities that have alot more to offer than calgary..  So, if there is no people moving here to but, who is gonna buy.. JOE BOB, with his min. pay job. people left because they put most of their income into housing. there was a few stories on cbc on that topic..  average home are not selling, just like VINNY  said unless people offer way less than the asking price.. I don't know about the rich areas. My brother's neighbour in Temple has a similar situation with a 50000 lower offer on his home, he was tempted but like all of us he is CONFUSE....  God, it is so difficult to understand the marke these days... high inventory, plummeting sales  as the herald said and creb... no one knows till the smoke clears. Bob, have you seen the phenomonon happen in the market before?? what is contributing to this confusion.

Confused; Average homes are selling if they are priced correctly. By the way, what do you think is an average home?

Remember, your property is worth what someone is willing to pay for it. I'm not sure what phenomenon you are referring to. If it is that sellers are wanting more for their homes than people are willing to pay, that is not a phenomenon. It's always been that way. Sales are only plummeting compared to the record years of 2006 and 2007. Now that was a phenomenon. Sellers have some high expectations because of the past two years, but that will gradually change. -Bob

Mike,

thanks for the link.

That one house in Toronto looked like a barn from the outside and they want 399k for it!  Hopefully it comes with some animals and hay.  Nothing wrong with being a redneck in the inner city.  

Bob,

buying last fall would have been ideal compared to now because of the price increase but like Heather mentioned people will buy when the timing is right for them.  And usually late winter and spring is the time that is right for a lot of buyers.  So they can get settled in their new place before summer and then take holidays.  A lot of people do not like moving when the kids are in school, but it does happen.

That is a great story about CCl classic communities.    One of the problems with any boom, is that people are left behind.  Sadley, the dream of owning a home is only a dream for some people.  It would be great if more builders were like this.  Just if some would even cut their prices by a bit.  Builders have made huge profits the last few years.  So what if the average price drops a bit.  I would be all for lower prices and more people attaining their dream of a home.  I believe it would be for the betterment ( is this a word?) of society.  But then again I bought way before the boom and selling my home wouldn't be a problem.  Someone who bought last spring would be in a pickle if they tried to sell in this scenario.  But this is a great feel good story.

To Al Bundy or anyone else who's followed Don Campbell of REIN.

How has his track record faired on the Calgary market over the last couple of years. Were his predictions too high, low or pretty accurate?

Thanks Bob for your response on the Strathcona property.

RD and Confused. I didn't say I compared Calgary to London, I just stated prices in those centers. I picked London, UK as my wife just came back from there 2 weeks ago and we have friends that bought a house there late last year, so I knew the prices there.

RD, even if I picked, say. NIAGARA-ON-THE-LAKE, Ontario as it is the same density as Calgary and they can grow out, and they have the same "average" price too you might rule it out because they grow wine near there. There is NO "fair" place to compare Calgary to. Even Victoria "we have no room to build" is a lie, they do, but they like their MASSIVE green spaces between communities, unlike Calgary.

Confused - The wages in Calgary are outstanding. $15 an hour to cook chicken. $15 to stock shelves. That's amazing. In fact, when my brother came out from Toronto, he took photos of the now hiring and $15/hr signs to show his friends in TO...haha  Toronto home prices are higher and their wages are lower = our home prices are not as unaffordable. Rents in Calgary are cheaper than Fort Mac. Same price as Toronto (2 bed = $1600 in Scarb ON).

Migration is still +, +15,000 people per 1/4 year are moving here. Employment in Ontario and Quebec is... aweful... manufacturing IS their "oil and gas" and it is in bad shape. O/Q economy is poor and 100,000's of jobs are being lost each 1/4. How long do you think before those people move to Alberta? The cost of living is the same, homes same price and Calgary wages are higher and SURPRISE, Calgary is hiring! I've never seen so many "help wanted" signs in Ontario.

Calgary IS the city of opportunity, worldwide. There's jobs, great living, SAFE atmosphere, low taxes and a really bright future. I'm not Albertian, but Ontarian and I'm saying this... :)

Mike

Mike; Did you see Ed Stelmach's victory speech last night? "Welcome to Alberta's Century." Sounded a lot better than "Welcome to Ralph's World." -Bob

What they (young couple) have expected in Calgary?

He is the only worker in the family of 3 (HR specialist ~30 CAD/h or less). If my wife wouldn't work I couldn't afford anything more than a dog kennal.

Guys, XXI century, one income is not enough, such a life...

Mike; Did you see Ed Stelmach's victory speech last night? "Welcome to Alberta's Century." Sounded a lot better than "Welcome to Ralph's World." -Bob

Yes, in fact, for the first time, I voted PC. I felt that PC was the "right thing for Alberta, for the people of Alberta and the future of Alberta". I may not be here all my life, but I want to make sure those who are, are taken care of very well. :)

About affordability....

I was walking to the post office and thought about it along the way...

Even with the corrected home prices, they are affordable, to those who WANT to own a house, they will. They will save and work towards that goal. It doesn't matter if their family makes $50k a year or $100k. They WILL find a way to buy a home.

There will always be people who say "homes are unaffordable", or make up a vault of excuses not to try to buy one "they will go down... it's better to rent... I didn't buy at the ""right time"" etc".

With 40 year mortgages, and 5% down, you CAN get in, work hard, save hard and that home ownership dream is yours. The ney-sayers will say "40 year mortgage, forget it", "5% down? CMHC fees are too much!!". If you start with a 40 year mortgage remember it doesn't mean you have to wait 40 years to pay it off.

The majority of people CAN buy a home/condo. It just takes commitment, hard work, saving and dedication. Or you can rent, like my folks, for 40 years, in the same place and don't ever put in the effort to buy one because (insert excuse here).

Mike

Hi

My $0.10.

Point 1 - overpriced! cheaper to rent.

I'm getting ready to sign 1 year lease for a large 2 bedroom condo downtown.

Based on what I'm paying in rent per month, minus condo fees (what I've see online mls), landlord has around $1700 a month to pay mtg , buy beer etc. Minus say $100 for a fund to paint once a few years, fix taps etc.

$1700 a month, with 10% down, and interest at the current  6.5% affords a mtg of about $220K.

Interestingly enough, units are selling for $425K, reduced from $459K from a few months ago.... imagine that - $34K drop in a few months. Not jumping in has  paid for my rent for a year and no stress.

From my calculations, most re here is overpriced by about 47% based on the income these investments produce for landlords.

These are plain fundamentals. Sooner rather than later, its going to swing back the other way. At that point in time... I will buy.

Point 2 - affordability.

Funny everyone talking about $15/hour. Thats $30K a year. Or $60K a year for a working couple.

I believe the average wage in calgary is $25/hour. $100K a year for a working couple. Take off $20K for taxes. Thats $80K net. 1/3 of that, is  $2222/month available for housing. With a 40 year mtg, and say interest rates of  9% (long term average) that $2222 will power a $275K mortgage. 105% of that is... roughly $290K

Average price, in Calgary should be.. about $290K. What is it... $471K. Or, 38% higher than it should be.

Sooner or later, its going to come back into sync... all the poor people from ontario moving here with no $ are not going to save things here.

fisherman,

As I mentioned, I've never met Don Campbell, but I've had access to his site which talks about real estate all over Canada and even internationally.  I've never met the man.

But I'd dare say this... his track record of predictions was certainly better than either of the past two presidents of CREB.  Even my predictions were better than the past two presidents of CREB, or CREN for that matter.  Truman's predictions for Calgary are as about as good as it gets.

But Don Campbell has a huge network that looks all across the country and looks at a lot of different financial and commercial issues that we don't look at, here in Calgary.  I'd say that Don Campbell is well worth listening to, on the national level.  So many people only look at the Calgary scene.  Campbell is well worth listening to.

At the local level, I like Bob Truman's opinions and incedible service.  He offers us this blogsite for free, with all his free stats.  How can you not love that... and a man like that?  If anyone locally deserved our business...  that's a no brainer. Al

When this blog first started up, Mike was the very first to post here.

I'll never forget his advice to those who were complaining that they couldn't afford to puchase a home.  His advice said amoungst other things:

"Cut the capuccinos".  "Cut the Friday night movie every week".  "Use both sides of the toilet paper".

And I laughed so hard I nearly wet my pants... but his message was so real.  And now I see where he got that message from.  Read his above post.

Thanks Mike.  That's a very heartfelt thank you to you for a brilliant attempt in 2006 to spur people on.  The only person I know of, who we actually affected, was Heather, and I'm so proud of her.  I think you'll get a few more thanks again, in the next year Mike.  Some day they will think of you as a great old buddy.  I do!

"Use both sides of the toilet paper", and buy a house!  What a great lesson in frugality and the success that follows!

Al Bundy

There's a story in the financial post about condo sales and prices in Toronto.

www.financialpost.com/Story.html?id=107000

They look like a lot more than Calgary. Just thought it might be of interest.

I've been reading here since the summer of last year and there are a number of people who make sense to me.

Most recently and in my memory always is Mike. Hi Mike.

Correct me if I'm wrong Mike but it seems you say

If you are a flipper looking to make a fast buck then real estate is always a risky game.

If you are an investor who has time and money you are always going to come out ahead at some time.

If you are a smart buyer (pay your mortgage down and as fast as you can) you will always win in the long game.

I've probably over simplified it but it makes sense to me. Like anything in life instant reward has the highest risk. And slow and steady the highest chance of success.

Well its been a while so nice to have the blog back Bob!

Here is our update we still can not buy, we will still be putting cash in the bank. But really we have put the dream of owning a home way back on the burner. The prices are just to high.

We are now just enjoying life and getting on with living, as we found it very stressful trying to buy a home . We still have a small hope we might be able to buy one day but its not a major concern for us anymore. As we have been priced out of the market at this time.

I'm wondering how the R/E market in Calgary will react now the the prime has been drop by 1/2 a percent.

To comment Johnny's question regarding Coralspring neighborhood, I think if you house is in the high end for that neighborhood (ie 600+) you will have a tough time to sell it. The potential buyers there treat homes like commodity. The cheaper the better. This is a significant factor that drives the prices down. This is sad but true situation for most NE communities.

Al/Heather: Wow, I'm absolutely GLOWING with the complements you have paid me. :))

I just don't know what to say other than Thank You back. :))

You have inspired me to check out some "good" starter stuff on the MLS for the fine folks here in all quadrants to give examples of what I'd look at if I was buying my first home. Remember: I'm NOT a realtor and I'm going off what I see as value under $325. I view the "inner-city" to be MY choice investment spot, a BIG lot, R2 if possible, fully DETATCHED home, SW/NW address ideally and a livable home. $325 isn't much to play with, but I found some good examples.

We ourselves started out with a $178k 1983 Millrise starter home, $60k a year family income, 10% down, 25 year, 4.65% 5yr fixed mortgage.

http://www.mls.ca/index.aspx

South West:

C3302128 - Millrise. Hey, what's not to like at $319k, 1532sq/ft, big lot, reno'd home and on a cul-de-sac! I love Millrise, it's close to the LRT, great location near fishcreek park and I got my start in  Millrise in our first (1,110 sq/ft) home. :)

North West:

C3299978 - Bowness. $299k, 128' huge reverse pie lot, 861 sq/ft bungalow, backing onto tennis courts, community centre and park! Damn. I'm not a huge fan of Bowness, but it's up and comming, has trees, is an established community and it's "inner-city". Maybe even an R2 lot too.

South East:

C3310663 - Dover/Valleyview. $294k. Under property assessment. Quiet area, beside school, 45' wide lot, GARAGE, 3 bd 950sq/ft bung. Also within eye sight of the new Valleyview $650k homes. Really nice looking home.

C3305299 - Ramsay. $259k. You want a home minutes to downtown on a nice lot that's updated and has some new reno's for a 2006 price? The trick is you have location, but a cute small 538 sq/ft bungalow home to live in that will cost you nothing to run? Can you do it for a year? You'll have to buy "small space IKEA" stuff! But it's only going to go up.

North East:

C3303774 - Radisson Heights. $299k. Pie lot, on a cul-de-sac. Nice bi-level (lots of light in basement), walking distance to LRT (big bonus), fully finished basement and new flooring.

C3292777 - Forest Lawn. $316k. Now you might say, "I'm not living in Forest Lawn!", but hear me out. Have you drove SOUTH of 17th ave in Forest Lawn? It's actually really clean and nice; trust me. It's a gem of a secret. The great thing about forest lawn in it's R2 and you can rent the basement to help in your rent = get those renters to buy you your home AND the bank takes rent/income into consideration for a mortgage. Ok, so we have a 1,000 sq/ft bung, on a big 50' lot, 3 bd up, 3 bd suite down (That's HUGE, a 3bd suite = $$$ rent!). Quiet street, west backyard, inner-city. With renting out the basement, it's a no-brainer.

C3311395 - Dover. $319k. Another nice home, suited up and down. Nice large lot, Recently reno'd, west backyard and very close to big park. Another mortgage helper.

Now onto the next message for replies...

Mike

Thanks Al,

I re-read Bob's last post to me. He mentions the Alberta economy as being the driving force for continued price appreciation which makes sense.

Bob, what do you think appreciation looks like going forward 2 years for a property like mine? I just interviewed a realtor yesterday which is well known in Strathcona and he thinks that I should list my property as soon as possible. He thinks that the spring market will soften quickly this year. I'm not  sure I'm comfortable with this guy, we disagreed on quite a few things.

fisherman

Tania Davies - I fully hear your points and appreciate them. In the

short term, yes, it CAN be cheaper to rent as you point out. Just

don't look at renting as a "lifestyle" over owning. It works only when

the housing market is going down vs buying. But NO big city RE market

goes down forever.

It work agaist you in a "balanced or up market" as you lose equity in

many ways. Your paying rent and getting nothing back when you move

out. You don't get "home appreciation" for the time you spend living

there. You do not "invest" the same $$ as you would be paying for a

mortgage if you were paying a mortgage. You also don't build "bank

equity as well". Remember too that you CAN control your mortgage

payments (fixed mortgage) but you have NO control over rent payments.

Yes, you can move, but renters know how HARD it is to find a unit as

at rental prices just a few years ago.

Tania Davies - "Sooner rather than later, its going to swing back the

other way. At that point in time... I will buy."

Imagine if prices dropped by $181,000 dollars on average. That would

be AWESOME for first time buyers...and investors (locally, nationally,

and internationally)...and move up people, and seniors and even the

unemployed! But with ALL that demand, we are back up to $471k average

(as people bought all the inventory!)... So you and 10,000 people who

bought made $200,000... House prices are $471k average again or much

more (0 supply + lots of demand). What did that do for the greater

good?? If home prices were $80,000-100,000 in the NE/SE, I'll take 15

homes please! But WHO will put up for sale their homes at such a

MASSIVE loss for me to buy them at that time?? (I hear crickets)

At $15 hour, that's good pay, but not "estate home" pay, but all the

homes I listed above, you can afford! You can still buy a condo in the

low $100's, even if you made $15 a hour, you can buy a condo... That's

REALLY cool. The weird thing would be your $125k condo could go up as

much per yearly pay is. If that happend, you would in fact be making

double your salary.

In Toronto, the $15 Calgary min wage is $8.75/hour. I'll be frank and

say you CANNOT buy ANYTHING at Toronto's min wage, but amazingly

enough, YOU CAN at Calgary's min wage... That's affordability (for

now).

Al Bundy -- "Cut the capuccinos".  "Cut the Friday night movie every

week".  "Use both sides of the toilet paper".

Ah, so true. Damn who would have guessed that cutting out those

capuccinos would make such a MASSIVE difference in one's life.

Everyone, think of it this way, for every little, tiny $1 you save,

it's like $5 (or more) towards YOUR future. It's the magic of compound

interest. Make your money work for you, not you for it. It's the

little expenses in life that prevent us from acquiring the "big

stuff".

Sadly Al, your right, I saw 2006 coming, I knew it in my gut and I

told EVERYONE that I could what I foresaw. It would be like knowing

the winning lotto numbers and telling people to just play them. I only

got 1 other couple to trust me, buy a big home and move. They made

over $200,000 profit (today's market) on their new home because they

just listened. I despirately tried to tell my friends and my brother

in Toronto to move out here in 2005, buy ANYTHING. Even my wife's

sister to get her to buy that brand new built $59,000 point-of-view

condo. The expression "You can lead a horse to water, but you can't

make them drink," might apply well here. As my wish is to help others

even before myself, you can only imagine my sadness and frustration.

Heather - I've been reading here since the summer of last year and

there are a number of people who make sense to me. Most recently and

in my memory always is Mike. Hi Mike.

Wow, I'm so happy to hear that, hopefully I was helpful to you and

even just a little helped your future to be just 1 watt more brighter.

Hey Heather!  :)

"If you are a flipper looking to make a fast buck then real estate is

always a risky game."

Yes, indeed. But with an awesome realtor, research of the

market/products, time and commitment, you can control those risks to

some degree*.

"If you are an investor who has time and money you are always going to

come out ahead at some time."

Yes, it's "true" to a point. The point being is where you are on the

cycle, what you buy, where you buy and what upside/hook that property

has. Location IS important, but there is no "IDEAL" location, and if

there is, you can't afford the millions for it (Doh!). You can't get

caught up in analysis paralysis or you lose. You take the best you can

at the time it's available and work with it. Identify whats "special"

(you NEED special) about the lot/home and work it. The market doesn't

ALWAYS go up EVERY year, but it ALWAYS goes up. (I'd buy ANY home at

TOP list price at the PEEK of the 1980's crash, right now, in fact,

give me as many as I can get a mortgage for!).

"If you are a smart buyer (pay your mortgage down and as fast as you

can) you will always win in the long game."

Ohh, this is a big fat JUICY tip. Yes, it SUCKS to pay OUT more

money than you "have to". But, oooo, it works in YOUR favour, NOT your

banks! You save not only on the viewable "total owing" part, but you

save SO MUCH more on the componding interest agaist you part. Eg. You can cut a 40 year mortage to 33 years, just by going weekly from monthly! That's 7 YEARS of payments, POOF! GONE! Just Double up your payments and that 40 year could be cut 25 years to 15! 25 years of payments, compound interest, gone! Want to make "more money" on your home? DO THIS!

(note the below example is very rough, but its a good "general" example)

EG; Take a $350,000 mortgage, 25 year, fixed at 6%. Payed Monthly.

You take 25 years to pay it off. You'd pay $321,800 in just INTEREST. In 25 years, that $400,000 home would be worth, say, $1.5 million. So you net out $778,200 at the end of the day. That's a good investment, honestly. You made $778,200 TAX FREE baby!

Take the same $350,000 mortgage, 25 year, fixed at 6%. BUT payed Weekly and DOUBLE your payments.

You'd pay $89,514 in just INTEREST. In 8 years (you just chopped off 17 years in payments too). Sell your home for $1.5 million in 25 years (you did live mortgage free 17 years of them too).

You made $1,010,485 TAX FREE baby, Oh ya! Sign me up!

The best part is not only did you pay LESS in total buy paying MORE in payments, you also made $232,285 for your dedication AND lived 17 years with NO MORTGAGE payments.

Heather, not only are you a smart investor but you'll be able to achieve so much more than (hopefully) you dreamed of years ago because you care enough to take the time and listen to others tips and advice (both good and bad).

Mike

I remember seeing that house in Millrise selling for 359k last year.  I could be wrong but it certainly was not 319k.  Wow

vinny said:  

I remember seeing that house in Millrise selling for 359k last year.  I could be wrong but it certainly was not 319k.  Wow

Sometimes, sellers have to come to terms with a "realistic" price. I'm sure if they owned it for a few years, they made great money on it at $319k. But at today's corrected prices, $319k is a steal.

Mike

fisherman,

If you don't mind, I'll chirp in here.  I used to be a realtor for 10 years, and that occupation for me ended in 2002.

Your realtor is right.  This is the time to sell (springtime).  But to be able to predict 2 years into the future is exceedingly difficult.  I own 4 condos now, but none of them are in Calgary, although I live in Calgary, and love Calgary.  

Al Bundy

to mike..

thanks for all the detailed info you provided.. i lived in forest lawn for a while. it is not a bad place as the media make it out to be. however , have you been in the houses in person. trust me , they are old, smelly and outdated, maybe 319 grand is a steal for someone that lives in a 6-700 thousand dollar home. but how much renovations a person would have to dish out to make it decent .  SE. and NE calgary don't get much air time on this blog..Bob, those are the neighbourhoods that i call average, or middle class.. the ones selling now between 325-350 .. affordability is in the minds of whomever is well off or not... it is easy to say the housing market is affordable when you got money, however MIKE $15 dollars hourly is not affordabe, we still gotta eat, fill up gas...wow..gas i say.. buy clothing etc.. food prices and gas are at all time high, nothing is inline economically.. iam not a doom and gloom person, just trying to be realistic..

