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You're a smart guy, Bob. But don't tarnish the cedibility by confusing current, rate-induced demand with the longer-term trends I have detailed in the post you reference above.

Real estate sales may be a short-term source of income for you. For investors and homeowners, it's a more serious, lengthy issue. I suggest you treat it as such.

Regrads as always,

Garth

Garth Turner is a failed politician and a once financial journalist now turned book pimp.

Time will only tell how whacked out he really is.

He also predicted that the TSX would be at 50.000!!!

I wouldn't write him off yet.  Part of the theory here is what happens in the US will happen in Canada.  Although it's not nearly as bad here (not sure if it will get that way) we could get another wave 3-5 years from now.  We have essentially created our own subprime here waiting to happen.  Many of the buyers now are buying almost on their maximum credit and all-time low interest rates.  When they are up for renewal 3-5 years from now rates won't be this low anymore which will in effect create a sub-prime/ ARM effect.

Yes I realize he Garth is more about selling books but some of his points are quite valid.  He just likes to mix in some of his own agenda with the truth.  I still think he is a good writer and you have to filter out what you need from his book rather than absorbing everything he writes at face value.  This applies with EVERY author though and not just Garth Turner.

That is Bla,bla,bla...!!!!This is market is DEPENDS

what you want and what you CAN afford. For buyers who

want to buy under 500K may be it time to buy and for buers like me who is looking for 800K and up this is good time to wait because i beleiwe price for expencive property will drop more.I already traced 3 houses were drops was 250K.

This is always qestions. Many builders dropped prices for new homes for 50K and up and may be will drop further?

Only God now how many houses on a market with a MOLD!!!! Really many houses is a c*ap including NEW.Future month will show us hwo is won and who is loose!!!!

Hey squidly brought me here, good stuff. Bob, I follow Turner, and if he disagrees with somebody, he'll list their points and his(its called an arguement) on why he thinks they're wrong. Just like the points you quote above, but where's your homework?

I neither agree nor disagree. I simply posted it as the flip side of what Worldclass was saying on the previous post. The market will be what it is, despite how many people say I control it. - Bob

Is it something like...

Housing is going to the moon? Garth is slow witted.

Buy now before you get priced out? Garth is moron.

I'm making my cut so who cares? Garth is a slow witted moron;isn't making as much as me!

Its all about affordability? Credit is part of the affordability equation. Despite what people are doing this quarter in Canadian RE because of record low interest rates, it only puts off the inevitable contraction of affordability in Canadian with a rise in rates, in addition to a record drop in employment.

Good watch from BNN today on Canadian RE.

http://watch.bnn.ca/clip176982#clip176982

PS Dame Edna, you forgot to mention that Garth is hiding something, I mean, a beard?

HI Bob.  Just wondering how you calculate the % decrease stated in the first post?  This is how I would calculate it: 439,000-390,000=54,000.  54,000/439,000=12% (using median prices from your SFH stats).  Am I doing this wrong?

You're doing it right, except you're using the wrong figure for the 30-day median price. It should be $385,000. -Bob

This market is so out of control right now that I wouldn't be surprised to see prices up 20%, from January numbers, by the end of the year, but I also wouldn't be surprised if I saw them down 20%.  I think that Calgary is perched in a scary spot and if I sure hope that people are thinking long term when they sign into a 3.5%, 35 or 40 year mortgage that they can barely afford.  I think that there will be a lot of folks in trouble in the future.

I do think the real estate market is basically balanced, I'm actually not very bullish or bearish, although my base case is that the bottom is in by December 2009 after some seasonal slowness.  In terms of long term fundamentals, housing is now more affordable than the long term average for Calgary, and is more affordable than the average in Canada.  In comparison to bond yields, the rental value of housing is also around average in relation to it's historical spread.  The mortgage market is not in distress, as we have had a much lower percentage of non-prime borrowers than in other jurisdictions and new listings are down from last year that illustrates that there are less people wanting to sell compared to last year.  Also, housing starts per capita in Calgary are at the lowest since the early 1980's and I think starts will have to increase at some point to keep up with demographic demand.  While the economy is struggling and sales are relatively flat over last year, I do not expect that sales will not return to the lows that we saw in Q42008/Q12009.  

In today's copy of Metro, Calgary was mentioned as having ranked the highest in Learning Index in the country.  Specifically, the inner city (Wards 7 and 8) were mentioned as having the highest scorecards within Calgary.  I think this speaks volumes about the intellectual capital that Calgary has.  In addition, Calgary (and Alberta) have an abundance of natural resources, and the Alberta govermnent does not have any debt and it's fiscal position is the envy of the rest of the country.

I agree with Worldclass's comments that there is value in investing in hard assets, but also think there is value in investing in domestic economy of emerging markets.  Ultimately I think the value of the dollar will be eroded further over my lifetime so I think it is important to be investing my cash in things that will be tied to economic growth and hedges against inflation.  Real estate is one option.

