Bob Truman, First Place Realty

The pace of SFH inventory seems to have slowed a bit though, on target to hit around 5,800 by month's end rather than the 5,900-6000ish that the projections were showing at mid-month.

Thanks for the stats Bob.  Not a lot of signs indicating increases on the horizon.  I believe that a 20% correction would be healthy for the market; it would ensure a substantial pool of buyers in the face of increasing rates, tighter rules, etc.  I realize that a lot of us homeowners enjoy watching our imaginary money (equity) grow but we will have to get used to it disappearing for a while.  For those who have not spent their equity on the finer things in life, it should not be a big deal.  For those who have, good luck.  

@CM - I think there is a possible long-weekend effect there.  It doesn't make sense to list your home right before a long weekend - either you are going to be out of town, or the perspective buyers will be out of town.  No guarantees, but I'm expecting that we'll see lots of the listings that would have happened last week or on the weekend pushed into this week.  We'll know if my theory is correct if we see loads of listings between Monday and Friday.

Mabus

Bob - how come you're so comfortable saying "the average price can't go any higher".

There is obviously a huge disconnect between average / median due to the million dollar listings that sold - so are you basically saying that because of that disconnect the average price really can't go much higher.

.7% increase in one month is still more than reasonable for home appreciation I would think.

Yesterday CREA published a big piece on how "home prices will stabilize, not decrease" and how "incomes will simply catch up with prices". What are your thoughts on that?

I wish we never talked about average price because it's so misleading, but what do we always hear in the media? When economists and real estate boards(and Garth Turner who should know better) make predictions, what do they use? Average price.

When the month-end numbers are reported, it will appear that Calgary's home prices are skyrocketing but in reality they pretty much stayed the same. Sellers will get a false sense of market conditions and expect too much. Buyers may be making decisions based on misleading numbers.

To answer your questions, I just can't fathom average prices going any higher when we have all-time low sales, lots of new listings, and affordability being eroded.

As for the CREA article, I'll go with the Crash/Confidence Index. -Bob

Bob gave a good comment on the avg.price limit. Buyer should not look at avg. price to make decision. Buyers better look at the house, the location and choose the right realtor.

hw21 said:  

"Bob gave a good comment on the avg.price limit. Buyer should not look at avg. price to make decision. Buyers better look at the house, the location and choose the right realtor"

Buyers better look at the income,because......

Good info Bob, I am following your path I think your very right on the market .

On another note we just had a lay off 50 yesterday. I survived but its getting nasty and we all hope things pickup. But the customers are just not spending or even coming in like they use too.

Great Post Bob,

I agree that we've seen the peak for SFH's for some time.  At the end of the day, the price is dictated not only by supply/demand, but also by peoples ability to afford the homes.  If you drive around the downtown and beltline areas, there are a lot of "For Lease" signs, which essentially means a lot of companies are folding shop.  Until the job situation improves, the median price will continue to decline.  What are your thoughts Bob?

As I've said, I'm pretty sure the average price will decline immediately. The median price may go up or down for a while but will also eventually go down(it will be below $398,000 by October according to the crash/confidence index). -Bob

First post ever in years.

What do I say? Been on Bob's blog almost 2 years, I'm so grateful and lucky having Mr. Truman. I never contact him, but I can sense his professionalism, honesty, justness, what else do you want?

My first thing in the morning was to check Bob and Garth's site. It's addictive!

Buyer and seller has contradictory interest, being a potential buyer, I vote for Bob!

Great job, you're the one goes extra miles!!!

Always vote for Bob rather than Garth! Garth plays on fear...melodramatic.

Lowering fixed rates is not surprising given the huge moves in the bond market recently - fixed and variable rates can move in opposite directions.

I would expect the fixed rates still have further to drop based on the uncertainty about the Euro not being resolved anytime soon. If the market is already crashing on very good US industrial data and earnings I can't imagine what will happen when that news starts to disappoint.

Sales:new listings is showing signs of turning around. Sales for May were 7.1% lower than the April pace while listings were 8.8% off their April pace. While inventory grew, the rate of increase is slowing down.

Hi all.  I have not posted in a while!  Time for me to play devils advocate, since the prevailing thought is for an imminent crash in Calgary home values.

The outlook for the world is again "grim" and the rescue money being pumped into  the Eurozone is huge.  We see gold has found a new bottom at about 1200 USD per oz.  This still indicates that we have been inflating all along since the crisis first hit in 2008.  Don't believe what the analysts like to scare you about (deflation is happening!  aahhh!).  In 2009 you could have bought Kitco.ca Canadian Maples for 950ish, now they are 1300ish.  Yikes, that's a good gain.