I totally agree with Confused, that’s our point. We could buy a home right now, but how do we pay for food & gas for the car. That’s the trouble we have, right now we rent at a $1000 a month and have living expensives of $500 for food $300 for gas for the car. Then there’s heat/power for the house we rent it really does not leave to much left. But we manage to save between 300 to 400 a month towards a down payment.

Not looking for hand outs this is just the facts for us along with many others I bet.

confused - I agree, it's extremely hard to save enough on a single $15/hour income to buy something over much over $100k. Years ago, Point-of-view condo's were in the high $50k's, then it was more possible.

I agree, gas, food, clothing, the basics and then rent $ till you can save up enough to put down. It's hard to balance for sure. I would imagine rent costs are the killer. A few years ago, $1000 rent was almost unheard of. Now, it's the norm. That's $12,000 at least out of your pocket a year, just to put your stuff and rest your head. On a $15/hr ($30k/yr) job, that's almost 50% of your after tax income gone.

Yes, NE, SE, the neighbourhoods of the working person. Blue collar, friendly, hard shift working, take the shirt off their back to help their neighbour folks. It's too bad they get a few bad apples where they live, but you make the best of what you got.

OIL AND GAS

So I just read that oil hit $104.XX a barrel yesterday, WOW. Alberta will be swimming the dough. That's GREAT news for RE prices, sales and demand. The bad news is they are predicting $1.40/l gas! Ouch! My advice, buy in Calgary, AVOID driving take the transit. Maybe even sell your car now while there is demand for it. haha.

Mike

fisherman - No matter what, make SURE you go with a realtor you are comfortable with and "on the same page" with. Area specialist realtors are great, but it doesn't mean you can't use a realtor whom your more comfortable with and doesn't usually sell/buy in that area. I saw a place for sale by Gordon W Ross in Haysboro. That's a weird community for him IMO. Some big name realtor names even can act as a NEGATIVE on your property too. I won't list names but when I see a property listed by Realtor X, the I know it's most likely not priced competitively.

With the listings going up quickly it should soften demand and prices as well. I don't predict negative prices, just slower growth till inventory softens again. Not sure why there are so many listings right now, it would be interesting to do a poll on that.

Strathcona is a nice area, underpriced and offers big homes close to the inner-city. The older part is a little more attractively priced and closer to DT. Good area to buy or hold in. I've heard the commute out of the hill is getting bad on Bow and 17th. True? If so, that will affect desireability there. The new C-Train West will have a station at 69th and 17th ave in 2011/12.

My prediction is home prices have corrected and are "near" the bottom of what they will be before going back up. The Alberta economy looks like it will be strong for another 5 years at least, oil prices keep going up and demand out strips supply. Nat Gas is going up to nice profitable levels again so Nat Gas companies can drill and explore. The East is getting hammered economicly which means more migration to Alberta is in the cards. Even with high rents, people will still come for a better future. Those who lived in Ontario in the 80's and 90's recessions know it's not fun to "stick it out".

Mike

One of A Kind said:  right now we rent at a $1000 a month and have living expensives of $500 for food $300 for gas for the car. Then there’s heat/power for the house we rent it really does not leave to much left. But we manage to save between 300 to 400 a month towards a down payment.

Congratulations on still being able to save $3-400 per month towards a down payment, that's good. You could add more to that if you look at what you are buying and how much it's costing and where you are driving. I don't know if you are 1,2 or have a family, but $500 for food, that's high. We spend $150 a month on food for 2 and $50 a month for gas. But we are careful of where we drive and what we buy. If it's not on sale, we don't buy it. If it's reduced, we will pick it up. Even if we don't need it just yet but will in the future.

If you can manage cutting down the $800 a month on gas/food to $200-350, that would give you $750-$1000 a month towards your down payment.

Tips. I eat noname Mr. Noodles for lunch daily, my wife makes and packs her lunch daily. We go out to eat 2 times a month but spend $20 on a meal for 2 (Entertainment Guide). Walk or transit all we can. Buy gas at discount stations only. Drive an economical car (Aveo). Use energy eff lights, have the heat set lower, etc. It all adds up. :)

As a suggestion, ask yourself; if we could move into a home that we could walk to work and shopping, could we lose that car for a year or two (no insurance $, no gas$, no maintenance $)? If you owned a downtown condo, would you need a car or just a couple of bikes?

BTW, Motorcycle insurance is CHEAP too, we own 2 bikes as well and pay $98 a YEAR for insurance. MUCH cheaper than $1100 for our car.

Mike

We are quickly approaching record levels of inventory for single family homes and condo's (if not already there).  In addition, sales are down roughly 40%, plus CMHC is reporting that residential construction is still near record highs (over 13,000 units currently under construction in Calgary, in addition to the ~9,500 old criteria MLS listings).

If prices are so high that we have too much supply, and demand is substantially less, then it appears that the current price point is not the one to maintain a sustainable equilibrium of inventory.

I expect that inventory is going to be at least 30% higher than our previous record high of inventory at some point later this year.  In this scenario, we may see yet another 10% decline in house prices later on this year.

The economic fundamentals in terms of house price to household income (should be about 3 instead of 5), and price to rent ratios (should generate better cash flow than safe investments like GICs and bonds) are still so bad that as a potential first time buyer I will choose not to buy until there are better fundamentals.

The conventional oil and gas industry is in a recession due to drilling being down 30% or 40% in Alberta, and with house sales down 30% or 40%, it is not hard to envision a recession in the residential sector as well.

Mike L, where are you living that you only pay $98/year on motorcycle insurance?  I thought those days were long extinct even in Sask.  If you live in Vancouver it's even worse than Alberta for motorcycle insurance.  I had a 1982 650 suzuki 2 years ago in Vancouver with no collision coverage and had my bike license almost 15 years and i still paid over 100/Month not per year.

$500/mth for food is probably the average where I don't know too many people who can do $150/mth for two.  When we lived in Vancouver we cooked every single meal, packed lunch and I was being very frugal and it still cost us $300/mth.  Sure you could do Mr Noodle every day for lunch but those arteries have to be almost plugged up by now.  Plus a guy a like me needs at least 3 of those to feel somewhat full and I'm a small guy.  And don't you get sick of eating that every single day?

Transit is defintely the way to go!However not everyone can get cheap auto insurance.  Some people have had misfortunes and now their insurance is pricy.  I only pay 600/year but I don't have collision insurance as my car isn't even worth insuring.

Mike,

I forgot to comment on the state of Bow Trail. The widening of Bow Trail being open for traffic has improved things greatly. Traffic is flowing again.

Radley77 - Nice site. I've book marked it and studied much of it in indepth before I replied below.

Unlike Mutual funds, stocks, bonds, RRSP's and offshore investments you can't really lump real estate into the "same" catagory. Many purchase a home not for "investment" but for "life". A home is a necessity (buy, rent), stocks are not. You can't live in your financial portfolio.

Your conclusions are very intelligent and thoughtful. Although I reserve the right to see them a little different. You love charts and graphs (I do too) but I feel your not seeing the forest for the trees, you are looking "too indepth" into things and searching for any micro spec that might be there.

I think it's near impossible to "analyse" accurately real estate trends. Too many variables, choas theories, unpredictable markets, unassociated influences, vastly different RE products (even each property IS different) you name it. That's why looking too close you can lose prespective. Although again, I do enjoy all the charts, data and numbers I can get my hands on. :)

I believe (and I'm putting my money where my mouth is) the Calgary market "feels right" overall. Strong employment, strong wages, positive future, growing economy, positive influx of people, the oil sands will be a trillion dollar long term project, the right provincial government, it all "feels good".

One MUST remember that:

A. If we are going to enter a recession then it's bad news all-over, not just in RE.

B. If homes fall in price, then other investments will fall too.

C. Making "Easy money" is mostly over. It's hard to make a lot in a little time today. Or so it seems.

D. Crashes, same word, two different meanings: Stocks crash 70% down (in 2000 a 70% (or so) drop of the NASDAQ composite index). Homes, 20% (worst ever, Japan 1980-2005.) +5 to -10% in USA today ( worst: Massachusetts fell over 10% in 2006.) YOY. Worst case synario here, what would you choose? Lose 70% of your investment or 20%?

E. Not every home goes down, not every home goes down the same. And the opposite is true as well.

Even in positive RE times, like Canada's West is experiencing, it is HUGELY important to do either/both:

1. Buy a home that you want to live in or a location that you love. That's what a home is for.

2. Even IF your not looking at it as an investment, LOOK at it as an investment. You'll sell one day and you'd be happier making $200,000 than $50,000. Or on the flip side, making $1 over making -$25,000. And don't forget, RE is the only Tax Free investment out there. (primary home, 1 year lived in date).

Love your home because it's YOUR home and you EARNED it. It's an big achievement in life to own a home.  It brings memories, pleasure, satisfaction, comfort, and security. (notice that "money" wasn't in there).

http://upload.wikimedia.org/wikipedia/en/a/af/Time_Magazine_June_13_2005_Cover.jpg

Data is GOOD, fun and I love it too. But too much data = Analysis Paralysis.

Yes, even in a down market you CAN make money in RE, just buy the "right house" in the "right location" for the "right price". Don't be "picky" about community, or the home or the location if it's a stand out good invesment. Doing the above = when you turn the door knob to enter your new investment you already made money on it.

Hope that helps anyone else who reads it. And Radley77, great site, love your work, keep it up!!

Mike

Hello Everyone,

I have been watching and reading this blog for quite some time, and rarely (if ever?) do I offer my opinion.

As far as migration numbers are concerned, I have friends from Calgary/Edmonton/Red Deer that chose to leave Alberta a bit better than a year ago.. about the time that the market hit it's peak here in AB. They left here to cash in on the cheap houses that Saskatoon had, and as of last week, had made so much money on RE investments in AB, and then in SK, that too a person, they all think that they will return, later this year (SK is having another hot spring).

I believe that in comparison, AB has far more to offer than SK, and with the ability for most of the people that moved to return to AB, grab their old house in AB, and have a fraction of the mortgage they had prior to leaving.. a number will do it.

thoughts on this?

A recent article in a Red Deer area paper commented on the undervalued prices in Central AB homes, and that there is an anticipated increas in home prices between 10-15% in Red Deer this year, and 8-10% in Innisfail (just south of RD 10mins, where I live, and currently have a home for sale).

The media plays an important role in the drive of this market..

LJ

Oh, and I failed to congrtulate you Bob on hitting 910km.. quite an achievment.. and with snow the last couple days, I hope you had the chance to come closer to your goal of 1000km.

LJ

Rent vs. Owning.

----------------

The other side of the coin.

I've read a lot and seen alot of data on Rent vs. Owning, but every one of them fails to point these facts out to you.

You can't control what your landlord charges you for rent. Our rental history Eg.

2000/1: Rent 1 bed in Kensigton $425

2001-3:Rent entire 1/2 duplex inc up/down in Charlswood 3-Bed $725.

2004: Rent in Erlton, 1 bed apt. $580

2006: (friend) Rent in Glamorgan, 1 bed apt $900.

2007: (friend) Rent in Glamorgan, 1 bed apt $1300 (as above).

2008: Rent increase (as above).

What we are seeing here is you can't control rent costs. They don't remain consistant, even over 3 years. And they don't go down. Many get $300/mo increases, even $1000 mo increases.

Thus, many data sets say "it's better to rent than to buy", BUT, they completely fail to take into consideration your rent won't remain the same for 25 years. $1300 rent in 2007 = owning a home in 2004/5. In 2004, if I used my current rent of $580, the Rent vs Buy calculator would tell me to "KEEP RENTING 100%". 2 years later, it would say "WHY DIDN'T YOU STOP RENTING AND BUY!!"

:)

Mike

Radley77 - I'm going to have to disagree with you on your recession points.

The conventional oil and gas industry is in a recession due to drilling being down 30% or 40% in Alberta, and with house sales down 30% or 40%, it is not hard to envision a recession in the residential sector as well.

FYI and all those here - Conventional oil (light sweet crude) has been in a decline for over 25 years in Alberta. There isn't many pockets of it left anymore and it's hard to find. So it's not surprising that drilling rigs are down. It's EXPECTED. Drilling rigs are ONLY used for this purpose, NOT for oil sands discovery or collection.

Natual Gas has been price depressed for almost 2 years, BUT, prices are going up very well. Nat Gas is up over 59% since it's low in Sept 07 of $4.42 per GJ. It has been climbing since and is currently at $7.42 GJ.

Natural Gas IS very important to the Alberta economy. Over 80 per cent of Canada’s natural gas production is from Alberta. Alberta produces five trillion cubic feet (Tcf) of natural gas per year. In 2006-07, the $12.26 billion in non-renewable resource revenue accounted for over 30 per cent of government revenue.

As Nat Gas prices rise, it only helps an already great economy.

Mike

Radley77,

those are huge numbers, 13,000 + 9,500 and add whatever the speculators will add to the market. Also people moving back to their home province, Sask, Newfies,etc could put lisitngs that are listed throughout the whole year at over 30,000. With interest rates and economy staying relative, I expect an average of 1200-1500 sales each month on average to cut into this inventory.

But this will definitely lead to all time highs in inventory.  I wouldn't be surprised to 15,000 at some point this year (late summer)

To eat in this inventory, there are really only two types of buyers, the rest of the sales will come from people who tradeup.  First time buyers and people immigrating here from other provinces and countries.  Interprovincial immigration needs to be reversed.  I  expect Eastern Canadians (Ontario and Quebec) will be moving out west because manufacturing is going into the toilet.  A big part of manufacturing has no future in Canada, I am sorry to say.  But in the west, we have what the world wants.  Many Eastern Canadians will soon realize that not only do they have no future in manufacturing, the same goes for their children.  Many will move west. And some will buy.

As for first time home buyers, prices will need to drop a bit for them.  But as I have mentioned before compared to last year affordability is better this year to buy.  Since June 07, interest rates are lower, wages have gone up and house prices are at least 40k lower. Even with that I expect 08 to follow a similiar path to 07, probably not as high average price in June, and with a possibly lower price in the fall 08 than 07.  But with builders slowing down, inventories should get cleaned up to a healthy balance next spring.

One thing I will say is that what is happening down south does give me some concern.  One just has to look at Phoenix, a sister city of Calgary.  I believe 3 times the size.  It had a housing boom a few years ago and now they sit at about 50,000 listings.  And this is a place with great employment, sports teams, lots of money coming in from people who retire, golf courses, great weather year round.  Subprime is the biggest issue here but it does make one think about RE in Calgary.

All in all, if one is buying a home just ask yourself why you are buying. Every market has its ups and downs RE included.  But by owning my own home I have a pride of ownership that I can not put a price tag on. Good luck

High oil spurs record drilling

I want to point out that prices of homes are going to Rise more. I talked with some of my friends who work in the real estate area and the ones in the oil industry and they told me this. So if buyers think that should still wait,I think they'll be priced out forever if they don't start buying now.Here's the info in Calgary Herald: High oil spurs record drilling  http://www.canada.com/calgaryherald/news/story.html?id=94fb46ad-f76a-41da-89fa-58fe4d2ba006&k=76798

I don't want to be a skeptical here but we have to be realistic. Regardless of which market we are in, market always will behave based on supply/demand rule. Right now, with the excess inventory in the market, I don't see how the prices will go up.

I believe that a strong marketplace should not require marginal buyers be fearful of being priced out of the market.  

This illustrates the high sensitivity to economic shock required to enter the Alberta real estate market.

Under these circumstances, wherein the average person cannot afford the average home, there is a great amount of fragility in the market.  The US housing crash should serve as an example to what happens when house prices outstrip the ability of the average person to repay the debt.

John Said: "http://www.canada.com/calgaryherald/news/story.html?id=94fb46ad-f76a-41da-89fa-58fe4d2ba006&k=76798 "

Excellent article! I forwarded it to my wife's work to read as well.

Vinnie said: " supply/demand rule. Right now, with the excess inventory in the market, I don't see how the prices will go up. "

I agree, supply/demand rule. But it doesn't mean it applies to all properties, just "available properties". Some properties are low in supply, some high. The key is to find those "low in supply" that are being price "affected" by the "high in supply" types of properties. :)

Radley77 said: "wherein the average person cannot afford the average home, there is a great amount of fragility in the market"

Yes, we definately need the average person to "get into the market". BUT, this doesn't mean a SFH only. In Toronto or Vancouver, the average person cannot afford a home. So they enter the market with a condo or townhouse. It's an accepted lifestyle in Toronto to get into the market, it will be in Calgary too. Then in TO, you move up to a small home. It's "weird" thinking in Calgary, but completely normal elsewhere. That's one of the BIG reasons why the prices in Calary corrected and went up 100% (oil price was the other), Calgary SFH homes were TOO CHEAP. The average person could easily afford a SFH home here pre-04, which was an abnormal situation to say the least. When Calgarians realised this, they bought too, creating a RE boom.

But I don't think the average Calgarian saw this as they were biased on what was "normal price" as it was all around them. But anyone from a big city moving to Calgary saw it and bought.

It is compairable to Mexico real estate. Mexican's saw their real estate as expensive, but forigners saw "$100,000" for oceanfront and said, "man, that's cheap".

Eddie Van Halen - "15,000 at some point this year (late summer)"

Humm, that would be interesting forsure. 15,000... It's possible. But what do you think the makeup will be? 60% condos?

vinny said: "where are you living that you only pay $98/year on motorcycle insurance?"

Calgary. I own a 2007 Suzuki DL650 and my wife a 2006 Kawasaki Z750S. I get better gas milage (500-600km's highway), she has more hp (110hp). haha.

I do eat other things, but I do enjoy Mr. Noodles. Usually a shopping trip contains about $50 of the basics, meat, cheese, milk, fruit/vegs and what's on extreme sale or reduced. We stock up big at Superstore's $1 Buck deal days too.

LJ said: "and rarely (if ever?) do I offer my opinion. AB has far more to offer than SK, and with the ability for most of the people that moved to return to AB, grab their old house in AB, and have a fraction of the mortgage they had prior to leaving.. a number will do it.

"

Post your opinions, they are good! AB/SK - Sounds like a lot of work, uprooting and risk. Sask RE is IMO, risky, more so than Vancouver RE. I read Sask had a 43% reduction in new home permits for Jan.

If I remember it right, Vancouver RE boomed, then Calgary, then Edmonton, then Sask, Halifax and next, Winnipeg. But you'll notice a trend, each boom after the other was shorter in duration.

Mike

Mike,

I might have to look into another motorbike.  Maybe if I take the safety course it'll drop my insurance?

I just got another email notice about a new listing.  I always get excited to see if it's something that might suit us.  Of course when i pop it open the house looks amazingly familiar.  Then I realize this is the 2nd time this realtor has taken this same house off the market and re-listed lower.  I wonder how common this has become.  I wasn't consciously keeping track but it happens so often that I actually know the names of a few realtors that do this religiously.

Bob you said this happened lots in January and possibly more.  Is there really any well to tell how often this is happening other than someone like me who sees the same house come back up for cheaper?  I know there is nothing wrong with this and I also know the reason why the realtors do this but it sure makes it difficult for monthly comparisons.

Vinny; It's a labour-intensive job to go through every listing and check to see whether it has been re-listed. If I get a chance, I'll try to get some stats on this.-Bob

Here is something else interesting.  My realtor just told me this morning he got an offer of 195 on his 235 condo and it's happening more and more.  Could that be an indication of it shifting in favour of the buyers?

Mike,

just some stats from creb.com

Feb 07 4,288 listings

      3,434 sales

Feb 08  10,652 listings

       2,236 sales

When I think about it, there will be probably be more than 15,000 listings sometime this year. There are more listings coming this year than last year and less sales than last year. Could even hit 20,000. We will have to wait and see.  As for percentage wise, I would put houses at 60% and condos at 40%.

I was looking at Saskatoon MLS, they have less than 400 properties listed.  No wonder why they are booming.  Supply and demand comes into play with every market.

Another thing that can impact the market is the mortgage approvals. Bob, is there a stat on the number of failed transaction in Calgary (ie house got C/S but put back into market due to failure to get mortgage approval?). I've talked to several guys in the R/E industry and they said the banks now are very conservative these days.

Vinnie; When a deal falls through, there's no way of knowing what the condition was. It could have been home inspection, financing, or a multitude of other possibilities. -Bob

vinny said:  "I might have to look into another motorbike.  Maybe if I take the safety course it'll drop my insurance?"

