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Hi Bob,

The ONLY reason  for market up- is EASIEST in a history borrowing money interest rate.It's will be different story when is going up. And people understand it. But pay $600-700K for box which was built in 2006-2008 with "super" quality????........

According to the Case Shiller data for the U.S. (national composite), their market peaked 33 months ago, and since then the average home has decreased in value by 33%.

Here in Canada, the Case Shiller data (national composite) shows that we peaked 8 or 9 months ago, and since that time, our average home has decreased by 8 or 9%.

I think maybe we were expecting too much too soon in terms of price drops.  It didn't help that prices in Calgary started dropping well before the rest of the nation (seemingly without any real pressure from economic trends, well before talks of unemployment).

The 'crash' in the U.S. really took 3 years to unfold.

1% average monthly decline in the long term, but with normal seasonal fluctuation in the short term along the way is where I'm placing my crystal ball for now. :)

I think it's worth repeating that the housing crash in the U.S. was driven by completely insane practices: So-called "subprime" mortgages were being handed out to people with absolutely no one checking to make sure the buyers had any chance whatsoever of paying; further these mortgages often had clauses whereby the interest rate would suddenly ratchet up after the initial grace period - much like low interest credit cards that jump to 20+% after a year. Finally these awful mortgages were bundles into investment vehicles and spread out into markets around the world - basically creating billions on billions of dollars of worthless toxic securities. And even all this may not have been enough to cause a global recession if it didn't tie in nicely with a hopelessly un-regulated "credit default swap" derivatives market.

My point is that yes, it's true that the bubble in the U.S. took a while to play itself out, but one should analyze things in the proper context. Whatever speculative characteristics the Calgary market may have, it's not the complete insanity we saw in the U.S.

"Whatever speculative characteristics the Calgary market may have, it's not the complete insanity we saw in the U.S."

Vladimir, I think all of your points are excellent and valid.  However, in my opinion, a bubble is a bubble, no matter how it was inflated.  The fact remains that the long term appreciation of a home in Calgary is 4.5%, so when it jumps by 40-50% in 2 years, it's a bubble.  From what I've calculated, if we were a U.S. city, we'd be somewhere between Phoenix and Miami in terms of our run-up.

Does it really make that much difference if our bubble was created by energy price speculation, 40 year mortgages and quantitative easing instead of deriatives?

I guess we'll see!

Up, down, or, worse, flat.

I am looking for a house, and the prices seem not only out of whack but stuck on sideways.   The big crash in prices hasn't happened so we still confront $500-$600k for 2000 poorly constructed sq. feet on a small lot, but it's also true that the big run-up has stopped.  With rapid appreciation anything looked like a deal because you could reasonably see profit in the next sale.  Without steady rising prices, the attraction of long-term debt for the opportunity to shovel snow from the sidewalk and money into renos seems less appealing.  

CM, I think the speculation that radically changed the Calgary RE market in 2005 is the same speculation that has driven large companies to invest billions into the oil sands: The belief that over, say, the next 20+ years petrochemicals will be an increasingly scarce and valuable commodity. Since Alberta is a pretty monolithic economy, it's basically that simple. If that is indeed the case, then the RE market in Calgary may actually still be pretty affordable compared to what we'll see 10 years from now and it's a good time for a young family to buy - in fact one could look at the recent dip in prices as an opportunity. If on the other hand that turn out to be false, and a couple of years from now - or tomorrow - we see a headline in the morning news that some bright engineer somewhere has made oil and gas obsolete, then it's a bubble...

Vladimir and CM the argument that Canada "must always" follow the US by 2 or 3 years(this number steadily adjusts upwards with time) has been put forth without question by some media economists (and Garth Turner) without questioning why?

Calgary's real estate peak in US$ was about $428000 median in Feb 2008, the bottom was March 2009 at about $293000 - thats a drop of ... 32%. Now we are at $356000. I have never seen this reported anywhere.

Do home sellers and buyers here first look at US home prices 2 years ago, and not their own incomes and Canadian prices last week when buying a house?

Pay attention to the quality of your sources. Anecdotes, internet polls and many economist predictions (especially Garth Turner who sells "Bear guide" books) are a poor guide and will usually lead you astray. Turner is particularly odd since he buys real estate while he strongly advises others not to.

If you truly believe that unemployment was a leading indicator, you would have thought in Sept 08 that Canada was historically stronger than ever and that we were due for a boom. You would have said the same for Calgary in 2007.

If you believed that stock markets and credit spreads (TED) and stock volatility (VIX) were a leading indicator, you would have known in late 2007 and all through 2008 that there would be serious problems in the economy. These indicators have all turned much very bullish in recent months. Housing starts are starting to turn now and these are often seen as close-to-leading indicators as well.