Unless the world starts "austerity measures" en masse, we will trudge along the inflationary pathway.  The only country experiencing RELATIVE deflation (relative to other countries, but still not to gold standard) is the USA - simply because they are the reserve currency.

So will Calgary home prices come down?  Yes, a little bit maybe 10-15%.  But think again, the prices aren't so far from the heyday of 2007 when they were at their peak.  So 10-15% puts us right back to what they were during the crisis.   Don't expect the big crash that Turner wants though.  He's been trumpeting deflation since 2007 - all we have seen is GDP "growth" and overall inflation in Canada.  He'll continue to be wrong because lets face it, the governments of the world are incapable of doing the right thing.  The tendency has always been for central bankers to crank up the printing presses, expand the balance sheets, and inflate our way out.  Stupid as it may seem, look what the Eurozone just did.  They released over a trillion dollars worth, to "save" the currency.  What?!

Your Canadian dollars, though higher vs. the USD, is still LOWER vs. the gold-standard!  Everyone is lower vs. the gold-standard.  I'm not making a point about gold, but I am making a point that a house is a very durable good that holds value (like gold) for people.  You live in it, and it's location is finite.  Once there is a house on that plot of land, you cannot have another house on that same plot.  As money loses it's value, housing cannot also lose value.  It would be paradoxical and would not make any sense.  So Calgary housing has overshot itself, and should come down a bit from here....but my prediction is that it'll not be a crash back to 2005 prices.  Rent, wait, hope, and save?  Beware.

As an aside, the oil industry in Alberta is going to have a nice shot in the arm as the Stelmach government has decreased royalties.  It is estimated extra 400 or so wells will be drilled this year alone.  China has also been on an oilsands buying spree as of late, which allows capital inflows to develop the patch further and that means more jobs.  Lastly, if Enbridge gets approval for that pipeline to the west coast... well yah... 1.75 million barrels a day is the estimated demand for oilsands oil from Asian countries.

Worldclass - the risk of near term deflation is still quite possible. Sentiment is so negative right now that corporate bond issues have frozen and this is all completely out of whack with earnings. Either we have a double dip this year or a large spike in the stock market in the next few months.

A slowing velocity of money can overcome printing press inflation for a long time.

The problem is China is driving growth and it's really quite hard to know whats going on there as the government essentially controls most statistics and puts out the story they want people to hear. If things were going bad there and bubbles were popping, you wouldn't know until it's already happened. People are now wondering about that with the recent "slowdown" in manufacturing there. The EU is a sideshow

That said, shipping indices are skyrocketing and China's collective savings is still immense so my guess is that maybe the government is trying to calm inflation by "talking it down" in advance of a revaluation which will ultimately be the driving force of global inflation. If you think about it, they want to sell their US assets while the dollar is strong so it's in their interest to promote bad news at this point.

You can't go wrong with Alberta real estate - especially now that the US has almost nowhere else to go to get oil in the next few years.

Gold is a bit of a crisis trade and if we ever resort to the gold standard, I would be buying guns ammo and soup cans instead.

On a side note about China the inflation is so bad that the majority of the population is in a huge crisis right now.  There was an article on Bloomberg yesterday about how they raised the wages 25% for this company that builds iphones.  That salary is now 1200rmb for these factory workers.  That's about 190 CAD/mth.  They had to do it because they had too many workers committing suicide.  This is in the city of Shenzhen.  The average cost per square meter of real estate is 15,000rmb (about $2000cad/square meter).  So if the place is about 75meters (roughly 800 square ft) you're looking at 80x salary.  This is in Shenzhen and not Shanghai or Beijing even.  This is why they are trying to cool inflation.  They love the growth they are getting out of the businesses but 90% of the population cannot afford a place to live or even buy groceries.  Our real estate is ridiculously expensive compared to the USA but incredibly cheap compared to China.  However, last month real estate cooled down there.  in May Beijing real estate sales dropped 80% month-month.  maybe the bubble is bursting....or just that one.

"Gold is a bit of a crisis trade and if we ever resort to the gold standard, I would be buying guns ammo and soup cans instead."

Jimmy, great comments!  I agree, gold is a crisis trade.  But no matter how tinfoil-hat gold is, we must always have the price of it in the back of our minds.  The price serves as a sort of benchmark of the value of paper currency.

The velocity of money is a funny thing.  Back in the day, money would grind to a halt and we would experience massive deflation.  However, nowadays with the speed at which commerce can be achieved due to vastly improved technology, the bounce back of money movement can be blazingly fast.  While near-term deflation is a risk, it remains that for now as it has since the onset of the recession.  We've been listening to deflation "risk" for 3 years almost, and if anyone took those people for their word they'd have missed out on the big rally in almost every asset.  The deflation shadow is trying to come back, but read on...