Check out this site: http://totalmotorcycle.com/BBS/index.php and YES, taking that MSF course not only will save you $$ on your insurance, but make you a great rider too. I recommend Too Cool Motorcycle School.

About what's happening on the market. I can't tell you specific details as I'm the "private seller", but, I've had MULTIPLE offers on our house now. Our home is "sold" till the deadline for the last offers to come in, but so far the offers put it $130,000 over asking thus far. Unfortunately as it's a non-MLS/Realtor sale it won't affect the CREB numbers or even show up in the stats. This proves that there is A LOT behind the sceens we don't see.

Hold in there with your home, sales are picking up, even if the stats don't show it. Are you looking to move up? If so, where abouts?

Eddie Van Halen - "houses at 60% and condos at 40%. Feb 08  10,652 listings       2,236 sales"

I'll bet that those %ages flip by the end of the year as the condo buildings go more and more online. As my home is for sale, I call tell you most of those listings are NOT SFH in the inner-city. There sure isn't a lot of product to choose from yet around here.

RE Saskatoon MLS: Is 400 average? Is it a little less or more? I don't know. Saskatoon isn't a big town.

News: http://canadianpress.google.com/article/ALeqM5gaL6dVaFCGbroDA4ljVlQsT0eUkQ

This is REALLY encouraging. If you think Canada will follow USA into a recession, well, maybe not...

Canada gains 43,000 jobs in February while the U.S. loses 63,000. CIBC senior economist Avery Shenfeld said Canada avoided following the U.S. into the 1973-75 oil shock recession and the 2001 technology slump, and will likely avoid the current U.S. subprime recession. Calgary unemployment rate is now Feb: 2.8% (Jan: 2.9%)

Very good news.

Mike

wow! Mr. Noddles , I have to say we believe one thing we will never cut back on is Food to get us a house! I think if things get way out of hand in housing we will just pack up and move to a different location where we can afford to live. The quality of life is more important then having all the must haves in life.

I commend Bob for making a living in RE but also balancing lifestyle! I hope he continues to go sking in the winter and stays fit! Thats our goal too!

we should live life,enjoy it and not age by worrying about housing to the point that we don't even enjoy what to eat. Com'n Mike, you want us to eat noodles, cut down on our quality of life to live in an overprice house.. why no one admits on this blog that inventory is way out of hand and people are panicking to sell. why else the huge # of homes being listed daily. it is a visious cirle, it will only get worse. anyways, the more i read about the housing market the more i care less about buying, i have calculated to the extreme and IT IS NOT AFFORDABLE... it is an individual choice, it varies from one person to another where they are in life in relation to buying a home, we can't be all lumped into the same mold.. I WANT TO LIVE, ENJOY THE TASTE OF FOOD, SMELL FRESH AIR AND LIVE, HAPPY.. NO MATTER WHERE, IN A MANSION OR A TENT.. HAPPINESS SHOULD NOT BE ABOUT SACRIFICING THE SIMPLE THINGS IN LIFE, NO ONE KNOWS WHEN THEY GO. ENJOY LIFE ALL.. don't stress too much, what good a house if your health is in bad shape... if you can't afford a house now, why not wait.. hey it's not gonna get any worse...

Wow, so much going on, I have to admit that I had missed this blog a bit.  The opinions are...interesting, lol.

Mike, your statement about "I eat noname Mr. Noodles for lunch daily, my wife makes and packs her lunch daily."  has kept me laughing all week.  You eat Noname Ramen noodles for lunch daily?  You know those things have, like, 1/3 of you daily fat intake and 3/4 of your daily sodium intake, right?  Personally, I think people can save even more money for the home ownership dream if they stop paying for food altogether.  Restaurants throw out lots of half-eaten food every day, I think that's a goldmine of savings right there, lol.  Seriously, ramen noodles every day??

Funny video:

http://www.youtube.com/watch?v=TxylHPnoloI

My favorite lines:

"You've taken hold of the American dream - a big house, nice yard, and a mortgage payment that eats up 60% of your gross household income."

"But hey - top ramen tastes a lot better when you eat it off of a granite countertop."

And Mike wrote:

"Crashes, same word, two different meanings: Stocks crash 70% down (in 2000 a 70% (or so) drop of the NASDAQ composite index). Homes, 20% (worst ever, Japan 1980-2005.) +5 to -10% in USA today ( worst: Massachusetts fell over 10% in 2006.) YOY. Worst case synario here, what would you choose? Lose 70% of your investment or 20%?"

So let's clear up some mistakes.  +5%??  Where exactly would that be (going by the Case-Shiller index)????  The worst is not Massachusetts in 2006.  Phoenix, Vegas, L.A. are all down over 15% in just one year.  Miami is down 17.5%.  And last time I checked, not a single economist sees any upside to housing until at least 2010.  Just trying to lay the facts out for people to make their own decisions about.

Yes, the stock market is much more volatile.  That means there are bigger (and quicker) drops.  That also means there are bigger (and quicker) gains.  Always keep in mind that stocks have historically outperformed RE by about 7 to 2.  In the end, RE can only go up in relation to people's incomes - in the end, everyone needs somewhere to live and has to pay for it.  So while "You can't live in your financial portfolio", you also can't spend your home.  Results in the whole "house rich - cash poor" phenomenon that is so common today.

Anyways, this is all old information.  What is new is that everything is rosy in the Calgary real estate market.  DOM is down, and it has nothing to do with the ridiculous number of de-lists and re-lists going on.  Prices are up, but of course still a good $40,000 down from last year's peak.  The percentage of vacant listings is slowly decreasing - but of course the actual number has soared to the point that there are now almost as many vacant listings on the market as there were total listings last year (2,686 total at end of Feb 07; 2,496 vacant as of Friday).  What other stats can I pick and choose from and make bullish comments on, hmmmm?

All I know is that I'm told we are now (finally) in a balanced market.  Unless of course you're going by the traditional definition of a real estate balance.  Because 4 months of supply is not "balanced".  I'm not even going to mention that given how March is looking, we may hit 5 months supply by the end of it(projected 9,474 total listings with 1,891 projected sales).  There's that pesky issue of half the sales and twice the listings again.  My only actual question to the cheerleaders is, where do you expect this inventory to go??  Just disappear quietly???

And lest I get labelled as a "bitter renter" who's angry at myself for not buying when I had the chance...I actually am looking at getting a place this fall.  I'm feeling comfortable in my situation and have been running the numbers a lot, and I have a feeling that the market will be in my favor, lol.  But I am sure angry at missing out on my chance, RE is (supposedly - see comments about a different sales mix below) up a whopping 10.2% since I moved here a year and a half ago.  Wow, did I miss out!! (How do you show sarcasm on a blog post?).  And I (like Carioca Canuck always wrote about) have been making a fantastic return on the huge spread between my rent and what my mortgage payments would have been.  I have never said it's always better to rent than buy - but it sure as hell has been since I got here.  As for where we are right now - why buy something today that you can get for 10% less in six months??

Long story short, I think all the comments about the prices "rising" due to a different sales mix are correct.  Some people may think that sales are better than the stats reflect, but I can tell you firsthand that practically no starter homes in the neighborhoods I've been watching have moved.  Actually, many of the ones that disappeared last Nov/Dec are now starting to pop back up again, lol.  Play my favorite game, bookmark a property and put the price in the bookmark title.  Then check back as it sits and watch the price come down.  Price reductions (advertised or not) are not supposed to happen in the middle of March, lol.

If I didn't know better, I'd think that the average family can no longer afford the average home.  But oil is over $100 bbl, so just remind them of how rich they are this summer when it's $1.40 a liter to fill the car, lol.

So any thoughts on what magic trick is going to make all this pesky inventory go away??

I cringe at the state of many of my generation.And I apologize to those of you like me who do not resemble the following statements

We expect to live the lifestyle our parents lived only when they reached their late 30's or 40's. But we want it now. We are the Instant Gratification Generation. I hear the same unaffordability comments at work from the people who throw away $15.00 a day for restaurant lunches, plus another $15.00 a day for Starbucks coffees, drive their vehicles downtown and pay for parking even though they live right on the C-Train line. Go out for drinks a couple of times a week with work buddies, and order take out for dinner 3 times a week.

Oh yeah though baby I'm living the good life, I'm living the high life. I'll spend over $300 a week just for food and drink maybe another couple of hundred for that purse I want. And I won't get into the real estate market cause hey....I can't afford that 2000 sq foot house with all the brand new shiny things. I mean really I have an image to maintain and living in a starter house is just not acceptable.

PLeeeeeeaaaaaaaaassssssssssseeeeeee.

Okay all of you who think you deserve that lifestyle go ahead and jump on me. Let's hear the justification of the lifestyle described above.

For Mike, Bob, Carol and Al

Just found out from my building manager that the unit right next door to me. Precise comparable. Same size, layout, view, floor, and lack of renos since the late 70's like mine. Just sold for $18,000 more than I bought mine for last fall. Thanks guys for all your caring and support through this blog.

Heather said:  "...Just sold for $18,000 more than I bought mine for last fall. Thanks guys for all your caring and support through this blog."

Your most welcome! I'm so happy to see good people like yourself Heather benefiting from Bob's blog and in a small part, all our advice here. It's obvious you made a great decision to buy that unit your in.

Heather: "Instant Gratification Generation"

I do agree. Although I grew up in a Scarborough getto and my folks we had nothing, and in fact, my dad and bro still live there, and have nothing. (Dispite my attempts to get them out of there and/or move to Alberta). I see the Instant Gratification attitude in the suburbs mostly. Maybe it's all the shopping so close to the residents or everyone is "so close" economicaly they try to differentiate themselves from each other? I donno. It's black and white over where I live the people in our community don't flaunt their wealth or make a big deal about it at all. My neighbour has a Lamborghini in his garage and it might as well be a Civic to him and how he shows it off.

Mr Noodles, Mr Nightmare??

Haha, ok, erase the Mr. Noodles comment out of your minds, I didn't mean you can't afford great food or luxury wines and cheese. The point I was getting across is whatever you like to eat, shop around for the best price on it, or buy a "PC product" that will save you $3 rather than brand name IF its "tastes just as good". Anytime you can save $5, that's more money in your pocket to spend anyway you like, on a house, car, bills, etc. Heather points this out well with her line: " $15.00 a day for restaurant lunches, plus another $15.00 a day for Starbucks coffees, drive their vehicles downtown and pay for parking even though they live right on the C-Train line."*

Warren said: "The worst is not Massachusetts in 2006"..

Hi Warren :) I just quoted what by what wikipedia said about the house price crashes in the USA. It wasn't my data.

Warren said:  "top ramen tastes a lot better when you eat it off of a granite countertop."

Humm, does it really? I'll have to try eating it off my granite countertops then. (yes, I have 4 of them).

To be honest, Warren, I'd be a sort of bitter renter myself if I HAD the chance to buy a home in 2004 and didn't do it because I felt the market was overpriced or unaffordable. Listening to everyone make $100,000's of dollars easily would sort of make me jealous. But, I would be happy for them and my friends who did so. :)

Warren: "My only actual question to the cheerleaders is, where do you expect this inventory to go??  Just disappear quietly???"

I don't know. As you pointed out and the datas back you up on this, is growing inventory doesn't mean prices go down. Bob or someone, can we see what Vancouver inventory has been doing? Vancouver prices are STILL going up, but has their inventory?? I think this isn't that bad of a compairable to Calgary and what could happen here.

Yes, I'm a cheerleader for Alberta and I'm confident in it's positive economic future.

*Thought of the day

"It's not what you make, but how you spend it."

Mike

Mike wrote:

"Haha, ok, erase the Mr. Noodles comment out of your minds, I didn't mean you can't afford great food or luxury wines and cheese."

Ummm, no, that's exactly what you meant.  You can try to laugh it off, but shall I re-print your original post?  You wrote to One of a Kind:

"If you can manage cutting down the $800 a month on gas/food to $200-350, that would give you $750-$1000 a month towards your down payment."

$200 a month on gas and food for TWO people?  Did I mention that's for TWO people???  So $100 a month for each???  Even with $0 spent on gas, that's $3.25 a day on food!?!?  With a compact car's tank of gas a month, it's more like $1.75 a day on food!!?!?!?!  That certainly wouldn't pay for great food or anything luxury - except maybe some actual brand name ramen noodles instead of the No Name version.  As I said before, if people just stopped paying for food altogether think of how much you could save!!  Try restaurant dumpsters and your neighbors' garbages - it's a gold mine of savings for that luxury life of home ownership!

I don't think you really got the humour of that video I posted.  See the funny thing is how "Mr. and Mrs. Too Much Homebuyer" are forced to eat ramen noodles because they're spending so much on their house - but they get to do it off of granite countertops.  I didn't really mean that ramen noodles taste better off of granite countertops (it's a line in the song), although I'm very happy that you have four.  I, on the other hand, haven't ate ramen noodles since I was a first year University student, lol.  To each their own, I guess.

I got the video from this website:

http://themessthatgreenspanmade.blogspot.com/

I highly recommend it, a lot of good economic insight on the whole housing implosion and results on the larger economy.

Heather:

I can't justify the lifestyle you listed above - because I don't know a single human being that acts like you describe.  $15 a day in coffee??  A $200 purse a week??  You wouldn't be exaggerating would you?  I mean, you're talking about $25,000 a year in spending before shelter and transportation.  That's $35,000 a year before tax.  That's almost what an accountant makes in this city starting out (and still without paying for shelter and transportation, so you can basically double the number to $70k in spending).  You know some interesting people...

But I guess I would fall into your whole "Instant gratification" category.  You see, I went to University for seven years and now make a larger salary than 90% of Calgarians (95% of all Canadians according to the latest census).  How silly to think that I (or the 90% of people who are not as fortunate as I am) should be able to afford the "average" home, lol.  Here's a great Herald op-ed from last fall on the issue of affordability:

http://communities.canada.com/calgaryherald/blogs/hannaford/archive/2007/09/28/top-5-of-income-is-nice-but-it-s-not-wealthy.aspx

But maybe I should buy a 538 sq ft bungalow in Ramsay, lol.  You know that most hotel rooms are bigger than that, right, lol??

Anyways, when thinking about the future direction of prices, I don't think about myself, I think about the 90% of people in this city who aren't as fortunate as I am.  What can they afford?  What are their choices?  Will they stay or pick up and go?  As I've stated before, most people who owned before the boom have never stopped to use a mortgage calculator to find out how much their home would cost them from scratch.  Hint - most of them would not be able to afford it.

And can we please stop comparing Calgary to Vancouver or Toronto?  There are these things called the Pacific Ocean, the Rocky Mountains, and Lake Ontario that you can't build on.  This skews supply down in those areas and forces prices up.  Last time I checked Calgary is wide open for 70 km in each direction.  I'm not even going to comment on the absurdity of comparing Calgary with New York or London, lol.

Since nobody commented on where all this pesky inventory is going to disappear to (yesterday brought another 47 net listings and only 47 sales), could someone explain what's going on with condos?  I know that the price of pending sales for SFH are headed to infinity and all, but is it just me or does it look like condos have been more or less flat since November?  And there are those pesky big gains we had last year in March and April.  I wonder what the effect will be when year over year price declines are finally announced?  Thoughts??

Mike L, You are in denial if you think inventory doesn't matter. Don't you remember it was lack of inventory that made prices jump in the last two years???

I suggest you read my post above.

Oh, and Al, I think we'll see the bottom in summer of 2009. I wouldn't be surprised to see at least 150k come off the avegage SFD.

Warren; I have deleted your comments(and some subsequest replies) that referred to another realtor. I did let it go at first, but then other comments started coming in that refuted the realtor's comments, it started getting nasty, and on it goes. I don't want a shouting match, especially one that involves another realtor. I have generally not allowed any comments on here that identified other realtors by name or website link. 

Within those comments you made, you seemed to have an issue with my comparing sales to the long-term average. Why is that? Do you think readers of this blog would not be interested in that information? -Bob

When I was growing up in Saskatchewan, I was interested in business since I was very young.  I remember reading Garth Turner's column and thinking back then that he seemed like a very intelligent guy.  I actually wrote him a letter of support back in '06 when he was booted out of the Conservative party (first politician I had ever wrote).  I have nothing but the utmost respect for his beliefs and his opinions.  He has started a new blog:

http://www.greaterfool.ca/

My favorite excerpt from it is:

Among the myths Turner identifies:

1.) Unlike stocks, real estate is a riskless investment.

2.) Houses [always] appreciate

3.) Canadian lenders are more conservative [than U.S. subprime lenders]

4.) Industry experts are worth heeding

5.) You need some place to live anyway

6.) A house is a great investment

7.) Better to be an owner than renter

8.) Rising markets are normal

9.) Real estate profits are tax-free

10.) Canada is different

There's pretty much nothing I can add to that.  Any other opinions?

Great conversation going on on this blog!  I commend all of you (both sides) for putting forward good arguments.

While it may be true that realestate is a good long-term hold, it is also true that there are far too many over-leveraged people who bought into the hype.  These are the house-rich people who are scraping by paycheque to paycheque.  I see them everyday where I work, and I really know it when they tell me "I'd really like to have this done because its good for my health and I need it. But my mortgage payment is coming up and we're really stretching".  I feel for them but I can't go ahead and lower my fees for different people.  I am in the healthcare field but I prefer not to mention exactly which kind.

The long-term hold really works if you have a big enough down payment.  But for those who put minimum 5% down, the interest rate charged on the mortgage will eat quite a bit of money away from any future price appreciations your property may get.  While I don't doubt the value of buying a few years ago (heck that was great!), I really question the logic of those tauting to others they should buy now and it's never a bad time to get in.  If it has already appreciated this much, how much more upside does it have to go over the next 5 years?  Can you handle price DEpreciation for the next 5 years with your minimum 5% down payment?  If you can't you should NOT buy, since there is significant downside risk now (because of the large appreciation in recent years).  

Take it from myself, and a few of my acquaintances...those of us who have made money of the latest boom are already sold (or mostly sold/currently selling) out of the Calgary market.  I was out fall 2006, sure I missed the appreciation to July 2007 but hey I made a pretty penny.  But I kept my first home that I live in (you can't count "making money" as appreciation of your only home because if you sell it where the heck are you going to live?  You'll have to buy at the same market values at that time or rent!).  A few of my investor friends left back in fall 2007 and are completely NOT reinvesting.  

So, because I don't have any skin left in the game I do NOT champion any young family buying anytime until maybe end of 2008 or even 2009 June/July.  I have no interest in a greater-fool buying into the market right now as I do not stand to lose money if they don't.  So I leave you all potential buyers with this: If many residential real estate investors are leaving the scene, why in the world would you be jumping in?  Don't you think that we would all like to make money, and if we thought prices were going up we'd just hold on?

Sorry for being so candid, but I think that the perspective of a former investor in Calgary's market (who knows many who did the same thing) my experience might be important for some to hear.

Cheers.

"Confused said : IT IS NOT AFFORDABLE, if you can't afford a house now, why not wait.. hey it's not gonna get any worse."

Confused, I should tell you that prices are stable now and affordable. But if you wait it's actually going to get more worse because the prices of homes are not going down they're going up. Just check the Jan average and up Feb average price stats of SF homes and you can see that. Also I agree with John as what he said : "So if buyers think that should still wait,I think they'll be priced out forever if they don't start buying now." Check the info in Calgary Herald: High oil spurs record drilling.

Bob:

Thanks for explaining the deletion, I understand and appreciate your heads up on it (I can understand that you want to keep your blog's tone civil).  Although I am curious as to what the responses were, lol.

Anyways, I do think that comparing 2008 sales to a longer term average is misleading and a problem for three reasons:

1.  Calgary is not the same city is was seven years ago - larger population, increased wealth, etc.  It'd be like me getting a gigantic paycut but then saying that I was still making more than my seven year average of wages.  The market gets accustomed to a certain level of activity and begins to adjust accordingly.  Things change, and you can't necessarily compare previous years.  For that matter, why seven years??  Why not 10?  Or 20?  It's a slippery slope and it begs the question of who picks the range for the average.

Warren; 7 years back is all I have available on the MLS database. -Bob

2.  It's one more change in mid stream.  First it was changing the numbers to include only Calgary proper (no outlying communities).  Then it was focusing on the median, not the average.  Then it was focusing on averages for the calendar year.  Now it's multi-year averages.  Why the constant changes??  It makes it virtually impossible to compare stats and find direction.  Yes, some of the changes do make more accurate statistics, but it seems like when RE was booming, the RE industry didn't make a peep about ways to improve their stats.  When it gets slow though, it's time to re-invent the wheel...