In summary, I think both long term fundamentals like affordability and yields, medium term fundamentals like housing starts, and short term market fundamentals like inventory trends and sales do point to the market bottoming in the near term.

If seasonally adjusted sales and new listings continue at the current trend, prices are probably going to be up 3.6% by May 2010 (with more growth possible later into 2010).  The big thing is sales to new listings are at about 0.6, and that is high enough to clear out the current inventory and kickstart some positive price growth later in next year.  Also, I am anticipating that May 2009 may be at or near the maximum rate of year over year inventory decline.

Above all else, I think people should take the time to make a solid household budget that is going to be robust enough to handle whatever economic shocks may come (higher interest rates, job loss, etc. etc.)  Also, if ones investment horizon is less than 5 years, then it's also probably a good idea to evaluate all your options.

Food bank use soars as families struggle

http://www.calgaryherald.com/Business/Food+bank+soars+families+struggle/1646153/story.html

Will that mean a big price rise for houses close to food banks?

I agree with him on 2 points.

1) Calgary Home prices are still definitely over valued.

When you sit down and do the maths, the numbers the City and developers give for new lots don't add up. The cost of construction does not add up.

The only reason we have this wide gap in actual costs and what is charged to the end consumer is because the City will give development permits to only 3 large developers. These guys in turn make sure they wring out every dime on the backs of the retail buyers. Since none of these Large developers are publicly traded, only a few city planning bureaucrats and the developers know the real cost.

It's exactly the same thing with Cell Phones. Whereas in the US you get unlimited calling for 59.99, here you get 200 minutes for the same price. Monopolies rule the pricing.

2) Interest rates WILL rise and when people go to re-new at the end of their Term, the payments will be much higher.

Future high oil prices will not save the day for AB. That boat has passed. Most industrialized nations are moving quickly to alternative energy. Example. China is number 1 in Solar cell output today. Obama has mandated 42 MPG cars. Germany gives substantial tax subsidies to install solar in your home. The alternative energy trend is pretty clear.

Calgary has some serious problems ahead. With lower home prices, the City of Calgary tax rates still continue to ratchet higher. City planners and elected officials are NOT being responsible with tax payer funds, neither are they responsibly planning for the future growth. There was a recent 10 Million "study" done by some tree hugging "consultants" who failed to take into account the huge cost of their "green" plan.  

My analysis is within the next 10 years we'll end up like Californian Cities today. On the brink of bankruptcy needing to be bailed out by the federal govt.

Yesterday we had visited 3 houses in SW area.Price

775K,795K,810K. All about 2700 sf. and built in 1998,2001,2003. But that houses is a c*rap even they are in community Springbank,Cogar ridge,Evergreen.I dont'n beleive somebody can pay for it even 500K!!!Yes

houses very overpriced and may be sellers thinking one day some fool with money will buy it?

There are indeed crap-built homes in Springbank and many of suburbs.  The recent boom of the past 5 years has caused a lot of homes where shoddy construction is apparent.

Bad-English Mike... I highly suggest that you look more to the inner city if you are buying.  Sure you get a smaller home for the money, but then you get larger land size, a solid built home, and you can do renovations that will allow claiming of tax-credits depending on how much and what you do to your home.

Remember, land is the appreciating asset overall...the building on top of the land is the depreciating asset.  You want to pay for size and location of the land, not the box sitting on it.

Worldclass:

Sorry about my English but I will wait because I strongly beleive price will go down. Last year was the same in June one picture in September another.

If inventory go down builders bring them back. And about renovations: If a structure 1972 or 1978 you can't to do nothing with that it's OLD!!!! only cosmetic inside....

Mike,

I beg to differ on that thought.  The older homes are FAR better built than the, excuse my language, sh*t being built these days.  The wood is softer, the studs are further apart, the joists are plywood "ibeamed" into 2x4's, etc etc.  Some of the older homes have little to ZERO cracks in foundation, whereas most of the newly built homes have huge cracks sometimes large enough to require servicing.

You can do a lot with an older home, I suggest you do your research before saying that an older home cannot be renovated properly.  You need to go check out neighborhoods like Elboya, Altadore, Lakeview, etc. and see the renovations taking place on 1950's bungalows.  Additions, full out gutting, etc.  The prices for properly renovated bungalows in these areas are high, and the value holds.  These bungalows are SOLIDLY built, built to last, and only need updating regarding floorplan, piping, and electrical.  In addition they are on huge lots, that are subdividable so you get that land value.

Personally, I'd take an older home on a big lot over a newer "softly built" box in the suburbs any day.  But, as always its different strokes for different folks.

Mike, please check out www.rectangle.ca for examples of how an old home can be updated.  Not really everyone's style, but just as an example of what can be done.

