Bob Truman, First Place Realty

Interest rates = nowhere to go but up

Price of oil = seems to be stabilizing.  Is the price rational ?  Based on fundamentals or speculation?

Price of nat gas = still in the doldrums.  Probably more relevant for Alberta than the price of oil.

Canadian dollar = rising

TSX = rising

Mortgage arrears = rising

'New Housing' price index = dropping

Unemployment rate = rising (both in Alberta and the rest of the country)

Price of rent in Calgary = stable

Home price / rent ratios = still historically out of whack by about 30%  (long term trend is 15.0, currently sitting at 20, our peak was 25)

Case-Schiller index for Canada & Calgary = still dropping.  Indications are that Calgary 'peaked' in mid '07, unlike Toronto which were mid-late '08.

These are the facts as I know them, people can draw their own conclusions. Personally I thought we would have seen the market drop out by early april, and well, here we are, so my predictions obviously mean nothing :)

Good news !!! Houses 500k and up must sell too!!! Of course for ADJUSTMENT price or out of the market. And new home builders will start clouse the gap.

June will be a very hot month for sales.  Now that 5 year fixed mortgage rates have risen slightly, everyone with lower rates locked in will pull the trigger on a deal.  And, as usual, July and August will be very slow.  If you want to sell your home, get it on the market asap.

@CM - Are your calculations on Home Price/Rent ratio based on single family housing or Condo strata? I am interested in your source of your calculation. Thanks.

You are 100% correct CM!! Your predictions do mean nothing, obviously.

@ping: My calculations for home price to rent ratio are based on SFH, although it would be pretty easy for one to calculate it for condos.

Here's my method...

Go to rentfaster.ca and do an advanced search for every SFH for rent in Calgary.  Here's the output:

http://tinyurl.com/dccdb4

Make note of the median rental price (currently $1650)

Now I simply take the median price of SFH's in Calgary (currently 390,000) and plug it into the equation.

390,000 / (1650 x 12)= 19.7

Let's see what we have for condos...

Rentfaster: http://tinyurl.com/m75cpl

Median condo rental cost = $1400

Median condo sale price = 255,000

price to rent ratio = 15.2

Median rental prices for Calgary, as of June 5

SFH: $1650

Condo: $1400

2 bedroom apartment: $1150

Could be an interesting stat to watch.  

Er, to all those hurling invective at the poor saps who are still buying homes, you do realize that those are the folks who are keeping this economy from completely tanking. If everyone suddenly stopped buying real estate, home values would plummet to near zero, and this gossamer thin recovery would turn into a depression the likes from which we may never recover. So, to all those generous, kind-hearted folks loading up on overpriced real-estate–bless you. You’re the reason I still I have a job, an internet connection and a sliver of hope.

It looks as though we are seeing a small bounce back in our real estate market.  Whether this is due to fundamental reason is moot, however you look at it.

There is one thing that is clear however, and that is the rates are going to start rising sooner than we think, and believe it or not....the central banks will do whatever they can to keep the rates low.  We won't be seeing 3% jump to 10% any time soon.... we will however see a gradual rise over a few years to 5% IF AND ONLY IF the world economy really is "coming back".

The price of oil is sky high due to speculation that there will be inflation in the USD currency in the near future.  It may actually become a self-fulfilling prophecy in this case.  The Bank of Canada, meanwhile, has telegraphed its intentions to keep our Loonie flying low and will institute the means necessary to make sure we don't have too strong of a currency compared to the USD.  What does this mean?  Inflation in our currency, and thereby inflation in all things essential (food, base metals, energy, shelter).  The west will be strong with the resource industry whether we like it or not....and it looks as though Calgary may get another jolt back to life.

It won't be the heyday of 2006-2007 thankfully.  Maybe we will finally get a moderation of our economic activity (not too hot, not too cold).  I don't know about you folks, but even though I saw a lot of these job losses coming to Calgary, I was still sad to see fellow Calgarians lose their jobs.  Especially friends of mine.

Let's see what this market brings next.

For the record... Truman's chart above shows a large increase in sales volume within the "inner city" area.  I have been trumpeting this all along.... that, if you can, you should try to purchase in the inner-city (a good neighborhood though, like Scarboro, Killarney, Altadore which is excellent, Elboya, etc).  The lot sizes are larger, and you get the value of location.  A big box out in the suburbs on half the land size just won't shelter you as much from a big downturn (which is always still possible....though the possibility is diminishing).

I'd like to add to my previous post as well, that in no way do I mean to offend homeowners in far-flung suburbs.  If you like the home you're living in, then so be it.  I was speaking strictly on the investment side of things.

If you have to buy, and can live in a smaller older home.... then think inner city.  Unless you have the money for a new inner city infill.