Warren; That's why I post the Old Criteria stats. As far as I know, I am the only realtor to do so. You can compare apples to apples. -Bob

3.  Sales are only one part of the economic picture.  If you're going to talk seven year averages as a "norm", why not talk about how ridiculously out of whack prices are right now to the seven year average.  Or how absurdly high listings are to the seven year average.  Prices are a function of supply and demand (although RE is notoriously "sticky" with prices, because homeowners are much more reluctant to sell at a loss), so if sales are now back at a seven year average, shouldn't prices be close to their seven year average too?

Ultimately it just strikes me as avoiding talking about the inevitable.  Someone tells people sales are down 40% year over year and they might panic.  It's certainly a frightening statistic.  But someone tells people that sales are "in line" with a seven year average, and nobody will worry.

In the U.S. right now, sales are actually not that far off of where they were at the start of the decade.  They're less than 50% of what they were a year and a half ago (annualized), but they're close to where they were at the start of the decade.  Of course, the past couple years of bubble activity led to a gigantic boom in building (everyone was goiing to be a millionaire off of housing, remember?) which means that now that sales have crashed there is a glut of inventory on the market (which is pushing prices down) - stop me if any of this sounds familiar.

Personally, I like year over year.  It's simple and reliable (but maybe that's just me).  I'm curious what some of the more bullish people here think of multi-year averages.

ben, if less homes are selling, 40% less and inventory is at all time high, why should i rush? if iam gonna get priced forever why is there so many people like me not buying and not worrying. if people are not buying, and homes are not selling, what is the problem? what is gonna cause the frenzy of buying? what is gonna make it happen?for sure it is not happening now? so if not now, why later? please answer those questions.. i could see your point if the demant oupaced the supply.. plenty of supply, no takers.. iam still confused about how if a small# of homes sold, the price is up.. probably, let say a 100 homes sold,90 of them for a million each and 10 for 350000, now that would make the average price high, just a small example. LOTS OF INVENTORY, NO TAKERS.. something gotta give..

To Ben

I don't think its the hurry up and buy for a lot of buyers , as most of us can't buy that is the facts !

However the market is now balance so things could change for some.

Warren and Worldclass, thanks for sharing your candid experiences and opinions. They are much appreciated by us all.

You got me thinking to discuss the "other side", the don't buy now side of RE.

1. If you don't buy, you have to rent. After all, you can't move back in with your parents.

2. If you don't buy because you think RE is going to lose money, then you are in a lose-lose situation (you lose money due to rent (no equity) and you lose money if you bought).

3. If Canadian RE is all unaffordable and going to crash, where do you buy? We just can't leave the country. IS there an "acceptable" city to buy RE in now? (and no, I'm not moving to Sask! haha)

For me, If I rent the same home I'm in now, it's $4,000 a month (that's what the smaller home goes for next door to me). And some suggest rent for 36 months then buy... that would be $144,000 in rent. That home is worth $800,000 thus that home would have to lose  18% over 3 years and then you'd "break even" with the renter.

Do I think Calgary RE will go down 18% in 3 years?? Of course not; but even if I said yes, you would still be no better off renting. You could say "your paying 4.6% interest on your mortgage that would make a difference" yup. But on the flip side, I'd wager the rent will easily go up by 4.6% a year too. ($1000 = $1047 next year).

So where does that leave us?

Mike

To Mike who said:

"In 25 years, that $400,000 home would be worth, say, $1.5 million."

So I assume you are also estimating that the average household income would be $500,000/year in 25 years, and rent would be about be about $11,500?

So you are factoring in inflation of ~5%/year for 25 years.  Which would mean interest rates would be around 9% or 10%... making the current house prices totally unsustainable.  Whoooops!

Radley77 said:  To Mike who said: "In 25 years, that $400,000 home would be worth, say, $1.5 million."

It's about an increase of 5% a year for 27 years. 5% isn't much a year. If your making, say $60,000k a year, and your keeping up with inflation of 5%, then in 27 years, you would be making: $224,000 a year and rent would be: $7,500* a month as well. Although we know that rent increases FASTER than both home appreciation and wages, so expect rent to be $10,000 a month. (*based on $2,000/mo rent today). Wow, think how much a renter would throw away in home equity.

No one can guess what interest rates will be next year let alone 25-27 years from now. We have seen interest rates as high as 18%, so, 9-10% isn't unrealistic and thus it not only fully sustainable, but also realistic.

If you would like to rent a $400k home for 27 years @ $10,000/mo, PLEASE call me. We will see who has more $$ in their pockets in 27 years from now.

Bam!

Mike

In Response to Heathers comment "We expect to live the lifestyle our parents lived only when they reached their late 30's or 40's"

I lived in the same house from 5 years till I moved out at 18 years old.  So I sort of expect that I can buy an equivalent house to what I grew up in as my parents bought that house at around my current age of 26.  I also make a lot more then my parents did back then (in relative terms to average income).  I think the whole point of having a 30 year mortgage is so that you can buy a house when you are fairly young.  I hope to raise my family in one house maybe 2.

So I don't think its unreasonable for me to expect that I can afford an average house.  My response to the Calgary housing market is to wait until its affordable.  I'm planning on using something like 2.5 times my gross salary + downpayment to figure out what I can afford.  If when I want to buy a house I can't afford it I'm going to start looking for jobs in cities with nicer climates then Calgary with cheaper houses.  By that time I should have plenty of money saved up for a downpayment.  Any talk of being priced out or wasting money on rent is in my opinion absurd.  Renting gets a really bad rap in Calgary, its not a bad option for those who can't afford to buy.

Hi, I think we have see alot of optimists in this blog. Great, avg price is up, we're coming into the spring.

IMHO, I think it's still the number of inventory, this is back to the classic demand/supply curve. I'm sorry guys, for a balanced market we would also need a balanced inventory. At the rate of inventory outnumbers sales  2 to 1. I think we're in for a long year.

Really, if you are looking at buyers' perspective, they don't really care about the median or avg price. If their home is not selling, it's not selling. The more they wait, the more $$ they gonna lose. You will see a large price reduction if inventory are not clearing just like last summer.

Heather.......

I live that lifestyle you described. I am 47. Except I spend $75.00 on lunch....and drive my $100k Porsche downtown to my rented apartment.....oh yeah....I fly first class everywhere I go as well. 100K miles a year....with 2-3 trips to Brasil included in that total. I stay at our $60K place 4 blocks from the beach in Rio.

Wifey and I can afford to buy here.....but in order to live without undue adverse effects, you also have to be a smart person when it comes to earning and managing one's money. Therein lies the difference between us and probably 95% of the population in boomtown.

I will not buy in this market, even though I can afford to. That would be utterly stupid for many reasons described on the other "reality based" blogs. Shelter is shelter. And when we can find perfectly acceptable and comfortable shelter for $1100 a month.....why pay $3500 for a fresh coat of paint and a new stove ? Pride of ownership ?.....BAH !! YOU DO NOT HAVE TO BUY A HOUSE TO LIVE. The "real estate industrial complex" wants you to believe that you have to do so.

FWIW.....if you all think property will stay at these price levels and/or go up anymore, I want to tell you about my new Lhasa Apso puppy. He doubled his weight in the last 2 months. At this rate he will be a Brontosaurus in 2 more years.

Carioca; With that Brontosaurus puppy, you will have to buy a house with a big yard! -Bob

Okay, there are some crazy numbers being thrown around here (I apologize in advance for being verbose).

1.  Mike wrote:  "It's about an increase of 5% a year for 27 years. 5% isn't much a year. If your making, say $60,000k a year, and your keeping up with inflation of 5%..." - inflation of 5%?!?!?!  The stated target of all civilized nations is to keep inflation between 1.5 and 2.5%.  27 years of 5% inflation would be incredibly destructive.  We don't live in Turkey.

2.  "9-10% isn't unrealistic."  Yes, it is.  While I admit nobody can predict long term interest rates (although I did attend a fascinating CFA dinner two years ago where the keynote speaker made an excellent argument that with the shrinking workforce due to boomers retiring, the long term trend is towards 0, like Japan), 9 - 10% won't be happening any time soon.  Helicopter Ben has picked up where Easy Al left off and will keep rates low until this mess in the States has sorted itself out (sometime after 2010) - or until he gets the balls to realize that a recession is necessary every now and again (which won't happen).

3.  As much fun as the last four years has been, I think people need to remember this simple fact - the long term appreciation of real estate has been about 1% above inflation since World War II.  Go back further and it turns into a simple hedge against inflation (0).  Why is that, you may wonder?  Homes cannot (sustainably) appreciate in price faster than incomes.  Period.  Your home cannot become more efficient, it can't develop a cheaper way to make widgets; housing is a basic need whose price is ultimately limited by how much people can afford to spend.  Eventually someone has to buy it, and (I can't believe like John and Ben still exist) you cannot "price out" first time homebuyers forever, lol.  The entire RE food chain is built on the first time homebuyer.  I actually invite someone to PLEASE explain the logic of the whole "priced out" argument - I find it hilarious.

4.  "Although we know that rent increases FASTER than both home appreciation and wages..." - Ummmm, huh?  Where did that come from?  A little backup please?

5.  People seem to forget the economic reason why it's supposed to be (and historically always has been) cheaper to buy than rent.  The homeowner assumes all the risk.  The value goes down, the neighborhood turns into a slum, the hot water heater explodes, mortgage rates double, etc - it's all the responsibility of the homeowner (or landlord).  Renters typically have been forced to pay a premium for the benefits of renting (not being tied down, no responsibilities, etc).  Therefore, landlords have always demanded a premium over their payments to both provide some sort of a ROI and to compensate them for the added risk.  This has all went out the window though with the easiest money in the history of mankind over the last decade, and now the rental market cannot support mortgage rates.

6.  Mike wrote: "If you would like to rent a $400k home for 27 years @ $10,000/mo, PLEASE call me."  Huh?? I don't think your sentence makes any sense, could you explain please.  If you'd like to make $20,000 mortgage payments for 25 years on a $400k house, call me!

I have to re-iterate again that I am not saying (nor have I ever said) that renting is always better than owning.  There are pros and cons to both.  Right now though, for most people, renting is not "throwing your money away".  You are getting the exact same place to live for 1/2 price and are free to invest the other 1/2 wherever you choose (re-read one of Carioca's posts for a better explanation of this).

It's not that I'm NEVER going to buy RE because I think that the price is going to go down.  It's that I'm not going to buy right NOW when the fundamentals are so out of whack.  It's the same position I've had since I moved here, and I'm net up compared to if I had bought.  Although I will admit that you make a good point Mike that sooner or later it makes sense to buy even in a market you think will fall - it's something I've been running the numbers on for a while now.  It just certainly doesn't look like it makes sense this spring.

Now that we're plowing through March, I'm starting to feel more confident in my opinions.  I thought that sales falling off the edge of a cliff and listings soaring might be a one or two month phenomenon.  Apparantly not.  Anyone feel like a friendly bet on where prices will be in the fall?

Hi Warren,

Excellent points- I totally agree with you

In my opinion, I think this summer is going to be very calm, with slight drops. The prices compared to last year, are about the same (lower considering the inflation rate here).

People are hanging on with fingernails right now... its going to take  more time.  

My current landlord for example, my lease is up end of this month. He had another unit available for rent in another building. I went and took a look - turns out the building has other units in it, available for rent, for lower than what hr wanted. When I asked him if would lower the rent to match the others(the shock on his face when he found out the building owners were undercutting him), he got all mad and said he is barely making money as it was.. and would close the place down before he rented it at a loss. Better to have no cashflow than a bit below your costs huh!

Needless to say.. not renting there! I feel bad for the guy - he is an older gentleman. Sucks to have some whipper snapper like myself out financing him! Thats what loosing all your cash in the stock market teaches you!

Another unit I found, great place but Wood building (Why would people pay $450,000 for a wood condo?? another  thread!). Owner and wife were pressuring me to sign a 1 year lease.

Doing some due diligence in talking to them, they bought a "fix-er-up-er" in Sunalta at the peak, and having some challenges now making ends meet with the $1500 (I gather) mtg + $300 condo fees on the wood condo (empty) and the other $2500 or so on the fix-er-uper which they would sell for a loss right now but won't as it will likely wipe out any equity they made on the wood condo.

What really made me shake my head... the condo rules for the building said the unit isn't sound proof... $450,000 for a place where you can hear your neighbors flush the toilet?  Brilliant marketing! Why would people pay this? Were they told they had to get in otherwise they would be priced out forever?

People will hang on...

Disclaimer-

My stock market portfolio has been doing terrible. I am down at least 40% by having no stops in place.

I did buy options on DUG today. Oil is heading for a big tumble...

:(

Tania

I agree with you Warren , also I think prices will correct about 50,000 down by July . I know this seems unreal to some but with the credit problems we are seeing this should happen. Bascially we are seeing a Stall in the north america economy that is starting to bite us canadians now!

Warren,

good posts, well, some of them:)

I have mentioned before that I think we will see path similiar to last year, but I don't think we will reach the peack of 505k in July07 and eventually lower prices in the fall of 08 than 07.  This is mostly because of inventory.  There just is not enough sales to offset what is coming on to the market for this year.

Usually in any RE market, what makes prices crash is either interest rates spiking or a economic downturn.  I do not see either of those things happening to Alberta in the next few years.  I will be watching what happens down south though.  If that gets really bad then it will affect the RE prices in Alberta.  But I also believe everything will take a huge hit.  The US is something to keep a eye on.  Nobody knows how bad it will be.

A friendly bet? sure.  A virtual case of beer.

July 08 SFH 485K

Total listings including all  15,589

Oct 08 SFH  455K

Total listings    19,978

I believe prices will rise until July even with rapidly rising inventory.  Just because of the spring phenomenon.

This is just a guess and for fun.  I'm probably totally off.

Bob, Can we walk away from our house in Alberta?

================================================

I read news that in California, people can walk away from the house and the lender couldn't do too much. There when some people see their house worths less than they own the bank, they simply buy a similiar house at a way low price and walk away from the previous one.

Is there a similiar law in Alberta?

Warren - First let me apologise if any of my responses have been unfriendly in any way. :)

1.  "5% inflation". I use 5% even though it isn't official number, it semes "right". 2% inflation seems too low, gas, food, rent, housing, cars, everything other than electronics have gone up more than 5% a year here. :(

2.  "9-10% isn't unrealistic."  Wasn't the interest rates 18% in the 80's? That was my whole point about 9-10% interest rates being realistic.

3a. "The entire RE food chain is built on the first time homebuyer." Agreed. It's very important first time buyers can get into the market. But it doesn't mean first time buyers = SFH; it can mean condos or row/townhomes too.

3b. "Homes cannot (sustainably) appreciate in price faster than incomes.  Period." What home? Who's income? The average joe? The executive? Some homes are indeed NOT appreciating faster than Joe's income, but others are. That's where "across-the-board" data fails as it lumps everything into 1 pot.

4.  "Although we know that rent increases FASTER than both home appreciation and wages..." I used the last 7 years of rental prices, of simular rental units, both which I and a friend rented. (see my Rent vs. Owning post in this thread. or 2000/1: Rent 1 bed in Kensigton $425 vs. 2007: (friend) Rent in Glamorgan, 1 bed apt $1300)

5. "You are getting the exact same place to live for 1/2 price and are free to invest the other 1/2 wherever you choose (re-read one of Carioca's posts for a better explanation of this)." I don't see how you worked this out. 1/2 the price?? Any landlord will charge as much as the market will bear, but won't rent out at 1/2 of what the carring costs are.

6. I agree, it IS weird that sales (and prices) are rising and not falling even though inventory is climbling. Maybe it's the desireablility of living and working in Calgary? It's one of the few cities I can confidently say has a bright future.

7. Anyone feel like a friendly bet on where prices will be in the fall?

July 08 SFH 470K

Total listings including all  15,000

Oct 08 SFH  480K

Total listings    14,500

I think we are on a slow, smooth price increase with inventory increase for the rest of the year till July. There are only so many homes that can come on the market. Edmonton looks like they are having the same high inv. issue as well.

Tania Davies said: "I did buy options on DUG today. Oil is heading for a big tumble..."

ULTRASHORT OIL & GAS PROSHARES? SELL, SELL! It's down 8.51% just this afternoon (37.95 -3.53 (-8.51%)). I cannot fathom why you would bet against oil and gas? It's obviously a market I don't understand.

Wood condo? Are not 99% of homes built out of wood too?

One of A Kind said:  "I agree with you Warren , also I think prices will correct about 50,000 down by July. Bascially we are seeing a Stall in the north america economy that is starting to bite us canadians now!"

That's aweful, do you know if your right how many people will be hurt? NA ecomony stall... lucky you live in Alberta then. Things are different here. Hey, I can finally use that line with purpose! Alberta IS different than Ontario. :)

Eddie Van Halen said: "Usually in any RE market, what makes prices crash is either interest rates spiking or a economic downturn.  I do not see either of those things happening to Alberta in the next few years. "

Agreed, 100%. Maybe even further out to 10 years. Peek oil and such.

little immigrant said:  "Bob, Can we walk away from our house in Alberta?"

Your comment surprises me! Well, depending on what you got, I'd bail you out for a $1 + current mortgage if you HAD to sell. It's better than bankrupcy. (argh). Although I doubt anyone in this market would walk away from a home.

Mike

Well, there is NO information like up-to-the-date accurate, real-life information on what's happening in the market and I can give you some of that now:

Great News!

WE SOLD OUR HOME! WOOHOO. :)  (privately, no realtor)

We got multiple COMPETING offers, and sold $130,000 ABOVE our asking price, NO conditions. Sold in 6 days plus the multiple offers and contracts, total took about 2 weeks. (TBS official tomorrow)

So, yes Virginia, there are not only buyers out there, but also money to buy too.

Now, we are in the Calgary market to buy again.

Mike

Mike: "Your comment surprises me! Well, depending on what you got, I'd bail you out for a $1 + current mortgage if you HAD to sell. It's better than bankrupcy. (argh). Although I doubt anyone in this market would walk away from a home."

Mike, it is not me that like to walk away. I am just curious enough to know. I am doing fine as far. Thanks. LOL

Mike, congratulations! FSBO is already not easy, but you have obviously  successfully created a bidding war. How do you do that just by yourself?

Mike L,

On Mike's site the highest above list price any SFH in Calgary so far in March is 4%.  Most under is 18%.  Its more likely that the overbid was a result of the initial asking price, if it occured at all.

Again, I don't like to be too negative here but I read Bob's what's new section and went back to the entry from Jan/07. There was nothing about the houses took a price dive since July. Bob were you trying to be extremely optimistic about the R/E at that time?

Vinnie; Don't shoot the messenger. Prices are reported whether they are rising or falling. The stats are posted on numerous pages of my website for anyone to see. Reporting facts does not make me optimistic or pessimistic. My attitude on the prices rising/falling is neutral. I'm here to serve the public and my clients with relevant, current information. -Bob

Tania:

I'm a peak oil believer, so I think that oil is only headed higher (much, much higher).  As Matt Simmons will tell you, even at $100/bbl you can still transport five people for about a mile and a half for around $0.25.  You can't get that kind of a deal even in the poorest third world country by hiring someone.

That being said, when T. Boone Pickens is going short oil and gas because he thinks they're overvalued right now - I'd pay attention.  The last $15 have come too fast and too easy, and sooner or later we'll get some bearish news and oil will fall 10% in two days.

One of a Kind:

I think $50,000 is reasonable with the record inventory (it's only a little over a 10% drop).  I'm not saying it will happen (the market can remain illogical much longer than you or I can remain solvent), but it wouldn't be a stretch.  Remember that there is almost as much vacant (re: spec) inventory on the market right now as there was total inventory this time last year.  And barely half the sales.

Eddie:

Thanks for the compliment (sort of, lol).  I don't know if I would use the word "crash" for my expectation of Calgary as much as "correction".  Ultimately the economy is strong (nat gas - the real driver of the province's economy - looks like it will have a good year after all).  My view is the same as it was last fall - small drop (say 10%) followed by stagnation of prices for many years while wages (and inflation) catch up.  But I pretty much agree with your points, although I don't know if listings will get as high as you expect.  You're talking about almost 1 out of every 20 homes in Calgary on the market.  I guess we'll wait and see.

But I'll take your virtual bet - I don't think prices will be that high in either July or October.

Mike:

Congratulations on selling the house.  As funny as it sounds, we're both now kind of in the same boat, lol.  Find a desperate seller, remind them of how there are a dozen homes on their block for sale and there's nothing special about theirs, and then cut their knees out on the price.  Best of luck with the new hunt, let us know if you stay inner city.