Look for the next devaluation of our money when China finally lets its Renminbi rise to where it should be.  My guess is that our money will buy less in the future-world than it can buy now.  Thus we will all be "poorer".  This is inevitable in order to rebalance the global economy.  Domestic goods that are exported will also be more expensive, since they will be bought up by nations that would have higher purchasing power and we'd be competing with said nations for our own goods.  Only domestic goods that cannot be exported will remain the same like a haircut, dentist/doctor visit, etc.  One only needs to go to a poor country with low currency value to see that the locals cannot own any land (priced in their own currency, they can't afford it...and this is accepted as the norm).  The land has "gone up" relative to their own weakening currency.

I am a big-picture type of person.  The big picture is that Alberta real estate is where the hydrocarbon infrastructure, investment, brain-trust, and oil/gas locates.  People buying property to flip short term are going to get hurt at this juncture.  For prices will fall.  People buying property to live in will prosper, because the fall in prices will simply be a chance to get into the market at a more reasonable rate.  Kudos to those who can time it perfectly... but also good luck on trying for that.

Bob - the increase in avg is not that shocking with a $3mln home selling?

worldclass - when china lets its currency go, all we need is a rise in oil prices, and those manufacturing / food processing jobs will start flocking back to NA. It'll hardly make any sense to keep shipping stuff to china and from there back to here.

I think in the short term, signs are pointing that prices will be falling soon on a year over year basis.  The sales to new listings ratio is very low.

However, when one looks at a fundamental valuation standpoint of affordability, Calgary is the only major city in Canada where we are below our long term affordability trends.  In addition, Calgary is the second most affordable city in Canada.

My expectation is that with continued rise in interest rates, and small drop in house prices, and small increase in household income, that affordability will continue to be okay.  I think in the near term, slight fall in prices, and in the medium term stagnation, and in the long term, prices will rise.

The other point, is that quality of life in Calgary is exceptional.  It has been ranked by the Economist magazine as the fifth best city in the world to live in, and by Mercer as the 28th best city in the world to live.  It has also been ranked as the top eco-city in the world.  So, there are plenty of reasons to live and work here.

The biggest thing that I think will change in the next couple decades, is people will start to think more about tying land use and mobility together.  Oil prices are very high, on a real basis, but going forward there will be even more reasons to think about the price of fuel and commute times.  The marginal barrel of oil is produced miles below the ocean, and in the oil sands in Fort McMurray.  To extrapolate from a century ago, where production only happened onshore, to today where we are drilling miles beneath the ocean, it is not conceivable to extrapolate this trend 50 years without realizing that there is no cheap oil sources left.  United States oil production has been declining since the 1970's, and the ONLY sector of growth has been offshore.  Obama's six month moratorium on offshore drilling will do nothing to meet the long term energy needs of the United States.  The fact is human society does not have any means for producing a cheap alternative.  Think of how much work it would take if instead of driving your car to work, and back you had to push it instead.  How long would that take?  Each barrel of oil has YEARS worth of manhours of energy in it, and humans have not figured out a way to produce that amount of energy with as little work.

There is a reason why European cities are built on a different scale than North American cities.  The primary reason is that we built all this infrastructure on the premise of cheap fuel.  Heck, a bottle of oil still costs roughly the same as a bottle of water.  In the future, it will be much more important to be close to multiple forms of transportation, and/or living and working in close proximity.  It will also matter more in the future than historically that your home is well-insulated and does not have a lot of heat loss, and even our food will change.  Instead of getting calamari from the ocean, and bananas from South America, you might be eating more local breads, fruits from BC and local vegetables.  Eating local will become more important as food prices that have higher transportation costs will lose demand.  In addition, there will be less flight traffic, and people will travel locally.

These changes are not going to happen today or tommorow, but increasingly over 25 years. I believe our cities will look much much different than they do today.  My hypothesis, is that in 1998 that was the beginning of the structural shifts in our city, it was the end of low commodity price for oil, and that much of the new high rise condos being built in Calgary are a result of increased commute times between major employment centres and increased commodity prices.

Radley - you probably follow Jeff Rubin. I actually think that if the peak "cheap" oil hypothesis turns out in the next few years - and all signs point to this - that oil and gas cities like Calgary, Edmonton, and Houston will be the only places where suburb living is still popular, since the profits will first flow to provinces and companies employing people there.