Worldclass,

Why do you think that Land will appreciate in Calgary?  I personally think that unless Calgary starts to switch gears and becomes more sustainable it is doomed to become a ghost town down the road (20 years?).  

I'm not going to try to guess what the market will do over the next few years, but I do agree with Garth about buyers being the fools right now.  Way overpriced and being fueled by both fear of affordability getting out of reach and peoples psychological need to spend money.

Newt

Newt,

I will not comment on whether or not land/real estate is going to go up or down in Calgary in particular.  My main argument is inflationary pressures put on by the Keynesian economists that seem to run the macro picture.

When I commented that land is the "appreciating" asset, I really meant that as a generalization VS. the actual box on top of that land.  Land is in finite supply, but builders, materials, etc. generally are not.  You can build any type of house almost anywhere, but you need the land first.  Also, that chunk of land you get at a certain location will be there forever...you can't move it, etc.

So IN GENERAL...land is the appreciating asset of a property, and the building on top (which deteriorates with time) is the depreciating asset.  Be it in Calgary, Nunavut, or Tuktyuktuk.

That is why they call real estate - real property.

To imagine that Calgary would turn into a ghost town is like saying Vancouver would sink into the ocean. The probability is there but I would hazard to guess  that it is zero at this moment.

I thought it was an amazing observation to see that green initiatives and sustainability doesn't even appear in the media's scope until oil prices and real estate prices goes through the roof. So it appears that in order to curb demand and improve sustainability, the fundamentals have to go out of whack for it to be normal again.

Another observation I happen to see is that when the C-train $3 parking fees at the station went into effect, there was much resistance to change. The parking lot was almost empty. Soon the change turn into relunctance and then acceptance. For 3 weeks, I notice the parking lot full by 7:30am. Why the positive response? Choice and perhaps no choice.

Such is supply and demand. You can see opportunities while others fret. The trick is how long or how short are you willing to wait.

One can argue that Land is an ever appreciating asset just as one would argue that it isn't and therefore will go to zero. What is probability of either case to happen? The wild card here is the people. And people are as worldclass says - different strokes. But they can be very predictable as well. Just got to know what to look for. Until you do, you will understand the intrinsic value of land - and not just any land.

@Ping "One can argue that Land is an ever appreciating asset"

Not a True statement. Developers in the US are shedding land below their cost. The Calgary developers cost to procure and prepare a subdivision is around 50K per lot which they flip to Builders at 400% margin. Silly hall knows this but they love the higher tax payments to splurge on their individual pet projects. Most new land value in Calgary is inflated at the moment. I'd use the term "price gouging", but that would be too kind.

I do agree with comments made by Worldclass re: Inflation. We can already see the beginnings of inflationary pressures caused by a declining USD right now in Oil prices. Which does not help us in AB because the CAD is near parity.

Longer term, homes prices are dictated by jobs, quality of jobs and interest rates.

Most of the jobs being created in Calgary at the moment are low paying service sector Jobs. If you're making 12/hr, good luck trying to qualify for a mortgage. Interest rates will have to move higher to control the inevitable inflation. In 5 years when current home buyers go to re-new their mortgages I am expecting higher mortgage default rates.

Calgary may boast about curbing roads and parking spaces to create more parks, but we have more than 8 month long winter. Even right now in the summer time I don't see very many people using these parks.At least Vancouver has the weather going for it.

Silly hall is run mostly by people who have no real life experiences living in a large city. They live in a fantasy world of their childhood which is not conducive to proper planning of a large city. Why else would they still have hieght restrictions and require separate garages in exhorbitantly priced inner city infill redevelopment lots. The new zoning is more stringent. In similar land sizes, large US cities allow 3 well built attached homes, Calgary silly hall will allow only 2. Add in the mandated detached garages and all I have to say is .... what a waste of good land.  

Add restrictions in creating new parking spots while allowing new skyscrapers downtown. The rise in LRT fares to pay for silly "art". Lack of simple traffic upgrades such as synchronized lighting. The fact is people may complain but nothing will change since silly hall workers all drive to work and park in their reserved parking spots. They limit new parking spaces to keep downtown traffic low so they can reach their reserved parking spots faster. Recently some Silly hall worker was complaining about the Ad's on the LRT, the fellow prefers more ugly "Art" of his variety. Silly Hall reality is not the reality of the average Calgary resident

The higher tax rates caused by the short sighted "green initiatives" by Calgarys middle aged planners stuck in memory lane along with lack of proper profesional quality planning by silly hall is the primary cause for more future unsustainable development. With higher tax rates and after interest rates reset higher,the only people who can afford to live here will be the wealthy gang members, over compensated silly hall workers and the rich.