I agree with you 100% on inflation being high right now (the government quoted numbers are ridiculously inaccurate), but it's not a sustainable situation.  Even over the past fifty years (including the late seventies and their 10%+ rates) the average inflation rate has been only about 4%.  Interest rates in the 80's were ridiculously high because inflation was so high (investors demand a real rate of return on their capital).  So if you believe that Central banks will keep a lid on inflation, then you are believing that interest rates will remain reasonable.

The 1/2 price rent compared to mortgage statement has been gone over on this blog more times than I can count.  Personally I pay $1,750 a month for a $450,000 home.  That would be about $2,750 mortgage plus property taxes plus upkeep, etc, etc.  So I'm getting the same house for about 60%.  I have many friends downtown in $350,000 condos who are paying between $1,200 and $1,400 a month (again, about a 50% savings).

Why would landlords rent out at less than what they're paying?  Because they don't have a choice.  The rental market will simply not bear the prices they're paying for their mortgage.  Most landlords though purchased their rental property before the boom and are making out okay, exluding the whole opportunity cost of their money being tied up in the rental home (I know that I'm paying my landlord's mortgage, but he built in 1999).  Those who bought early boom are taking a slight loss, but hoping that capital appreciation will make up for it.  And those who bought in the last two years are screwed - they can't rent it out for nearly what they're paying.  Check out the rentfaster.ca site for more examples.

This one sat for six months on mls for $399,999 (I watched it for a while):

http://www.rentfaster.ca/listingview.php?listingID=21177

Now it's up for $1,500/month rent.  You do the math.

I agree with you that there are only so many homes that can come on the market, but it's kind of irrelevant.  If only 100 homes come on the market each month, but only 50 homes are sold - you will have a buyer's market since your months of inventory will be increasing (excluding the wonderful world of de-lists).  The issue this spring is not only how many listings there are, but that sales have fallen by almost half.  I don't know whatever happened to it, but the whole "buyer's market" and "seller's market" are usually defined by months of inventory (we are currently and 4 and rising, although the CREB shows us at 5?).  At the height of the boom in spring of '06, we were at 0.5 (definitely a seller's market).  A "balanced market" (as defined by the CREB themselves) is between 2 and 3.5.  That is the range when homes sit long enough that buyers feel they don't have to enter into bidding wars and other silly activity to drive the prices up.  That is also the range when homes don't sit long enough that sellers feel they have to slash the price to move the house and drive prices down.

We were in the former two years ago.  We are now firmly in the latter, unless something happens to inventory or sales.  A slow and steady price increase (while not impossible, the whole market staying irrational longer than you can stay solvent) would defy all economics.  Pheonix had the exact same high inventory problem we have now - ask someone from Phoenix how it's working out.

Mike wrote:

"Maybe it's the desireablility of living and working in Calgary?"

I'm curious what Mike (and anyone else) finds desirable about living in Calgary.  The working (for me at least) is a bit of a no brainer - I don't think I could be this well compensated anywhere else in the country for the kind of work I do.

But what about the living?  I'm not a fan of this city, but even the born and bred Calgarians (who are very hard to find, lol) tell me that this isn't the Calgary they grew up in and they don't like the changes.  The traffic, the crime, the health care situation, etc.

For me, it's the customer service (or lack thereof) that is unbelievable, maybe because I worked in it so long.  I'm ecstatic now when I can find mediocre customer service.  When I don't have to wait an hour to get a transit pass.  When the post office doesn't take a week to sort a parcel.  When I'm in and out of lunch in less than an hour.

That was probably the best thing about going to Vegas, was that we were treated like royalty (although we stayed at one of the higher end properties, so they really went the extra mile).  But everywhere we went, people were prompt, courteous, and good at their jobs!  When something was wrong, someone FIXED IT (and didn't just have a dumb look on their face and say "sorry, we're short staffed").

No bashing me for these opinions please, but I'm honestly curious as to what people think is so appealing about living in Calgary.  What am I missing??  If I wasn't making this kind of money, I certainly wouldn't be here (which maybe has been one of the contributing factors to holding back on buying a home).

Can some one please explain to me what is going on? Alberta is oil rich, good times and so on, yet how come it is costing  us soooo much to fill up our tanks when we are SWIMMING  in the stuff??????? somthing is wrong..no everyone is benefiting from the so called boom. You guys speak of optimism and turn a blind eye to all the price reductions going on, nothing is positive around us. oil is up, food is up, the price of living is up. yet some here speak of higher housing prices,, my predicion is  50-75 thousand dive by august 2008. inventory is ballooning and houses are not selling as fast.. simply math..MIKE you are worried about people being hurt? whom are you talking about, flippers, speculaters, the people that caused RE problem in the past couple of years... time to pay the piper, we reap what we so, or whatever the saying goes.. RE will come back down to earth where it belongs, soon i hope.. MIKE,  please also tell me who is gonna buy all the those houses, since you are always positive..

Warren, I'm a strong believer of supply/demand. I can't explain why the inventory up and prices are up too. If prices drop $50,000 in Calgary. I think the market will enter into bidding wars. I think R/E in Calgary is still cheap relatively speaking.

Little Immigrant said:  "Mike, it is not me that like to walk away. I am just curious enough to know. I am doing fine as far. Thanks. LOL"

Good, I'm very relieved to hear that! I don't think I could buy a home for $1 from someone anyways, my conscience couldn't take it. I could have purchased a $600k home from a 93yr old lady, all she wanted was $3k a month for her nursing home till she passed away... I couldn't do it then either.

Little Immigrant said: "Mike, congratulations! FSBO is already not easy, but you have obviously  successfully created a bidding war. How do you do that just by yourself?"

Thank you very much! I was always good at selling things, I just never sold anything this big (and costly) before. Basicly I found one party that was interested, then did my best to find others and I started at a "fair market price (FMP)" of what I figured I'd have SOLD it on the MLS for and went from there. The FMP was not too low or high, but accurate. Actually, it wasn't hard at all and just took time , effort and honesty. I saved $30k doing it myself in commissions (that's our car, 2 motorcycles and home theatre paid for now!). A Buyer, a seller, a contract and a lawyer is all it took. NOTE that I'm not saying don't use a Realtor or FSBO is for everyone, it takes time and work and a Realtor can make it a lot easier. Would I try it again? Why not.

BearClaw said:  "On Mike's site the highest above list price any SFH in Calgary so far in March is 4%.  Most under is 18%.  Its more likely that the overbid was a result of the initial asking price, if it occured at all."

Yes, it indeed occured (I have no reason or desire to lie) and no my initial asking price wasn't low at all; It was fair market value. In fact, if we only had the inital offer we would have accepted it. As its a private sale it won't show up on the MLS or Bob's stats (although Bob, if I give you the stats can you use them?). It was most definately over 4% list. The important thing was starting at an accurate market price.

Now, my wife and I are looking much more seriously on the MLS, Welist and Comfree as to what to buy.

One of the positive things about the market right now for buyers is there are some really rare properties out there on sale that wouldn't be there if we were not in these "uncertain" times.

Mike

Mike,

Note in my post that I was using a 5% down payment as an example.  The size of one's down payment hugely affects whether "renting is a waste of money vs. owning".  Of course if you need a home and you have tons of money in the bank then you could buy.  Renting is NOT a waste of money if you have very little to put in a down-payment.

Of course in carioca's case, he's got life figured out.  Why not park your money in a high-interest account (if you are risk-averse to the stock market) and rent a nice place instead?  The extra money you have you can "live life" to its fullest, eat the foods you want, and go on the trips you want.  You can also buy non-inflated property where you can really enjoy it, like say on a beach in more favorable climates.  Not a bad idea....

While I am not a renter, to hear someone say that renting is throwing your money away just sounds so wrong.  Please put yourself in the shoes of the person making the average income who can't come up with a down payment of even 5-10% for the next few years.  Do you suggest they just sign a 0% down mortgage?  What do you tell them when they are eating Mr. Noodles everyday and scraping by?  What do you tell them when they can't make their mortgage payments, cover maintenance, and pay land-tax?  If they don't rent, should they just go live on the streets until they can get together a down-payment substantial enough to make buying a financially viable option?

Fuel costs up, food costs up, dollar is down vs. world currencies (imports up), health-care costs up.  I think people will chose food and fuel over granite countertops and italian tiled floors.  Shelter is shelter.

I agree with Warren that houses are only sustainable as long as the lowest end of the buyer-group is not "priced out".  You need buyers folks, the notion of priced-out only works on those who make below avg incomes.  You can't price-out the avg income group, if you do then you have a classic bubble.

One thing that isn't often considered when you compare renting to buying is that you pay taxes on the interest you make for money invested in most things but not on capital gains on your principle residence.  Houses typically follow inflation so if you compare buying a house to buying a bond except in extreme cases you are usually better buying the house.

I agree that few need worry about being priced out in Calgary, but in many mature markets the average income earner can't buy the average house.  Its a misconception to think that the average house must be affordable to the average income earner because it completely neglects the thousands of people renting.

By the way I'm a renter.  I've done the economics and in my current situation renting is far cheaper then buying.  But for others it might be different.  Also when I do have enough money to buy a house I may buy even if it is a bad market not because I like throwing money away but because I'd like to own my own house if I can afford it.

Bob, sorry for the previous post there  if you understood me wrong. I didn't mean to shoot the messenger. The market dived since July is also a fact as well. I guess you prefer to pickout positive facts out of a bad situation.

Vinnie; I don't look at the market correction as a bad thing. It restored some affordability for the entry level buyers. -Bob

By the way, I agree with you regarding this month, I've talked to several realtors and they're quite positive with respect to the current market. I've seen more C/S signs in my neighborhood that I haven't seen for a long time.

Well, it's official as of tonight. Our home is SOLD.

Mike

what's wrong with statistics for yesterday?

look at www.creb.com:

New Listing Last 24h : 8 (?!)

Active Lissting: 5369

Mike:

Total Active Lissting: 5492 (+71 from previous day)

Who is wrong?

International real-estate investors flock to Calgary:

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=e7502080-dccd-497e-81ba-f782a18a54f8&p=1

BEST article I've read in some time:

(from Mike's Blog)

March 13, 2008 - Calgary Herald

International real estate investors flock to Calgary read more...

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=e7502080-dccd-497e-81ba-f782a18a54f8&p=1

Mike

Warren, I find your last post to be very enlightening.  I haven't travelled much in the past few years, so I was surprised by your observations.  But I believe you.

I've recognized that service in Calgary has slumped to horrible lows in the past few years, but I guess I just thought that was happening everywhere.

Honestly, your post was an eye opener for me and I think we all need to look at the reasons for that phenomenon (of poor service).  Its all a reflection of the surplus of jobs, and of the lack of good workers.

I'm certainly not gonna bash you for your observations.  In fact, I really appreciate what you wrote.  I think your observation is very important, to wake the rest of us up.  You are absolutely right!

Bob, I've heard several friends that there are actually bidding wars for some of the entry level homes (350-400,000) already. Have you seen this in the neighborhood that you're dealing with. It looks like buyers are finally decided they have waited long enough and it's time to do something.If this is true. It's a good sign early in the season

Vinnie; Funny you should ask. We had a bidding war on an entry-level priced house last night. Can't give you any details as it's only a pending sale right now. I don't see a lot of evidence that bidding wars are becoming more common unless they, too, are sitting in limbo as pending sales right now.

A home in Chinook Park sold for $55,100 over the list price today. It wasn't exactly an entry-level home, selling for $1,325,000. -Bob 

What do you think of this story... -

Resource boom can't last, Carney says

http://www.globeinvestor.com/servlet/story/RTGAM.20080313.wrcarney14/GIStory/

To me, it doesn't say "negative", but it says "slower positive growth"...

Opinions?

Mike

 These service sector jobs don't pay enough for the workers to give a damn. That's the real reason for lousy service. No mystery there.

Hi all,

Unfortunately very busy but still maintain an interest in the goings on and in buying soon.

Do these numbers perhaps explain increased listings and reduced sales?

Interprovincial migration (Alberta, Jan.-Sept.)

                    2006     2007     Change

In-migration  93,326   84,868   -9.1%

Out-migration 46,973   73,363   56.2%

Net migration 46,353   11,505  -75.2%

It would be interesting to get Jan-Dec comparisons.

Echo....

Where did everyone go?  It's so quiet...

Now that we're (one day shy) of the halfway mark through March, I thought I'd point out a couple facts (think of it as an alternative "What's New" column).

1.  Sales continue to be down from last year.  SFH are holding at about 60% of last year's numbers.  Condos (incredibly) look like they could finish the month not only down over 50% from last year, but down from last month (!?!?!?!).  Keep in mind for projecting that Easter is next weekend and will likely be slower than a typical weekend.

2.  At the same time, listings are now (I believe) the highest they have ever been in this city's history.  And it's March.  There are a total of 8,210 homes for sale in Calgary metro right now, or about 1 out of every 50 (city census lists about 420,000 dwellings).  If listings do double (as some are predicting) to 15,000 or more by fall, that will be 1 out of every 25 homes in Calgary on the market at the same time.  Yowsers.

3.  Vacant listings continue to rise.  Vacant condos are up 11.0% so far this month.  Vacant SFH are up 5.9%.  Question for Bob - If I own a house, buy a new house, and list my old house - would it likely be listed as "vacant" or "occupied"?  At the time it would be occupied, but the owner would already be locked into moving to the new house.  I'm wondering if the "vacant" listings for SFH are being understated due to people moving up the RE chain, and not selling their home before they buy (I know quite a lot of people who have been doing this - seemingly ignorant of the current glut of inventory).  Thoughts?

4.  Prices are flat to slightly up from last month and flat to slightly down from last year.  It's tough to guess whether they'll finish this month down year over year (that huge rally the last three days of Feb could repeat itself in March, or the inverse could happen as well).  It depends on what direction the rest of March heads in.

That being said, with sales half of last year, extreme outliers are skewing the numbers more and more.  Without the $1,100,000 condo sale on the 13th, average prices would have been about $40,175 lower (!!).  Similarly, without the $2,100,000 SFH sale on the 14th, average prices would have been about $23,375 lower.

Warren; Extremes at either end can skew the numbers. That's why we have median prices. -Bob

5.  Contrary to anecdotal stories of "bidding wars", the numbers certainly aren't reflecting that.  Highest overbid is 4% on a home and 8% on a condo this month.  According to Bob's data, as of the 10th, only 1 out of 17 homes sold is going for list or more.  Ergo, 16 out of 17 homes are selling for less than list, which means that a bidding wars are about as rare as hell freezing over and the dark prince handing out sno-kones to the kiddies (unless it's a bidding war down, lol).

Warren; What "anecdotal"  stories are you referring to? 

If someone pays 4% - 29% over list price, do you think they did it because they were the only potential buyer? It's quite remarkable that we have any bidding wars with 8210 homes for sale. Why do you think that happens? -Bob

6.  So contrary to repeated claims that "buyers are tired of waiting and are coming in from the sidelines" (lol) - the market is pretty much the same as it's been in Jan and Feb.  Historically high listings, levels of sales not seen since earlier in the decade, and flat prices.

I was telling a friend of mine about the situation and how I'm thinking about buying later in the year.  He's taking some time off to continue working on his CFA - so he's quite a bit smarter than I am, lol.  He summed the situation up much more succinctly than I can:

"It is very basic economics - there are two possible scenarios.  Either new buyers are going to show up, and help to absorb the excess supply (which I don't think would put much upward pressure on values), or sellers are going to readjust their expectations, and lower there prices.  The latter is the more commonly accepted economic principle - excess supply leads to a lower equilibrium price (i can draw the graph if you

like...)."

Lola said: "Do these numbers perhaps explain increased listings and reduced sales? Net migration +11,505  "

You know, I wondered the exact SAME thing yesterday myself. But, as we are +11,505 people more in 2007 who moved here, we should have less listings, not more. Demand is +.

With Eastern Canada being hit hard and a recession to follow soon, I can only honestly say the net migration will rise to 2006 levels. And that's a good thing, people in the East can always use a hand from us Westerners. :)

Mike

Bob wrote:

"Extremes at either end can skew the numbers. That's why we have median prices. -Bob"

Absolutely true, but it's hard to have a sale that's $1,700,000 below the median price (as yesterday's $2,100,000 sale was above).  The vast majority of the extreme outliers are at the high end.

I understand the importance of median prices, but if the month ended today, would the CREB be talking about prices increasing over February (average) or decreasing over February (median)?

Warren; This tells me that you believe CREB can influence the direction of the market. I think that's absurd. According to you, if CREB had their way, prices would always be rising. Eventually, very few people would be able to afford a house. That would not serve anybody's interests, let alone CREB's.   -Bob

Bob wrote:

"What "anecdotal"  stories are you referring to?

If someone pays 4% - 29% over list price, do you think they did it because they were the only potential buyer? It's quite remarkable that we have any bidding wars with 8210 homes for sale. Why do you think that happens? -Bob"

The anecdotal story was Vinnie's post above.  Someone is paying 4% to 29% over list price for the same reason that people are paying 1% to 18% under list price - the list price does not reflect the (perceived) market value.  

Warren; I replied to Vinnie's comment and related an example of a bidding war that was not anecdotal. -Bob

While I agree that it seems strange to have any bidding with 8000+ homes on the market - there are always going to be some homes priced under the market.  Just this week a home popped up in one of the neighborhoods I've been watching.  It was about 10% under anything else comparable (and consequently disappeared within two days).  I would not be surprised if it had received some bids or been bid up.  I've never said there are no home buyers out there, I've just been pointing out that there are about 40% less home buyers out there.

There will always be some sellers who (for whatever reason) price their home very aggressively for a quick sale.  Sometimes too aggressively and intelligent buyers will realize the opportunity.

Great article in the Globe and Mail today:

http://www.theglobeandmail.com/servlet/story/LAC.20080315.RTICKERHOUSING15/TPStory/Business

This quote caught my eye:

"The national figures are skewed by the Alberta figures and that is a market were we are expecting price drops to occur," Mr. Holt said."

Price drops??  Derek Holt, by the way, has a Masters in Economics, an MBA, and his CFA designation.

Warren – Here’s my version, written from the perspective that a lot of people were expecting a crash.

1. Affordability has seriously eroded the ability of buyers, yet homes are selling every day. This year, 4300 buyers have shown confidence in the Calgary housing market.
   
   
2. Rather than fighting over a few scraps, buyers have a wide and diverse selection of homes to choose from, and they are buying them up in a rather quick 40 days from the time they hit the market.
   
   
3. As a percentage of active listings, vacant homes are exactly the same as last year, and have decreased since December, from 37% to 28%.
    
4. Instead of crashing, average price for single family homes is up 8.1% since December, and it’s not just high-priced homes that are selling. Median price is up 5.7%.
   
   
5. Bidding wars this year were unexpected, yet they happen almost every day.
   
   
6. There is a lot of uncertainty in the minds of buyers. When they see that we are not going to have a crash, they will be out there buying.
    
7. No economist predicted the run-up in house prices that would occur in Calgary since the beginning of 2006. It’s doubtful that they can predict what will happen now.

Mike,

"You know, I wondered the exact SAME thing yesterday myself. But, as we are +11,505 people more in 2007 who moved here, we should have less listings, not more. Demand is +."

Not if builders were anticipating 2005/2006 immigration levels, and built accordingly. Also, presumably the speculative activity in the market has slowed. Its never been clear to me how much of the 2005/6 runup was due to a real fundamental demand for housing, and how much was due to speculator activity.

Chopper:

1.  Last year at this time 6,719 buyers had "shown confidence" in the Calgary real estate market. That's a drop of 36%.  Do you realize the significance of that??

2.  DOM is a completely irrelevant statistic with so many de-lists and re-lists.  If a house comes off the market after 90 days, is re-listed 10% off, and sells in a week - what's the DOM??

3.  Percentage of vacant homes is also completely irrelevant.  You sound like Ed Stelmach talking about mathematically challenged "intensity reductions".  The cold hard truth is that there almost as many vacant listings on the market this year as there were TOTAL listings last year (about 80%).  Absolute numbers please, not percentages.

4.  "and it’s not just high-priced homes that are selling. Median price is up 5.7%."  What is the causation between those two statements???  Do you know how a median works?  If 10 homes sell and they're all $500k+, your median is going to be high.  This is the whole "changing sales mix" argument that has been made this spring (on this board and "other" venues).

5.  Evidence??  Please??  

6.  I now know how irritated the bulls felt last year when the nay-sayers on the "other" blog kept calling for a crash that didn't come (although, for the thousandth time, I do not expect a crash - I expect a correction).  How many months are we going to have to hear about buyers getting ready to move.  They're going to start buying!  Any day now!  Wait for it!!  Pay no attention to the stats!