I agree that we would have seen lower real estate price at higher interest rate levels but that is always true and if you had predicted the crash accurately in 2008, you should have predicted much lower interest rates as well...

In this way, economics is a bit like a tennis game - if you predict a player hits a ball one way, it will probably be hit back the other way. I'm guessing these interest rates are here to stay as long as unemployment rates are above 7% in Canada (maybe well into next summer). We'll probably see some core CPI inflation numbers above 3% for a month or 2 before it happens. If interest rates are rock bottom until then what do you think the effect on real estate will be?

A good piece of advice I once read:

"You get the market that you get, not the one you think should be there"

As a person working in OILSANDS I just smile when I heard OILBOOM will be back. May be for some heads!!!!

For now when companies understood how is GOOD restructurisation it will dramatically changes in hiring policy.Time when companies spent for salaries

a billions GONE forever.Nothing with oil price $70,90,or 140.

good comments...but the fact remains in my mind, housing in canada and calgary inparticular is simply too high. The average family ($90K income)can't afford to buy in calgary. When that happens prices can't be sustained. Yes we may have low interest rates for a while but eventually they will turn higher and potentially a lot higher. I simply don't see how real estate can go higher for the next 10 yrs or even the next couple years in this environment. The bottom line for me is its a LOT cheaper to rent than to buy...so why buy. I just hope all those 1st time buyers are anticipating higher interest rates.

I see these low interest rates in the same sense as I see the "0 DOWN, 0% FINANCING for the first 90 days" gimmicks that they have at department stores.  Most people are putting 6% down over 35 year mortgages.  Come 5 years from now, I highly doubt that rates will be as low as they are now (3.2% 5 year open?), but they could easily be double.  I also doubt that many people will be able to make extra payments to pay down the principle.  A lot of these first time home owners, that are looking to move into a piece of the pie so that their tyke can have a yard to play in, will be in for a shell shock once 5 years rolls around, they still have $321,000 owing on their $350,000 home and now the bank is telling them that (with the interest rates now at 6%) the mortgage payment is increasing from $1421 a month to $1814.  Plus, little jimmy junior now has a brother on the way, so Debbie is not going to be working for the next year or so, and the family expenses are increasing significantly.  

I know this post has nothing to do with increasing or decreasing prices.  But I really have a hard time believing how many people are getting sucked into this low interest rate scam... or, I mean low interest rate economic savior.  "Sub prime mortgages", maybe not, but I think that we are treading on thin water with a  combination of false affordability and people not looking into the future.

Re: your new poll question. It was hilarious.

I have a couple of other possible answers that you could have added...

1. His actions show that he's obviously on the verge of buying a house

2. He'll hack into your database because he wants to know how to set up a successful website

Isn't what the govt stimulus is suppose to do - incite spending and move the economy - not just Alberta but the whole country? Corporations, companies buy and sell, ordinary citizens buy and sell which is the basic form of the economy. When more transaction occurs, you have demand and demand spurs growth which means getting out of recession which everyone wanted, isn't it?

What we are observing is the govt. stimulus, our tax dollars at work, isn't it? The home renovation is another form of stimulus - make ppl spend and put ppl to work and pay taxes. Interest rates are kept low albeit at a cost to the govt and investors in some shape or form but nonetheless our tax dollars are at work. It will take some time to work the stimulus into the economy but when it does we should get the opposite effect which is inflation as the pendulum swings. But who cares about inflation now when there's cheap money today. It's only prudent folks on this website who are concern about the future and the value of the house as an investment.

I don't look at housing as a pure investment. Why would you borrow 80% against your asset unless you know it will double by 160%. The amount of interest you pay on the 80% doesn't make a good investment choice. It makes perfect sense for the bank because they have some form of guarantee because you need a place to live in and therefore pay your mortgage. Hence the argument that housing is simply for ppl to live and play in - that's it that's all. Calgary has an increase in population of 20K+ in Dec 2008. Where are these ppl going to live? We are a million and 60 thousand and growing. http://www.calgary.ca/DocGallery/BU/cityclerks/city.pdf

I would agree if you use housing as a collateral and a form of leverage. It does make sense both from a tax and financial impact perspective. As with all leverages the impact is huge swings one way positively or negatively. Some argue it is gambling, but isn't life like that. I prefer calling it Taking a chance.  

Hi Bob,

Don't pay attention  on that idiot.Your blog  is very interesting and people understand it.

Bob, if I were you, I'd be watching for people going through your garbage....it could be Squidly!

whoever this "Squidly" fellow is, he needs serious mental help.

This fellow could very well be a physical threat. I'd contact the authorities and get a physical restraining order against someone who appears to be as unstable as he is.