I'm quite engrossed in the buy-or-not-buy arguments. Everyone on both sides seem to have valid points. To me nothing is definitively black or white though -always shades of gray.

I've read a few of Garth's books. I take his analysis at face value but choose to make my own decisions in the end. Can't fault him for his beliefs.

Anyways, I'm wondering what the people of Detroit thought about their real estate prior to their collapse? It obviously didn't keep "going up". There seems to be some parallels between Calgary and Detroit, mainly an economy focused on one major industry (cars for Detroit, oil & gas for Calgary). Might we have the same fate?

Thoughts?

Look for rising interest rates.  Start at 7%.  It may go as high as 12%, hopefully.  This $400K artificial median will vanish as will buyers.  This will be nice to watch.

“RBC’s new posted 5 year fixed rate is up 0.20% today. It’s almost certain that BMO, Scotia, CIBC & TD will follow suit shortly.”

BMO:

BMO Bank of Montreal announced today it is changing its residential mortgage rates, effective June 2, 2009.

The new rates are:

Fixed Rates: To: Change:

5 year fixed closed 5.45% +.20%

7 year fixed closed 6.80% +.20%

10 year fixed closed 6.95% +.20%

When buyers who have been sitting on the fence see these rates going up, do you think it will encourage them to buy before rates go up even more? Or will it discourage them? -Bob

Hard to say Bob.I think it's depends how fast rates going up. Some of them will  to buy before they can rich their GAP and for some people it's already over the roof. But (it's only my personal opinion) if the

rates going up affordability going down and sales going down and the end prices goin down too. New home buiders will create a big competition to resale and they willing to  drop prices more.

My $0,02

@Frnk - AB sells oil in US$. The hurt is more on eastern canada where manufacturing is based. Gas is AB's mainstay on revenue as opposed to oil. What this means is that we will have our pipes from AB to the US market full as they can get the stuff for cheap. Check out why trans canada, enbridge, ipf, and kinder morgan are building pipelines feeding the southern and eastern markets. Companies don't invest literally billions of dollars when they know something is going sour. Their creditors and shareholders won't allow them to invest silly dollars like that especially in a time like this. These are medium term investments and therefore has 5-10 years span. In that time, everyone is predicting interest rates to rise and all hell will break loose. At that time it is all the more reason to look for deals as the market will have the greatest fear factor in it.

What is the probability that will happen? I hate to bet against someone who has that deep pockets and the smartest brains in the industry. They better do well because our CPP and OAS are invested in those companies. Don't bet against your future.

That is true, AB does sell in US$.  Oil has been on a tear, but natural gas (another large part of our jobs) is in the doldrums.  Alberta overall needs to diversify away from these two resources if we want long-term sustainable stable growth.  As long as Calgary is based on oil and gas, we will experience wild swings in the cost of living.

Some are calling for $75-100 oil now, yet at the same time we have a large amount of Put-buying on the oil options market.  Completely backwards.  Who knows what is happening now.  Is oil up due to USD weakness?  Or is it up due to fundamentals?  LIkely its due to USD weakness.

As the USD weakens, Canada, with our "recession", will continue to run larger and larger deficits and will inflate our currency in order to stay competitive with the over-arching USD.  Parity was painful for our exporters, and anything at parity or above again will cause widespread panic as the manufacturing eastern Canadians go west for more jobs, helping to sell resources to the world.  Sure, the rising CAD$ won't mean better profits for the oil producers, but at the end of the day profit is better than no-profit.  If China comes roaring back, its citizens will start buying homes again (already beginning to see a Chinese real estate bottom).  As soon as that starts up, we will see demand for raw materials for building materials rise.  Could China leave the USA in the dust?

Interesting times we live in...

I agree with the comments on economic sustainability and diversity. AB now has the opportunity (having experienced the wake up call of recent months) to invest in other industries while it still has the financial ability to do so. Philosophically I think AB has yet to mature and to have that longer term perspective to turn towards other cylinders in its economic engine. Our politicians need to think globally and socially in order to continue AB's future prosperity.

We have the potential to grow responsibly but somehow it is much easier to fall into the lazy and most commonly used path which is oil and gas. It takes the might of a visionary to see us through the next century. Hopefully we can leverage the growth of emerging markets like China and India in order to better our own good. For better or worse, the West seems to have an advantage - at this point.

May unemployment numbers for Alberta are out...

http://www40.statcan.gc.ca/l01/cst01/indi02j-eng.htm

It could just be an aberration, but after a month and a half of literally *nothing* interesting hitting the market (in the communities I like), there's suddenly 6 or 7 that are worth a look.

Again, it could be just a blip.  I know anecdotally, a lot of my friends who had given up all hope of ever selling their home between Fall 08' - Winter '08, are now just in the process of giving it another go.

That's encouraging news. I hope we get a ton of new listings. It will stabilize the prices, too. -Bob