Bob wrote on January 16:

"There are buyers out there, but they are not in a hurry to make any decisions. I expect a lot of the buyers will start pulling the trigger in another month, and we'll see the sales numbers increase."

Two months have went by - where are these buyers?  I point out again that condo sales are projecting to come in LOWER than February.  Do you realize the significance of that??

Warren; Pending sales are at 412 as I write this. That is considerably higher than it has been at any time this year. You will see higher sales in the coming week. -Bob

7.  Economists are unreliable at predictions often because the markets (equities, commodities, RE, etc) do not behave rationally.  So yes, David Holt could be entirely wrong.  Economically speaking though, everything he's saying (if you read the whole RBC study) is correct.  I'm just offering up an extremely well educated take on the situation.

I'm not trying to come off harsh on you Bob - I will again state that I very much appreciate the job you do with providing the stats.  I believe you that you present the numbers as they are (with no manipulation).  So though I come off strong, I'm just passionate about my beliefs (as Mike, Heather, and everyone are as well).

Bob wrote:

"This tells me that you believe CREB can influence the direction of the market. I think that's absurd. According to you, if CREB had their way, prices would always be rising."

Of course the CREB can influence the market.  Does nobody else remember 2006??  Who did the Herald go to every month for an update on the "red hot housing market"??  How many times did Lai Sing Louie get his name in the media?  Of course they aren't responsible for all movement, but people look to them as "experts" and trust their opinion.  Do you know how many people I have heard talk about "they say prices are going to go up 5% this year"??  Who do you think "they" are?  

I have NEVER said that if the CREB had their way, prices would always be rising.  I will say that the CREB will do everything to avoid talking about prices falling.  I honestly believe that the CREB wishes prices had not run up as much as they did.  It'd be a much easier world for them if nobody was talking about pesky things like "affordability".

The more and more things go on, the more and more the CREB reminds me of the NAR in the U.S.  The National Association of Realtors is the same group that ran the ad in the fall of 2006 saying "It's a great time to buy or sell a home!"  ??  Their current ad campaign is "When you have a family, it’s always a good time to buy", lol.  This is the same organization that made 9 consecutive downward revisions (and counting!) to their forecast of the RE market.

Here's an interesting link:

http://www.urbandigs.com/2007/12/nar_lifts_2008_housing_outlook.html

The NAR, for better or worse, has tried to work through the real estate downturn to the ridicule of many by painting all too rosy a picture. We would all hope for a little more candor for both buyers and sellers.

I would pinch myself if I ever heard the following come out of a CREB talking head:

"With listings and sales the way they are, we are now firmly in a buyer's market"

"With such recent and rapid price appreciation, and rents so affordable, if a family is not planning to live in their home for at least five years - now may not be the time to buy"

"We expect prices to fall"

Am I missing something or does the CREB not owe it to their dues paying members to constantly portray the market as being "a good time to buy and sell" (which is a contradiction)?  

Warren; I am a dues paying member of CREB, and they can spin anything, but everyone knows they can get the actual numbers here. There is some onus on the individual to take responsibility for themselves, and discover the spin vs the facts.

When you go to the car dealer to buy a new car, do they advertise the fact that their vehicles have the lowest crash-test ratings in the industry? No, they advertise that they have the best gas mileage. That's why there's books like Lemon-Aid. And that's why there's websites like DailyStats.ca where consumers can get the facts. -Bob

Lol, k, one more post - I was just looking at the numbers yesterday.

Without the $2,115,000 SFH sale, the SFH average would have been about $42,500 lower (!!) at around $440,000.

Without the $624,000 condo sale, the condo average would have been about $18,900 lower at around $290,000.

I'm waiting for the day when there are, like, ten SFH sales and the average is $600,000+.

The whole R/E market in Calgary in Calgary is sentimental. If both Calgary Herald and Sun keep posting positive news for a week or two you will see the market change drastically. There are alot of folks out there with alot of money. They're waiting for the best time to jump in. We're thankful that the avg price in Calgary hasn't gone to 700,000+ (it should). We're Dubai of America -- no where is the western world has the economy comparable to us.  I'm thankful there are alot of guys like Warren, people like him help me pay my mortgage and strengthen my passive income.

i told you guys it was over in the fall of 2006

you laughed and mocked me

who was right ?

now.....lets see if my comment gets deleted

My Anecdotal Sale to add to the Anecdotal pile: SOLD on March 12th: Multiple offers, 19.5% above list, sold with no conditions in 7 days. Sale price $807,000.

Warren Said: "Derek Holt, by the way, has a Masters in Economics, an MBA, and his CFA designation."

And those "designations" mean squat to me too, they hold no water and equal no value. In fact, adding them makes a person "less valuable" to me they are hiding beind some overpriced paper.

Bob - Warren; This tells me that you believe CREB can influence the direction of the market. I think that's absurd. According to you, if CREB had their way, prices would always be rising. Eventually, very few people would be able to afford a house. That would not serve anybody's interests, let alone CREB's.

I'd have to disagree with you Bob, I honestly feel that CREB is in the business to sell homes and CREB has been manipulating the numbers now a few times to influence the price data as they want it to be shown. (2-3 times now in 1 year?). Displaying the data in this way not only helps CREB but servers sellers, buyers and Realtors interests.

Chopper Said: "Here’s my version, written from the perspective that a lot of people were expecting a crash..."

EXCELLENT POST! Your perspective and points are exactly what I try to get across to people here myself.

Rj Said: "Not if builders were anticipating 2005/2006 immigration levels, and built accordingly. Also, presumably the speculative activity in the market has slowed. Its never been clear to me how much of the 2005/6 runup was due to a real fundamental demand for housing, and how much was due to speculator activity."

Speculator activity in 2005 was minimal to be sure IMO, it wasn't until early 2006 it was really there in full. We bought our Scarboro home in Dec 2005 so I was in that market closely myself buying and selling 1. In around March 2006 the speculator actively really started coming on strong. Yes, the builders could have built accordingly. I remember viewing showhomes and how busy the builders were getting. The builders did not expect the flood of interest either. (Either starter or estate ones). When I look back it was the new homes (last 2005) that speculators jumped on first, then resale homes in early 2006).

Mike

Get out of the stock market if your in it now (maybe too late?)

http://www.thestar.com/Business/article/346860

Bear Stearns.

Under the deal, the fifth-largest U.S. investment bank is worth only US$236.2 million, or $2 per share, to rival JPMorgan Chase. Bear Stearns was valued at $70 per share just a week ago.

Toronto's S&P/TSX composite index came off an early deficit of almost 400 points to retreat 291.70 points to 12,961.10 after about half an hour of trading. New York's Dow Jones industrials fell 117.89 points. The central bank cut its discount rate by a quarter-point to 3.25 per cent Monday morning unexpectantly. The loonie gave back 0.86 cent to 100.54 cents US. The TSX Venture Exchange lost 41.94 points to 2,600.10. The U.S. dollar plunged as low as 95.72 yen – its weakest level against the Japanese currency since August 1995. the Nasdaq composite index moved 30.7 points lower to 2,181.79 while the S&P 500 index lost 20.43 points to 1,267.71.

The TSX financial sector fell three per cent as the implosion of Bear Stearns stirred fear among investors worldwide.

CIBC (TSX: CM) was the biggest loser, down $3.25 or 5.4 per cent to $56.65 while Royal Bank (TSX: RY) fell $1.69 to $43.83.

Gold offered a haven and the April bullion contract on the Nymex rose $10.20 to US$1,009.70 an ounce, after an overnight record high of US$1,033.90.

Makes our "Calgary market RE correction" a calm, peaceful 3-day sailing tour. I'm sure BILLIONS will be pulled out of the stock market today/this week. Where will the billions go?? Gold? Oil Futures? ... Alberta Real Estate is a good guess too.

Mike

squidly77 said: "i told you guys it was over in the fall of 2006. you laughed and mocked me. who was right ?"

Actually Squidly, we laugh and mock you for other reasons too. (thats a good laugh this morning).

Hey wait; You were TOTALLY WRONG, If I listened to you we would not have made $400,000 in clean cash profit in our RE since the Fall of 2006! (We bought in Dec 06 and just sold last week).

Mike

Warren asked...

"5.  Evidence??  Please??"  

The daily stats on Mike's site show a home has been sold over list price every day. I doubt if people are paying higher than list price if no one else is bidding on it.

Bob, thank you very much for the Edmonton numbers.

I see that you now have "mls" SP/SF and "manually calculated" SP/SF... any idea why they're different?

rj; the database automatically gives a SP/SF when you do a search. But if I calculate the SP/SF myself, based on the avg price and the avg sq ft, the numbers are different. I have an explanation from CREB that says their number is accurate, but if I post their number, and someone does the calculation manually, it will not agree with the posted number. Then we get accused of doctoring the books. So I thought it would be simpler to just post both numbers. -Bob

Could it be? Has inventory temporarly peeked?

From Mike's Site: http://www.findcalgary.ca/

Mar 16 (Sun) Mar 15 (Sat) Mar 14 (Fri)

TOTAL Active SFH Listings

5592 5594  5593

Total Active Condo Listings

2613  2613  2617

We were out seeing 11 open homes on Sunday in the inner-city. LOTS of people out were out looking in the $570-$1.2m range.

Bob - The expensive ($1m+ properties) in the inner-city pretigious community do not seem to be affected downwards by the current market (ie. they are not lowering their prices)... Any guesses why you think that is?

Mike

Bob,

Thanks for the reply. The differences between the 2 values is quite significant - in the most extreme case, over 5%. This cannot be solely attributable to differences in rounding. One possible explanation is that the MLS is including properties without a listed SF in its calculation. For example, perhaps the MLS calculation is dividing the sum of all sales prices by the sum of all square footages (some of which are zero), while your calculation is dividing the average of all prices by the average of all square footages (which only includes properties where a square footage is given). In this case, neither calculation would be completely correct (although yours would most likely be closer).

In any case, something is fishy (I am not suggesting deliberate misrepresentation, but obviously there is an error somewhere).

rj; Here's an explanation that was provided to me:

If you calculate Average SP and divide by Average SF it’s not the same thing mathematically as taking the Average of all the SP/SF values.

It’s a difference in the way you are doing the math compared to the way MLX is doing the math.

Taken literally, the MLX way is more accurate.  Average SP/SF should be the Average of the all the SP/SF values, not the Average SP divided by the Average SF.

Bob

Bob,

Thanks, I understand now. Sorry, I should have taken a little more time to figure it out before.

Manual calculation:

average sales price

---------------

average square footage

(SP1+SP2+...+SPn)/n

------------------

(SF1+SF2+....+SFn)/n

which is:

SP1+SP2+...+SPn

---------------

SF1+SF2+....+SFn

MLX way:

SP/SF of each home, averaged

SP1/SF1 + SP2/SF2 + ... SPn/SFn

-------------------------

n

The manual calculation gives more weight to larger homes (bigger values in both the numerator and the denominator), while the MLX calculation gives equal weight to every home sold (ie a 1000 sq ft home has the same "weight" in the calculation as a 3000 sq ft home). On average, presumably smaller homes sell for more per square foot, and therefore the MLX calculation returns higher values than the manual.

Bob and RJ:

I don't know what you're talking about, but I know what Bob's trying to explain.  One way is the total average - the other is the average of the averages.

Say you have two homes:

- One is 6,000 sq ft and sells for $3,000,000 - the average SP/SQ will be $500

- One is 1,500 sq ft and sells for $300,000 - the average SP/SQ will be $200

The average of the two is ($500 SP/SQ + $200 SP/SQ)/2 = $350 SP/SQ

The average of the total is $3,300,000/7,500 SQ FT = $440 SP/SQ

A noticeable difference to be sure.  So, sorry for not following, but who is doing which way?

Warren; The number provided automatically from CREB's database(MLX) is the correct one. Where we have a problem is when Mike posts the average price, and the average size, if you do the calculation from those two numbers, you will arrive at a different SP/SF than the correct one provided by CREB. Mike has been posting the manually calculated number which incidentally is always lower. I guess that it requires an asterisk and a long explanation. Who would like to give us a clear, concise 20-word sentence that explains this so everyone will understand? -Bob

The high-end condo market in Calgary seems to be unwinding.  For anyone tracking high-end inner city condo market, $100,000 price reductions are common.

I have heard of landlords and realtors selling properties because rent is not high enough in comparison to the market price and are adding more inventory daily.

There are a lot of high-end properties up for rent without a tenant.  Furthermore, even if they had a tenant, rental yields would likely be less than safe investments like bonds or GIC's.

I have not heard from the bulls a single 'value' proposition in terms of price to rent ratios that would warrant buying.

I know people that have bought dozens of properties in the past two years and rent is barely covering their borrowing costs.

Furthermore, there are record amounts of multifamily construction currently taking place in Calgary, to add to the already bloated inventory.

Supply/demand should dictate that prices are going to go lower until the record amounts of inventory are eaten up.

Mike:

I'm curious about your anecdotal story.  Is this the same house you were selling last year?  On August 30, 2007, Mike wrote:

"Our home was listed for 5 months, we went from $999k to $825k. We took it off because at $825k we couldn't find a 3,200sq/ft dev, inner-core, blue blood neighbourhood, 50x120' lot, reno'd, solid home with views for that price. Our issue (doesn't all homes have at least one?) is that we are on 17th ave SW, unfortunately I can't move the street.

Will we relist? Yes. Lower? Yes. I was thinking $775-799k. Everything is indeed coming down so if I loose a little on my sale I'm betting I can pick up a home right now for less too. Works out in the wash."

Unless I am mistaken, in less than a year you went from a $999,000 list price to (according to yourself) an asking price of $675,000.  Isn't that a reduction of 32.4%?

So even with a 19.5% overbid, you still sold it for 2% less than than you were asking last summer and 20% less than you were asking a year ago?  Is this a different house, am I getting the story confused?

Mike wrote:

"And those "designations" mean squat to me too, they hold no water and equal no value. In fact, adding them makes a person "less valuable" to me they are hiding beind some overpriced paper."

That's the saddest thing I've heard all day.  "No value"??  I don't know if you have kids, but I scared to think what attitudes about education you're teaching them.

Warren, I've been reading your posts and I think you're fixing the numbers to justify your argument which is bad because you're not comparing apple to apple:

"Without the $2,115,000 SFH sale, the SFH average would have been about $42,500 lower (!!) at around $440,000."

So when the CREB did their calculations did they take out the higher range SFH sales  and then do the avg? No, they did not. If they did, then your comparision "could be" a fair comparision. Otherwise, you're altering the facts!!

Vinnie; Expensive homes are a part of the mix. Much more so than the house which sold in November for $5,000. It was a house which was to be moved. Now that was irrelevant to the housing market but it sure skewed the average price downward. -Bob

Vinnie:

"So when the CREB did their calculations did they take out the higher range SFH sales  and then do the avg? No, they did not. If they did, then your comparision "could be" a fair comparision. Otherwise, you're altering the facts!!"

I really don't think you're understanding me.  I'm not trying to do a "fair comparison", and I'm certainly not "altering any facts".  My whole point is that these extreme outliers are not being taken out and (with sales off by 40% ish) are skewing the numbers.  I believe Mike when he says there is still a lot of interest in higher end homes.  I think the "Highest Price of the Day" on findcalgary is proof of that (at least one $1 million+ sale almost every day this month).

I'm just trying to illustrate the difference that just 1 of these sales makes on the average price calculation when the total sales are so low.  It's a very rough calculation, and flawed to be quite honest, but illustrative (I think) none the less.  Just take the difference between the highest sale of the day and the median price, and divide by the number of homes sold on that day.  

If you have 9 homes go for $400,000, the average will be $400k.  If a 10th homes goes for $2.5 million, then the average for that day would jump to $610,000.  That's all I'm trying to point out.

Radley77 wrote:

"I have not heard from the bulls a single 'value' proposition in terms of price to rent ratios that would warrant buying."

I agree with you 100%.  I really feel sometimes that you can talk until you're blue in the face, and some people just won't listen.  To be fair, I feel the same way reading most of the posts on the "other blog".  

Your post of "Furthermore, even if they had a tenant, rental yields would likely be less than safe investments like bonds or GIC's." hits the nail on the head.  But even that basic economic fact cannot be explained to some people (see earlier posts on this blog for dozens of examples).  

But you can go over everything - RE as a global bubble, average affordability, basic supply/demand economics, projection of trends, etc, etc - and some people will just say the same old lines; "No you're wrong - prices are going up".  All I've learned from a lot of people is that renting makes you poor and jealous - owning makes you wealthy -  oh, and it's always a good time to buy (including now - get in before you're priced out forever!).

Such is life, I guess.

Mike wrote:

"And those "designations" mean squat to me too, they hold no water and equal no value. In fact, adding them makes a person "less valuable" to me they are hiding beind some overpriced paper."

Not true, in my opinion, education is the best investment that I've ever made in my life, not the stock market or real estate. It's my greatest personal achievement. I'm not hiding behind it. I'm proud of the fact that I did it with alot of hardwork and personal sacrifices.

On the other hand, I agree with you that education does not automatically give you the right judgement all the time, remember Enron and Bear Stern were under control of top accountants and financial experts. If guys with designations can predict the future they wouldn't be called CAs or CFAs...they would be called multi-billionaires.

Warren:

Yes, same home we listed for $825k last year that didn't sell. I guess we asked too high at the time. Looking back, if we listed at $699  we would have sold. Realtors were suggesting putting it up at $649-699k in today's market. We actually got a much better deal in the current market at $835,235k in 2008, no conditions and a great contract to boot.

*The important point to take away from this is: I paid $422k for the home in Dec 06, I got a return of 98% in 2 years. TAX FREE. If I rented it, I'd have LOST $485,235 ($3k month rent x24, + $413k made by owning a home). Proves in this example, owning is much better than renting (as I've told many many people before here). Where can you make 98% ROI after tax in any investment? Was I a rare one? No, lots of people make great money owning. As with the RE bubble of the 80's, I'll buy any home today for that 1980's peek bubble price! In fact, in 25 years from now you'll be saying "$500k average price for a home" I'll take 2 or 3!

Warren said: "CA, BZD, ABC, ZYX, AAA. I don't know if you have kids, but I scared to think what attitudes about education you're teaching them"

Vinnie makes a great point. I value education as important but, to me, work experience and life experience = more value than adding letters after your name to "prove" you know something. Show me you know and can do something, not just the theory of how to do it. Yes, my kids will go to College or University. Public rather than Private (even though I can  afford the best private schools in the country).

Warren Said: "If you have 9 homes go for $400,000, the average will be $400k.  If a 10th homes goes for $2.5 million, then the average for that day would jump to $610,000.  That's all I'm trying to point out."

I fully understand your point. It makes sense and I'd like to have the data clean myself. But as Bob said, it goes both ways. Add the 10th home at $5,000 rather than $2.5m and what do you have?

Radley77 wrote: "I have not heard from the bulls a single 'value' proposition in terms of price to rent ratios that would warrant buying."

See above* renting would have cost me $485,000 over 2 years example. Plus, as a renter, you can't CONTROL your rent year over year. Rent has gone up in the past 25 years. If you had a 25 year fixed mortgage, you would STILL be paying the same today as you did 25 years ago. No renter can say "my rent hasn't increased in 25 years". If that isn't a value proposition in terms of price to rent ratios, I don't know what is!

Mike

Mike,

Congratulations on doing well on selling your home. Sounds like you did very well for yourself.

That said, your financial calculations leave much to be desired:

- no consideration for cost of buying and selling  - even with FSBO, there was a lawyer involved, and a strict reckoning might also include the cost of your time (in my case, hours spent selling a home means hours not billed to clients)

- you've omitted carrying costs - most notably interest expense (unless you paid cash),  but also property taxes, maintenance, insurance, etc

- there's no recognition of "opportunity cost" (your rental "loss" calculation ignores the potential return you might have made had you invested your downpayment and rented, instead of buying)

- I have serious doubts that rent for a $422,000 home in Dec 2005 was $3,000/mo   (I believe your "Dec 2006" was a typo)

For your particular case (and likely for most situations that date back to 2005 or earlier), the market appreciated so quickly that these may seem like small potatoes. But in general (and most notably, in today's market), these are significant considerations that all too often seem to be forgotten or ignored. Do you really think that the value of that home is going to double again by early 2010?

Finally, one anecdotal example does not a case make (frankly, this is a recurrent problem with your posts). I have made stock trades that dwarf your rate of return - for example, I've doubled my money in a couple of days (without leverage). No doubt others on this board have done better. But does this mean that stocks are better than real estate? No. Nor does it mean that I have, on average, made returns anywhere near that. And, most importantly, it is not a predictor of what I should expect to make in the future.