Hi Bob,

Now we can see Evergreen SW in a sellers market( 1.4).OK? If we count on MLS map there about 82 house on sale. 21 houses-range 250K-400K,13 houses-  400K-450K,48 houses-450K and up!!! Soon or later houses for 250K-400k will sold, 400K-450K maybe to but slower. And my question: What happen with 48 houses 450K and up? ..... Which market will be ?!!!!!

Bob, That hot/cold list is pretty neat.  Can you tell me what this would be for Somerset, Bridlewood, Whitehorn and Monterey Park?  Some of those might already be included in another one of your listed areas.  Thanks

Like many of you I didn't think this spring would be as strong as it has been.  The most surprising thing has been lack of inventory.  I've told one of my friends not to buy until Fall.  One thing I didn't expect was the drop of interest rates. My friends have been watching prices go up every month.  Hopefully they don't end up hating me.

Mike,

The market of 450k and up will be those who can afford it....and some of them will be those who have overstretched themselves to afford it, but find themselves house-poor.

I think the 4% price rise is due to seasonal strength buoyed by low inventory. I expect prices to correct about 10% by the end of the year. We'll see median of 369K before years end.

I do find the low inventory to be an interesting phenomenon. The only reason I can attribute this lower inventory rate is that the majority of Calgary residents who owned homes prior to the 2006 run-up used existing equity to put a purchase deposit down on a newer home.

The glut of inventory in 2007/2008 was because both the new home and the older home were put on the market at the same time. When none of the houses sold, the sellers decided to rent one home out. There is no other comprehensible reason for inventory to drop this low from a high of 8000+ listings last year. The purchase price of these new homes in 2006 was about 30% lower than current value, so even with the recent drop these families are still doing very well on their purchase. With homes rented out with positive cash flow, there's no incentive to sell.

The most important data is the unemployment numbers. If the recent trend in layoffs and low paying job creation continues, does that indicate these rental properties will come to market next year?

We are seeing this for the third year in a row, prices go up in the first half of the year, people think they will keep going up and that the correction is over, then  prices will go down in the last half of the year. The last two years prices ended up significantly down for the year.

When will people get it!!!

Those who don't get it aren't very cognizant of the real estate market.  Prices should fall from here on throughout the year, as they always do.

There may be a bump in sales though with the news of rising interest rates.  However, if the economic news is not good for the rest of the year, look to the USA to continue running the printing presses and for the rest of the western world to follow suit.  In such cases, rates will stay low for the foreseeable future.

Those buying now might be willing to pay more for choice and selection.

worldclass:

How the Canadian government will keep canadian dollar low when the oil going up? It's the same trik like they did with the housing market?

Mike,

They've already signaled that they are "watching the loonie", meaning that they do not want parity or greater....they prefer a lower Loonie because we are stuck in the mindset that we have to produce for the consumption of the USA.  Why we can't produce for our own consumption baffles me.

How will they keep the dollar low?  They've already started doing that... by running ever larger defiicits...by quantitative easing policies, etc.  If we maintained fiscal prudency, our Loonie would be at parity right now...but because we've followed suit with the USA and had mini bailouts of our banking system (via "injecting liquidity") and carmakers, our Loonie is flying lower.

Just watch what oil prices do over the next 6 months. I suspect it will be down since the contango is not happening as much and there's lots of supply at sea. It all depends on consumption this summer.

There are speculators out there trying to buy cheaper oil in US$ and then they buy CAN$ to hedge against the US$ for most commodities based economy. Bouncing the currencies back and forth while the Canadian govt tries to keep our economy competitive with the US. Our backs are almost against the corner with interest rates so low. The other option includes printing more money but the deficit idea is definitely clever.

Watch for more govt spending in the horizon. For those of you subscribing to the baby boomers theory, it will be interesting what they will do to real estate and the stock market. They certainly cannot depend on GICs rates at this point for monthly income. Something has to capitulate.

Anyone have a reliable site that gives historical data on housing rental vacancies. I notice more for rent signs posted as I drive around.

Very good, honest advice. Thanks Bob.

It seems to me that we are setting up for a housing disaster.  This whole rush in while we can afford it and don't ask any questions about the future.... hopefully it works for people but I have my doubts.

Mortgages are the single biggest financial drain on society the way they are structered causes the consumers to waste tens and hundreds of thousands of dollars in extra interest payments.

If you have a decent downpayment there are way better vehicals to allow you to finance a house where your not structered into a 90% interest 10% princaple ripoff that the banks try to tell you is the only way.

@Jeff

If you have a decent downpayment there are way better vehicals to allow you to finance a house where your not structered into a 90% interest 10% princaple ripoff that the banks try to tell you is the only way.

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I agree with the ripoff statement. Could you elaborate on other vehicles?

I really don't feel comfortable just tossing out what it is for two reasons.

1. it's structered much more freely so if you do not have a financial plan of action in place you can get yourself in alot of trouble.

2. It's not necessarly better for everyone in every situation.

If your interested i am sure you can find information online, I don't want to turn bob's blog into a shameless plug for me. Just wanted to make people aware there are alternatives.