"If you had a 25 year fixed mortgage, you would STILL be paying the same today as you did 25 years ago. "

This is true, but again the issue is opportunity cost. As a current renter but prospective owner, one has to weigh the rate of return on his/her downpayment plus monthly surplus (from renting instead of owning) against this future (low) fixed payment. Also, only part of the cost of home ownership is fixed - taxes, maintenance, and capital costs will increase at roughly the same rate as rent.

"rj said:  Congratulations on doing well on selling your home. Sounds like you did very well for yourself."

+++ Thanks so much, it's actually not just me but my wife as well. Without her support and mindset, this would not have been possible. Please excuse that I don't post ALL my personal and financial details here. I'm sure you understand. But I have no cause to lie or misrepresent facts.

"That said, your financial calculations leave much to be desired:

- no consideration for cost of buying and selling  - even with FSBO, there was a lawyer involved, and a strict reckoning might also include the cost of your time (in my case, hours spent selling a home means hours not billed to clients)"

+++ FSBO $0. I sold it privately, no mls, welist or comfree. I scheduled my appointments around the couple of hours it took to sell.

"you've omitted carrying costs - most notably interest expense (unless you paid cash),  but also property taxes, maintenance, insurance, etc"

+++ Figure about $20k in 2 years. (I have a 3200 sq/ft home, it's not cheap).

"- there's no recognition of "opportunity cost" (your rental "loss" calculation ignores the potential return you might have made had you invested your downpayment and rented, instead of buying)"

+++ Well, the wife and I talked about that. But the RE leverage is vastly superiour in returns over straight cash investments. My ROI was actually much higher than 98% if you take this into account, it would be more like 250% ROI after tax.

"I have serious doubts that rent for a $422,000 home in Dec 2005 was $3,000/mo   (I believe your "Dec 2006" was a typo) "

+++ No, you read right. We purchased in 30 Dec 2006, but didn't move in till 31 Mar 2006. Rent next door is $3500 a month and they have had renters for 2 years so far in it and it's a smaller home. Remember that I live in one of the prestigious communities downtown. $3500 rent is actually low in our neighbourhood. Other homes rent for $4700 and $5500 a month.

"For your particular case (and likely for most situations that date back to 2005 or earlier), the market appreciated so quickly that these may seem like small potatoes. But in general (and most notably, in today's market), these are significant considerations that all too often seem to be forgotten or ignored. Do you really think that the value of that home is going to double again by early 2010?"

+++ Yes, I have no doubt that it will. $2 million dollar attached brownstones are going to be beside it. We are downtown, have a 180° view of the city and are on a large lot, have a huge home and face green space.

"Finally, one anecdotal example does not a case make (frankly, this is a recurrent problem with your posts). I have made stock trades that dwarf your rate of return - for example, I've doubled my money in a couple of days (without leverage). No doubt others on this board have done better. But does this mean that stocks are better than real estate? No. Nor does it mean that I have, on average, made returns anywhere near that. And, most importantly, it is not a predictor of what I should expect to make in the future."

+++ How many anecdotal examples does it take to be fact? 1? 100,000? How many people in Calgary bought a home and it's doubled in the past few years? More than 15,000 I'd guess. Does it become fact when you have 15,000 case studies? I'm very happy you made as much in stock trades! Although I'd hate to be paying your tax bracket on that profit.

"If you had a 25 year fixed mortgage, you would STILL be paying the same today as you did 25 years ago. "

"This is true, but again the issue is opportunity cost. As a current renter but prospective owner, one has to weigh the rate of return on his/her downpayment plus monthly surplus (from renting instead of owning) against this future (low) fixed payment. Also, only part of the cost of home ownership is fixed - taxes, maintenance, and capital costs will increase at roughly the same rate as rent."

+++ Don't leave out equity. It's just one of the biggest pros of owning a property. When you rent, you rent air. When you own, you have a secure asset. Again, I would have lost nearly 1/2 million dollars if I rented instead.

**rj, your a very smart guy and I love reading your posts. Your views are excellent and your desire to help others is great. I think your not "A-typical" renter. In my experience (as a renter), you rent because you don't have much choice. You on the other hand can invest, buy a property or trade stocks. Many renters are renters because they can't do that. Your privilaged in that way and thus, most rare of a case.

I hope everyone does equally as well in their homes, their stocks and their lives too.

Bob - I have a topic suggestion for you... "Why did you get into Real Estate?"

I think it would make a great conversation topic and people can share why and how they got into RE.

Mike

Radley77

Your are currently right about rental yields, but only if you're buying a property to rent out. If your buying to actually live in, like most people do, rental yields don't matter much.  And like you say if "the rental yield is not there to justify buying".  Tell me who is going to buy a property for the specific intent to rent it out? I would say not many.  Your rental yield point got me thinking about what will probably happen in the future. So the following are my thoughts.

I will agree with you that currently and over the short term renting is better than buying.  But in the long term, it's not.  If like you say, "The rental yield is not there to justify buying", who is going to buy for the specific purpose of renting?  Due to insufficient rental yields people will quit buying properties for rental purposes.  Once this happens the supply of rental property will become stagnate, but at the same time the supply of renters will increase due to economic growth, not a good situation for renters.  As you can see when this happens the only result I can see is increasing rents.

Why will rents have to increase? Well like you posted

<i>Supply/demand should dictate that prices are going to go lower until the record amounts of inventory are eaten up.</i>

What do you think will happen when inventory is eaten up.  Again even though I agree with you about declining property prices in the short term, they will still not decline enough for a good rental yield.  So again no one will buy to rent out, thus limited supply, thus higher rents.  And once rents are high enough, people will then buy for the purpose of renting.

Now back to the inventory problem.  Once it decreases to normal, property prices will start appreciating again.  And I hope not at the rates of 2005 to 2007, but from the period of 1999 to 2004.  Why am I picking those years instead of earlier years? Well because Alberta had and still has above average economy growth and I can't see that changing for many many years to come.

Again I agree with you that currently buying with the specific intent to rent out is not the smartest thing to do.  But like a lot of people have stated on this blog and others, your planning has to be a little longer than just a couple of years out.

PS:

I know you follow Garth Turner and agree with his ideas on housing, but don't forget Mr. Turner's has been a financial advisor of sorts all his adult life.  So he looks at things from the black and white world of an investment.  Owning a house is more than just an investment to most people, so you have to look at it in those terms, not just the black and white terms of an investment.

+++ FSBO $0. I sold it privately, no mls, welist or comfree. I scheduled my appointments around the couple of hours it took to sell.

No legal fees or fees of any sort at purchase or sale?

+++ Figure about $20k in 2 years. (I have a 3200 sq/ft home, it's not cheap).

Seems low to me. Without knowing your downpayment amount, its impossible to know for sure, but with 5% interest, and $200k borrowed (meaning nearly 50% down), you're looking at $10k/year in interest alone.

+++ No, you read right. We purchased in 30 Dec 2006, but didn't move in till 31 Mar 2006.

Rent next door is $3500 a month and they have had renters for 2 years so far in it and it's a smaller home. Remember that I live in one of the prestigious communities downtown. $3500 rent is actually low in our neighbourhood. Other homes rent for $4700 and $5500 a month.

Re-read the first sentence (carefully noting your move-in date), and tell me again that you didn't purchase in Dec 2005. :)

I'm still having trouble believing that a home that sold for $440k could be rented for $3k... at that time, the monthly mortgage payments on a 25 year mortgage for the full purchase price would have been less than $3000.

+++ Yes, I have no doubt that it will. $2 million dollar attached brownstones are going to be beside it. We are downtown, have a 180° view of the city and are on a large lot, have a huge home and face green space.

The obvious question is: why did you sell? Did you have other investment opportunities that were even better? (If you do, let me know...) Seems that you had enough equity in the property that you could have easily borrowed against it to get a different home, if that was your objective.

+++ How many anecdotal examples does it take to be fact? 1? 100,000? How many people in Calgary bought a home and it's doubled in the past few years? More than 15,000 I'd guess. Does it become fact when you have 15,000 case studies? I'm very happy you made as much in stock trades! Although I'd hate to be paying your tax bracket on that profit.

I am not disputing that lots of people did very well in Alberta real estate over the past few  years. I am not saying you didn't do very well for yourself. I am, however, disputing that we are going to see a repeat of that over the next 2-3 years. And I am saying that your experience is not likely representative of what a potential home buyer can expect in the future. Lots of people did very well in the Nasdaq from 1996- early 2000, and we know what happened in 2000-2002.

I didn't mention that particular trade to glorify my investing ability, but rather to point out that even a blind squirrel like me can find a nut once in a while (in that case, the nut was on the Nasdaq during the Internet bubble). You did well with your home purchase, but keep in mind that you owned during the biggest run-up in the history of the province - not a normal time. If you have the time, go and figure out how good of an investment buying a home was at the peak of the early 80s bubble in Calgary, or the late 1980s in Toronto, or either of the previous bubbles in Vancouver.

+++ Don't leave out equity. It's just one of the biggest pros of owning a property. When you rent, you rent air. When you own, you have a secure asset. Again, I would have lost nearly 1/2 million dollars if I rented instead.

But where is the equity when ownership expense (interest + taxes + maintenance) exceeds rental expense? Maybe in asset appreciation, if the difference isn't too great. But otherwise?

RJ

"If you had a 25 year fixed mortgage, you would STILL be paying the same today as you did 25 years ago. "

No you wouldn't.  What about mortgage terms, ie. 1 year, 5 year, open, variable, etc.?  What about interest rate flucuations?  What about payment schedules, ie. weekly, bi-weekly, monthly, etc.?  What about pre-payment options?  What about using the "Smith Manoeuvre"?

There are a multitude of ways to decrease your amortization on a mortgage, thus decreasing the time and amount you pay overall.  I don't know off any option a renter would have to decrease their rent, except to move or provide some sort of sweat equity to make up the difference.

Don't take this wrong, but I'm not sure if you actually understand how a mortgage works?  For one thing I don't think there is such a  25 year fixed term mortgage in Canada, I could be wrong but I've just never heard of them.  In the US, Yes, they have 30 year fixed terms, but in Canada I think the longest is 10 years. Another thing, just because you get a 25 year mortgage, it doesn't mean it will take you 25 years to pay it off.  Find a mortgage calculator and try some variations.  Try changing the amortization length, knocking 5 years of your mortgage and see what difference it makes in you payments. Next try weekly payments instead of monthly payments, this will knock years of your amortization period.

If your only looking at home ownership as an investment vehicle, read up on "The Smith Manoeuvre", it's pretty well the same as rent and invest the rest, but with the smith manoeuvre you end up owning the place you live in.  This stategy will give you a tax free asset and a pretty hefty investment portfolio taxable only at the capital gains rate.

Neil:

Lol.  It was Mike that wrote "If you had a 25 year fixed mortgage, you would STILL be paying the same today as you did 25 years ago.", not RJ.  So if you're going to accuse the person of not understanding how a mortgage works - just accuse the right person.

I also got a chuckle out of a "25 year fixed" term.

Neil,

""If you had a 25 year fixed mortgage, you would STILL be paying the same today as you did 25 years ago. ""

Those are Mike's words, not mine.

"There are a multitude of ways to decrease your amortization on a mortgage, thus decreasing the time and amount you pay overall.  I don't know off any option a renter would have to decrease their rent, except to move or provide some sort of sweat equity to make up the difference."

While a renter wouldn't decrease his rent per se, he could make it a smaller fraction of his annual income. Instead of using surplus income to pay down a mortgage more quickly, he would have more to invest elsewhere. A bigger investment pile means more annual investment income.

The mortgage holder also has a choice: use surplus income to pay down the mortgage, or invest elsewhere. While a fully paid off home may bring peace of mind to the owner (and I realize that there is a non-trivial value to that),  it is generally a poor performing investment.

"If your only looking at home ownership as an investment vehicle"

I am not, but I think its important to separate the "pride of home ownership" feelings from the financial reality. (Note also that there are also non-quantifiable advantages to _not_ owning.) There seems to be this pervasive meme that Alberta real estate is invincible, and that simply isn't true.

Thanks for the note on the Smith Manoeuvre. I've heard of it before, but had forgotten about it.

Neil,

"Next try weekly payments instead of monthly payments, this will knock years of your amortization period."

That's only if you go for what TD calls the "weekly rapid", in which the weekly payment is actually 1/4 of the monthly payment and you effectively end up making 52/4=13 monthly payments a year... not much different than making monthly payments, plus an additional payment for the monthly amount (applied to the principle) each year.  

I was going to write this really long review of all the contradictions Mike has made (which year his house was bought; whether it sold for $807,000 or $835,235; his proud claims of a 19.5% overbid after he slashed the asking price 32.4%, etc, etc).

But then I realized it's a waste of my time.  RJ laid out excellent rebuttals point and point again to no use.  Mike has no concept of the effect of inflation on asset values, or the opportunity cost of money, or the effect of leverage, or any of a dozen other basic principles of finance.  Is this why you mock higher education??

You wrote "Warren said: "CA, BZD, ABC, ZYX, AAA...".  

Ha-ha, very funny!  I get it - all those silly letters, ha ha!!  What a backwater redneck attitude.  Perhaps if you had one of the designations that you so politely accuse people of "hiding behind" then you might have a clue as to the level of work, sacrifice, and dedication required to obtain these certifications.

You wrote "adding them makes a person "less valuable" to me they are hiding beind some overpriced paper."  How do you say education makes people less valuable (??) and then backpedal and say you value education??  These are all your exact words by the way.  You're painting yourself into a corner almost as well as the whole "Mr Noodles" thing.  But that was funny.  This is just sad.

Vinnie wrote:

"Not true, in my opinion, education is the best investment that I've ever made in my life, not the stock market or real estate. It's my greatest personal achievement. I'm not hiding behind it. I'm proud of the fact that I did it with alot of hardwork and personal sacrifices."

Whatever else we may disagree on, I'm with you 100%.  Congrats on your accomplishments, in the long run they'll be worth more than anything else.

Well, it appears that my help and advice is unappreciated here by you Warren. You just seem to want to nitpic the small things apart and not even see the larger picture of what I'm sharing.

I know many will learn from what I said here, you are just not one of them.

You lost the respect that I once had for you and your posts.

Mike

Warren - I think you get confused sometimes. Education is easy to get. Intelligence is not so easy. You don't have to be intelligent to be educated.  

I am buyer but I am not really rush into buying for couple reason:

1) Too many listing so supply/demand law has to play. I believe the price will be down a little bit to adjust the boom but not much because ppl seems to hold onto RE longer than any investment because we all know 20 years from now it will appreciate values.

2) Calgary still has so many lands so builder just build more and more houses. Thus more affordable houses. I saw a house by a builder in SW goes down 100K of original listing to get rid of them.

2) Rent is so cheap comparing to interest that you have to pay to the bank (not counting principal) for the same house.

3) why rush into buying which will drive the market higher. Why not wait a little bit so the house of the price will go down to the fair market value. Ask yourself, how hard is it to save 10K per year? For sellers, 10K reduce in a house price is small changes comparing to buyers.

I am not saying the price should be at it was in 2004, but i think I will not buy until the price is stable like 2000, where the house price does not fluctuate like right now. If you have access to realtor database , you see that 90% of all listing has a red arrow (reduce in price). I saw a couple houses in NW that has been reduced to 80k but still has no offer.

Tyler; Are you looking at the Calgary MLS database? I did a sampling of 250 active listings and it shows about 36% of SFH listings have price reductions. -Bob

I will buy eventually but only when i feel comfortable with the monthly payment.

Sorry for my bad English because it is my second language! I just want to share my thoughts

Cheers

Just a few thoughts:

First of all I do not mean to make this post offensive in any way.  I just want to clarify a few things.

1. While some education is crap (I agree with mike on this part), MOST education is COMPLETELY valuable.  Would you go to a doctor who has no degree?  How about being defended by a lawyer who has no paper to "hide" behind.  Education has brought me great wealth, and I do not ever once regret putting in 6+ years in University.  Education is the single best equalizer in our western society.

2. Where will Mike live now?  Rent or buy in this market?  Why did Mike just not stay at his home (thus having a place to live) and see it more than double in price as there is "no doubt in [his] mind" that it would be worth 2 million in a couple of years.  Why not keep it and pick up another home in Calgary?

3. Mike bought in Dec 2005 ( FIVE) not six.

4. Warren is being too harsh on Mike.  Though there are inconsistencies in his posts, I am confident he did indeed make a profit.  He made the right decision to buy in 2005 (FIVE) and sell NOW (vs. staying in the market).

5. It's not rocket science to see that buying now for investment is not a good idea.  However, buying to LIVE in a home if you have the means (large enough down payment) and reasons to do so is a good idea.  Just don't expect your home to act as an investment vehicle and see 10% gains every year.

6. More about Mike (sorry buddy!).  He did mention long ago in some posts that he did quite a few renovations to his property.  There is a cost to this too that is unaccounted for.

7. Picking on the stock market today is just about as fair as picking on the housing market bubble-burst in 1981.  Also, the next day after that big fall that Mike mentioned the DOW and TSX posted gains of 300+.  Buy the dips, sell the rips...Similarly, saying housing is GREAT today is like saying the tech stocks were great in 2001.

8.  I just wanted to point out the difference between Mike and Myself.  We both made money in the housing boom in Calgary.  But, I think the time has come and gone for further large moves up in price.  Keep in mind I am still "in the market" as I own my home free and clear that I live in.  Mike thinks it's always a good time to buy and further increases are coming forever.  I think it is irresponsible to push someone today into the housing market FOR INVESTMENT reasons, and that is why I must let people know that investors like myself are getting OUT of the Calgary house market.  The next frontier in real estate may actually be commercial.  Bob should get into commercial as I am sure he'd do very well with his track record.

Just a few points I wanted to clarify for the lurkers who don't respond yet read this blog.  Thanks again to Bob for being such a great host.

Chopper - "Truer words..."

Has anyone read the article by Alberta Finance which compares the 70's boom to the current boom?

You can find it here:

http://www.finance.alberta.ca/aboutalberta/spotlights/2006_1013_70s_economic_boom_vs_current.pdf

Their key message is that the boom Alberta is experiencing (since 2000) is far more modest than the boom Alberta experienced in the 1970s. Growth in most indicators is almost half the amount it was in the 1970’s.

So does this spell for a softer landing?

Canada does have 25 year fixed mortgage. Y'all should apologise for attacking Mike over it! Check it out on RBC site.

http://www.rbcroyalbank.com/RBC:R@HFhI71JscALJC877I/products/mortgages/view_rates.html

By the way Bob, are you still planning on surprising us in the Spring? I am dying to know what it is you plan to do!

Lola; You're right, spring's here tomorrow already. I suddenly got so busy that I haven't had time to pursue the "surprise." Bear with me. It will be worth the wait! -Bob

I had given up even trying to join in the blog the last week, as I am tired of Warren's constant accusations of "exaggerations", "anecdotes" and basically disrespect for any comment that goes against his own beliefs.

It's been my experience that those with true higher intelligence (not higher education you will note) are very considerate of other's opinions and value the exchange of ideas. They don't resort to name calling or mockery when there is a difference of opinion. I'm sure it was a "redneck" that coined the phrase "Just cause ya say it louder don't make it so"

I and many others are interested in what Mike and everyone (even you) have to say. But this isn't a bash site it's a blog. Respectful consideration for all opinions. Mockery and name calling have no place here.

Chopper wrote:

"Education is easy to get..." I hope you meant high school education. Try to get a B.Sc in Engineering at UofC and I think your perspective will change. I wonder how do you measure one's intelligence?

Interesting website link from "the other blog".

http://patrick.net/housing/crash3.html

Not entirely relevant (California is not Calgary; different economies, different lending standards, the tax deductability of interest in the U.S., etc, etc), but some interesting macro level reading none the less.  As I frequently find, someone else can make a point much more concisely than I can (sometimes that person happens to be the greatest investor who has ever lived, lol):

"Warren Buffett and Charles Schwab have both pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates."

Why some people simply cannot understand the following statement has always confused me:

"My grandmother always used to complain about the cost of milk. "Why, when I was a girl, a gallon of milk cost a dime! Just look at how much people are overcharging for milk now." I asked her how much people got paid back then. "Oh, about $15 a week", came the reply. Hmmm, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount."

Does this one ring true at all for Calgary?

"Most newspaper articles on housing are not news at all. They are advertisements that are disguised to look like news. They quote heavily from people like realtors, whose income depends on separating you from your money. Their purpose is not to inform, but rather to get you to buy. When you see an statistic that says everything is fine, look at the source. Is it from someone who needs you to believe in the housing market so that they can take your money?"

Anyways, I won't quote the whole piece, but I strongly encourage people to read it, some interesting stuff.  And I strongly encourage anyone (like myself) thinking about buying a place to be patient, take their time, do a lot of research, and don't be afraid to wait.

8,317 homes on the market and still rising.  Who do you think that favors, the buyer or the seller?

I thought I would have to defend myself, lol.  

worldclass wrote:

"Warren is being too harsh on Mike.  Though there are inconsistencies in his posts, I am confident he did indeed make a profit.  He made the right decision to buy in 2005 (FIVE) and sell NOW (vs. staying in the market)."

Great post all around worldclass, and I agree with every word of it (including that I'm being too harsh).  I have never said that Mike did not make a profit (and a fat one at that) from his home.  I understand the larger point he's trying to get across, but as the saying goes "The devil is in the details".

It's just frustrating to hear him "giving advice" again and again and only telling half the story.  It's not just that there are "inconsistencies" in his posts (as you put it) - it's that there are repeated inconsistencies that he brushes aside and does not address (sometimes even refuting - the whole "which year" issue for example).  The house sold for 19.5% above list - after it was reduced 32.4%.  The renovations now that you've mentioned.  I'm not going to rehash everything (it's all available to read in this thread), but it seems to me that Mike makes a lot of statements without what is known as "full disclosure".

I do appreciate Mike's participation and his input.  I just wish he would do it with more transparancy.  I think people coming here for advice and information on what will likely be the biggest purchase of their life deserve that.

Heather wrote:

"They don't resort to name calling or mockery when there is a difference of opinion."

My point exactly Heather.  Different things offend different people and I simply don't appreciate being called "less valuable" and then mocked.  I am not the only person who feels as strongly about the value of higher education.  I will quote again:

"And those "designations" mean squat to me too, they hold no water and equal no value. In fact, adding them makes a person "less valuable" to me they are hiding beind some overpriced paper."

Then:

"Warren said: "CA, BZD, ABC, ZYX, AAA..."

Was I angry and harsh?  Yes.  Have I known some incredibly stupid "educated" people?  Yes.  But you can't tar everyone with the same brush.  I worked extremely hard to not only finish the education that I have, but also to do it financially independant.  Why don't you sacrifice for seven years and be told that you wasted your life on "overpriced paper" that holds "no value"??  So thanks for your opinion Heather, but maybe re-read the whole conversation next time.

As for my apparant "disrepect for any comment that goes against his own beliefs" - there are beliefs and then there are facts.  

If you tell me the sun comes up in west, I will tell you you're wrong.  

If you tell me that RE outperforms stocks in the long run, I will tell you you're wrong.  

If you tell me that listings are going down, I will tell you you're wrong.  

If you tell me that the worst housing correction in the U.S. is 10%, I will tell you you're wrong.  

If you tell me we're now in a "balanced" market, I will tell you you're wrong (according to the CREB's own definition of "balance").

If you tell me you can get by on $1.75 worth of food a day, I will tell you you're wrong.  

Sorry, but these are not "beliefs", these are "facts".  If I ever say something that you can refute with facts, please do - I enjoy all types of learning, including learning from my mistakes.

You say you gave up posting because of my constant accusations.  I think you're just mad because the last post you made before this one, you made some outlandish statements that I then exposed the actual dollar values of.  Perhaps I was also too aggressive in exposing the implausibility of your post.  My apologies if I was.  I also appreciate your opinions and contributions, but as I said before - I'm simply a very big fan of transparancy.

Poor Mike. I just want to let you know that you are over keen in sharing with people what you think is right. Last year, I read an article about precious metal investment, so I since kept on telling my friends to buy gold, on top of house. I even e-mail them the 1-800 number to call to buy gold from Scotia if they want to actually 'touch' the bullion. I bet you must be a warm hearted person in real life too. Take it easy Mike.  

Warren

I stand behind my last comment

"Just cause ya say it louder don't make it so."

And with that being said I take my leave from this blog. Thank-you to Bob, Mike, Carol, Al and a host of others who I have learned from and enjoyed reading. Happy Easter to all and may RE bring you what you wish from it. Health and happiness all.

Warren wrote:

"If you tell me that RE outperforms stocks in the long run, I will tell you you're wrong.  

If you tell me that listings are going down, I will tell you you're wrong."

Warren, I'm only an observer. However,  I don't think your above statements are "facts" as generally accepted.

C'mon Heather, that is just not a very good reply to Warren.  I was looking for something more substantial rather than a "blinders" approach.  Did you actually read Warren's post?   He makes some good points.  You have made some good points too by the way.

Also Heather, I am not against the fact that you bought your condo.  I think it was a great idea considering you needed a place to live and had the financial stability to do so.  With Mike, I too congratulate you on your purchase...not for the capital appreciation (or depreciation) that may occur, but because you now have "pride of ownership" that comes with many intangible benefits (and also risks).  Congrats, in your case buying worked for you.

To Observer: It is a FACT that stocks outperform real estate in the long run.  When we say stocks, we mean the overall stock market indices.  When we say real estate we also mean the overall real estate market in a given area.  We do not mean the super-duper high performing stock or the super-duper high performing office tower on Manhattan Island.  Please check all the available retrospective studies on this issue and you too will see that it is widely accepted that stocks outperform real estate in the long run.

It is also a FACT right now that listings are not going down.  If you see listings going down it is due to a large number of de-lists.

Again, just wanted to clarify a few things.

Worlcass,

It seems to me that you are well educated on RE and stocks mechanics. I'm not going to disagree with you as I'm not an expert.  I am RE owner and small size investor though.

Onething to mention: with 35% downpayment you can almost purchase any RE you want, using Bank's and any financial institute's mortgage and loan options.  You get appreciation and rental income on 100% property value for 35% down investment. You just need to make sure your timing and location is not too far off.

On stocks, however, you don't have too many loan options and you get a very stressful and risky investment return on your 100% cash. It's not your 35% cash investment for 100% property value return. You need a significantly wider knowledge of stock business as well. Unless the company you work for do it for you.

You are right, and listings are not going down very soon. But by mid 2009 the whole story will change again. It will be a seller's market again as construction starts are heavily low now. It's more than a year from now though.

I tried to simplify things. Only my humble idea. Thank you for taking the time to write me.

Observer, you are absolutely correct about real estate investing.  Given the right situation real estate is great.  I have taken advantage of one such situation myself.

Stocks are hard if you play individual companies.  For amateurs, just play the main indices via index funds with low MER's that track the DOW, TSX, or S&P500 (look up TD Bank, 0.33% MER).  Over time you can dollar cost average and end up pleasantly wealthy at retirement.

Incidentally now is the time to buy into the stock market when everyone seems to be selling.  With the high CAD$ one would see a double gain if you buy USD$ equities right now.  You can get capital appreciation as well as see a pleasant gain on the exchange once the CAD$ falls back to its historically lower level vs. the greenback.  Now those who say the USD$ is going to the crappers, I totally agree.  However, since we are Canadian, we have to come to terms with the fact that our dollar is inextricably tied to the greenback.  USD falls against the majors (Euro, Yen, etc.) means we fall.... see the last few months for proof.  Hence, if you will still be "richer" in CAD$ which I am assuming is what most of us have in the bank and use everyday.

I see what you are saying about Mid 2009....it is a good theory but there are too many variables that could affect the outcome.  A lot of stuff on the market right now are resales, not new homes.  These need to dry up as well as the new homes in order for us to see a substantial price appreciation from this lofty-price we already currently have.  In addition, we have to continue to grow as a city both in population and economic activity.  The slowdown has already begun, there is little chance we will see another spike in economic activity with the USA going into recession and taking a lot of other countries with it (see the recent world developments for proof of this).

I am not saying that prices are going to crash through the floor, just saying that price appreciation in a substantial amount is very unlikely.  Whereas price depreciation is more likely from here on.  Limited upside possibility, substantial downside risk.  Simple logic to say "don't buy" for real estate as an investment for NOW.

Wordclass,

I agree with all your comments above. I liked your adea of buying USD$ equities.

I was previously considering small property purchase somewhere in US which was hit the most with mortgage meltdown (let's say Miami, Florida). You actually made me to think it might be a better option to buy USD$ stock instead. I don't need to pay for flight and hotel, and make a purchase somewhere I'm not really familiar with.

Again thank you for your helpful notes.

Thank you too for your open-minded attitude.  The reason I like stocks for now is because they are far depressed and likely have more room to fall.  The key is to keep cash on hand to bottom feed, I expect the best time to get into some equities is in about 3-4 months.  There are already some great equities from solid companies right now with HUGE dividend yields (see T, VZ, AYR, INTC, GE, MCD) if you are a "safety" type guy.  If you are more risky you can go for the large depressed stocks with good long-term growth like EMC, AAPL, RIG, FTWL.  These are all US equities.

For some speculative plays in Canada, I am currently watching a gem of a Calgary company ticker is AMA (aeromechanical services).  They are doing some great things with airplane blackboxes and satellites.

Anyhow, back on topic I think real estate in the USA is also a good idea a few years out from now.  When real estate prices depreciate they usually do a multi-year fall, as prices are sticky on the way down.  Real estate prices eventually move back to their long-term trend lines after any big run-ups usually, unless you are in places like manhattan island, etc.   You are smart in looking at real estate in the USA...you maybe a little too early, but kudos to you for spotting a potential future goldmine.  There is no doubt in my mind that the USA will rebound from this, it always had, it is the largest economy in the world.  If they don't, we'd still be better off investing in the USA vs. anywhere else because the world is just finding out now that "decoupling" is not happening... everything is getting hurt with this USA slowdown.  (for people who thought asia was insulated...yikes, the markets are in disarray there too!).

Observer, you sound like a poster who reads every word and formulates his own opinion bull or bear it doesn't matter.  As long as logic prevails and wealth can be generated, then you are on board.  I think you and I are very similar.  You understand that a once good asset class last year can no longer be a good asset class this year.  You also understand that a bad asset class can all of a sudden become a future boon to your portfolio.

Worldclass I agree with you on the stockmarket. I really like it right now for day trading as it is highly volatile. I played LEH last week on Bear Sterns day and there was a $25 dollar swing in LEH that day. Made good money but also left a lot of money on the table, sold to soon.

Wordcalss,

We are amazingly similar!

You read my mind,  as I have not yet purchased in US RE for the reasons exactly like you said:

It's going to take a couple of years for US people to have their property prices pick up again, and I would be stuck with my money there and no chance to cash out for other opportunities in a more near future.

Still, I have no doubt US housing will be our future "goldmine" as you stated.

You need to give me a little bit of time to do my research on US equities. Meanwhile, I read all your notes and surely get the best of them.

Observer

I like the "odds" of buying R.E. near the bottom down there then near the top up here. But you have that immigration lottery to deal with that I don't like the odds of.

I got denied a TN Visa in January because I happened to get an immigration official who got out of the wrong side of the bed.

There are some horror stories I could tell you about regarding buying R.E. in the states and trying to pretend your a snow bird. Like a U.S. immigration official beleiving your actually taling up residence in the U.S. even though your leaving every 6 months like the law states (maybe not leaving for long enough) and being denied entery in the U.S. for 5 years. To bad you have a 2400 sq ft house in Florida with two cars in the driveway and your wife still down

there.

A U.S. immigration official can really $uck up your plans and they are God. There's no discussion!

Brent,

As an Iranian person I fully understand what you mean under the circumastances.

There are always associated risks. However, I beleive as long as we play by the rules we will be Ok.

Immigration and economy are both unforgiving businesses.  We're either playing, or we're not.

Back to Bob's original blog, what are buyers thinking now? I think we're coming to the end of March, prices are up so is inventory.

So I sold my house. YAY!!

Prices month-to-date are actually starting to head down this month.  At least the median price according to findcalgary.ca they are.

The interesting thing i found on the weekend was this.  We looked at 6 houses on Friday.  Of those 6 houses 5 of them had been taken off the market and relisted at a lower price.  If 3 of those houses would have sold that day they would have reflected DOM of about 30 days rather than 180 and two at about 90.  Only 1 had the true DOM.  Now this could have been total coincedence as the sample size is much too small to be accurate.

vinny; I just checked the single family homes which sold in the past 4 days. 38% of them were re-lists. -Bob

I'm taking my time to look now cause there is so much to choose and almost every house we've looked at has had big price reductions (if you include their pre- relist price).

I agree with you Observer. The U.S. is the place to buy and live, no question about it.

I only know one other country that has to build a fence to keep people out and no it ain't Canada. lol

Vinnie:

I see three of the four prices (SFH median, Condo Avg, Condo median) all being down right now - two of those are down year over year.  I don't know what the pending sales are indicating (Bob would have a better idea than I, naturally), but that's what the stats show.

Warren; the average list price of SFH pending sales is $493,957. -Bob

I know (from people I've been talking to) that the whole inventory issue is starting to become known by the general public.  I don't know if it's from them browsing the mls, noticing all the signs, or what it is - but people are starting to find out.  I was talking to one person at work last week and they said "Yeah, there's a lot of listings right now, what are we at - 5,000?"  I informed him it was closer to 8,500.  He didn't believe me, I had to show him the stats, lol.

Warren; It's a testimony to the strength of Calgary's economy that homes continue to sell and prices remain stable. The entry level buyer has all but disappeared. There is a huge inventory. Some people resort to scare tactics such as "the crash is coming," and yet there are an average of 50 single family homes selling every day.  -Bob

Demand is there?  I thought supply was increasing over the last few months.  The Calgary Herald needs to get better journalists.  Of course the head of the home builders association wants to create a feeling of urgency to buy into the market.  Why shoot yourself in the foot during an interview for a real estate article?

Sticking on this subject, a few days back (saturday mar 22) there was a front-page article in the Herald about how young people are rushing to "get into the market at all costs".  It was so pro-real estate that it bordered on a sales pitch.  The journalist talked about how it was a great idea to buy a house on your own and cover your costs with renters in the basement (which at current prices is near impossible unless you have a sizable down payment and a great mortgage rate, of course she failed to mention this).

The point is this, I know a person who writes for local papers as a free-lancer.  He writes for Metro, Avenue Magazine, etc.  He's always saying that they only send him to talk to "sources" that are in the industry.  "Why would the condo sales office tell me anything other than the market is great?" he would tell me.  Even when he tries to put some balance into his articles they are edited out after he submits his paper!  The editors put a positive spin even when the paper tries to show some balance by having an article on the "potential slowing" of real estate sales.  He is forced to write about how the market is now "balanced" and offers buyers a "great chance to get in at a great price before the spring rush".

I am not against the true stories.  I am just against the selection of stories the newspapers decide to tell.  If you are going to talk about roses you better mention the thorns.

-worldclass

Worldclass; You're not giving people much credit for intelligence. With the recent election, we heard the phrase "people get the government they deserve." If people don't perform their due diligence, who have they got to blame?

I get so tired of people blaming everyone but themselves. I don't buy the argument that the media only gets one side of the story. We saw some very sensational headlines such as "Average Price Plummets!" when the price was going down, yet the median may have actually stayed the same or increased. People understand that the media sensationalizes and they take this into account when drawing conclusions. That's why I host this website and post the statistics. People can see the numbers and draw their own conclusions. -Bob

Bob:

Thanks for the info.  You wrote:

"Warren; It's a testimony to the strength of Calgary's economy that homes continue to sell and prices remain stable. The entry level buyer has all but disappeared. There is a huge inventory. Some people resort to scare tactics such as "the crash is coming," and yet there are an average of 50 single family homes selling every day.  -Bob'

I agree with you, it is impressive that prices have remained as sticky as they are.  The Calgary economy is definitely strong, which (along with a host of other reasons) is why I also doubt there will be a "crash".  Calgary is not California.  One of the most interesting things I've read lately was in the RBC Affordability study, which contrasted CAD vs US households in terms of debt levels, income spending, etc.  Gave me a slightly less bearish attitude towards Canadian RE (while the average Canadian by no means has their financial situation in good order, we are a lot better off than our neighbors to the South).

That being said, the Case-Schiller index came out today in the States and wow.  Wow.  It's not pretty.  10.7% declines nationwide - almost 20% in Las Vegas and Miami.  And no signs of a bottom in prices.  Some of this, through a variety of ways (psychological impact, changing credit conditions), will trickle its way up to here.

Anyways, back to the local situation - something has to give here.  You state that "the entry level buyer has all but disappeared".  What I have seen from watching "entry level" homes sit and sit and sit would definitely agree with that (and this also reinforces the "different sales mix" argument as to why prices have remained where they are).  The market needs the entry level buyer in order for it to function.  We also cannot continue with 8,000 or 9,000 or 10,000 homes on the market.  I see there being only two possible outcomes:

1.  Sellers take their homes off the market, either to sit on them for another year (postponing the problem), rent them out (most likely taking a loss doing so), or continue to live in (if they haven't bought their move-up home yet).

2.  Sellers reduce their price in order to entice more buyers.

We're now at the end of March.  Buyers are not going to show up in greater numbers than they have.  We have a strong three month trend of sales being 2/3 of what they were last year - I think it's safe to assume you can project this forward.  Therefore, it will be up to the sellers to move the market (by one of the two ways I've listed above).

Just one example (not indicative of a trend), but there was a home in Valley Ridge on mls over the weekend with a $70,000 price reduction from $540,000 down to $470,000 (!!).  I think you would definitely agree that there seems to be a lot more price reductions than you would see in a "normal" March.

So I don't think there will be a crash, but I think the most logical outcome is that prices will come down over the course of this year until some of this record inventory has been cleared off.  From what I see from the stats (and the mls listings), I think this theory is backed by evidence.  People waiting for prices to go back to $200,000 are dreaming.  People expecting prices to increase with this much inventory are also in la-la-land.

Quick question for you Bob.  With that house in Valley Ridge, they didn't re-list, but they dropped the price by about 13%.  So if they sold it for the lower price, would it show up in the stats as being sold at the new list price or at a discount to the original list price?

Warren; The last price it was listed at will show as the list price. -Bob

I'm in Edmonton, but I think the Calgary situation is generally pretty similar: high inventory (especially given the season), and the start of YoY price decreases. The longer prices stay flat (or decrease), the worse it becomes for investors who bought at "bubble" valuations (ie based on expected appreciation, rather than rental yields). The speculators who pre-bought 6-12 months ago are going to be faced with an undesirable dilemma once they take possession: bleed quickly (sell now at a loss), or bleed slowly (support a significantly cash flow negative property for an indeterminate period of time into the future). It is not clear how big a factor these speculators are in the overall market, but my suspicion is that it is significant.

I was a investor (or an "evil speculator") and have already cashed out long ago.  A lot of my investor acquaintances have also already cashed out or are in the process of trying to do so.  They are getting tired of maintenance on their properties and trying to make sure the tenants are treating the property nicely.  Also, they don't see any further significant price movements up so why hang on?

My guess is however, Rj, is that a large number of speculators are likely NOT left in the current market (save for the condo market).  From what I am seeing within my own network is that a large number have left the party.  That is not to say there aren't any buyers who have used the guise of "investment" as a reason to buy.  Because of this reason I don't think we'll see a large crash of the Calgary market, but rather a slow prolonged flatline or decline over a number of years.

Wow!!  Re: today's stats on findcalgary.ca

How big of a pair does it take to cut someone down 27 on their asking price%?!?!?!

That's pretty impressive!

Warren; What do you think it took for that one in Feb to sell for 29% OVER the list price? -Bob

Worldclass:

I believe you if you say that many of the investors you know have exited the market.  But what's with the ridiculous levels of empty and vacant homes on the market then?  Are these likely all the "old" homes of people who've moved up in the market before they sold their current house?

Would renovations be a good indicator of whether or not the property is held by an investor (new floors, new paint, new kitchen, etc)?  And would it be easier to cut an investor down on their asking price or a regular joe?  What are your thoughts?

Hi

I am looking to buy a house in NW (Panorama and Kincora) and 540K is my max budget. I was wondering what would be a good deal in term of square footage of the house at this price with a walkout? The reason i asked is because i saw various size of the house at this price, from 1800 to 2300, so it really confused me of what is a fair price to pay.

Thanks

Tyler

Tyler; There are a lot of other considerations besides the sq ft.

Location: Is it on a quiet or busy street? Does it back onto a green space?

Style: Is it a bungalow or two-storey? It costs a lot more to build a bungalow of the same size as a two-storey.

Is the basement Finished? Is it a walkout?

I'm sure the other bloggers can come up with some other factors as well. Good luck with your house hunting.

Bob