Keep in mind the price of oil and gas would need to get extremely high -  at least double or triple where it is now relative to wages to start affecting behavior on that large a scale. This might happen in a deflationary scenario where oil rises and everything else falls. Without deflation, you would need to see oil at well over 150 for quite a long time in my mind. Calgary businesses and employees would do very well at that level and I don't think folks in the outskirts would mind paying the extra commute premium for their large lots.

I think we also need to consider the possibility of technological changes we can't envision now. For example natural gas was thought to peak a few years ago and with an innovative drilling technique, suddenly there is abundant gas everywhere in the world. There is a ton of work going on in biofuels and genetic engineering that also might suddenly turn very promising. The same thing could happen to shale oil or coal-to-oil in the future, driving the marginal price back down again. Like always, these things are born of necessity.

I am an exploitation engineer, so it's a lot based on trends that I am observing (i.e. polymer floods).  I agree that society will be using technologies like biofuel that offer less of an energy return on energy investment.  That is to say it will require more labour and more work to get at that same energy quantity.  In the US, the energy return on energy investment is barely greater than 1, and in some cases it results in an energy loss.  Again, think how much energy is consumed dragging a seeder through a crop, digging a mine for fertilizer, driving a couple ton combine through a field, having an irrigation pump, transporting the seeds to the nearest ethanol plant, and then shipping it across the country to a gas station.  And think of the energy contained in the seeds if you were to crush them up and burn them.  It just doesn't pass the sniff test that this will offer a high energy return on investment.  I am sure we will end up using biofuels, but only once other cheaper options are used up.  Biofuels are not cheap, neither from a price standpoint, or an energy return on energy investment standpoint and therefore require heavy subsidization by the US government.

As for suburbs, in Calgary, I do think that we have ALREADY shifted from where we were in 1998.  During the entire 1990's when oil was relatively cheap, there was extremely little multi family homes built.  Since oil prices bottomed in 1998 at about $10/bbl, and commute times have increased substantially between major employment centres there has been a shift in market share towards more multifamily homes.  I also think that Calgary will still see less marketshare of MFH compared to cities like Vancouver or Toronto, however I also believe that Calgary's MFH market share will increase as well.

Many people will choose to live in far-flung suburbs, but ones that do not have a good link to a major employment centre, really risk quality of life.  Not only from higher commodity prices, but it's also that if you are commuting an hour extra every day to work, then there is both opportunity cost, social cost and health cost associated with that.  One doesn't have as much time to spend with family, or they could be working longer hours instead and earning more.  As a result, a child's grades may suffer by not having good access to parent mentorship.  In addition, studies have indicated that people that live in the suburbs are more likely to be overweight due to heavy reliance on cars.  This also causes health issues.  Not only that, but there have been large shifts in ethnicity in the suburbs, with some areas becoming predominantly white and others predominantly one ethnicity.  Some people may like this, but there are others who also are seeking a diverse community that is more accepting of differing cultures and values.

Calgary may also have large tracts of land around it but also, how many of those can be readily extended and have a reasonable commute time?  The northwest is surrounded by high value acreages, that have no intentions of selling, so there is less development happening there, the southwest has a first nations reserve, and although there is a plan for a ring road, no agreements have been reached, the east is Foothills industrial park, and that will continue to be a central hub for the industrial sector, so the only places for growth are the northeast and southeast.  The northeast has a LRT line, but is becoming an ethnoburb, and the southeast is waiting for a LRT line.  Communities like Cranston are incapable of walking to get fresh fruits and vegetables, and incapable of walking to work, or accessing LRT, so it's clear that these communities are very reliant on cheap energy.  They are also reliant on the transportation system which when it snows, creates a headache, or causes traffic snarls when there is construction and remediation work.  That is why I think people will look for other options where they can reduce the aggravation caused by traffic snarls, and the risk of higher energy prices.

This is just an example of the risks involved with living in the suburbs.

http://www.calgaryherald.com/news/tunnel+airport+cautions+mayoral+candidates+make+promises/3110796/story.html

In this case, the Calgary Airport authority is closing down a road, and even though there are supporters to do so municipally, there has been no support from the province or federal government to build this $300 million road.  So this is a sign that there aren't going to be a lot of major infrastructure projects, unless people are okay with paying a lot more in taxes.  In Calgary, this tends to be that noone wants to support a project that is outside there ward, so no cohesive plan is ever executed.

I just don't see how distant suburbs transportation system will get better and not worse.

Even those suburbs that are built, will probably look more like McKenzie Towne and less like Cranston.  Once the SE LRT is built, Seton, is another suburb community that I think has the most potential as it will be linked with a major employment centre (hospital) as well as built on a different scale.

Will - you understand now why if China lets their currency go we will still end up with jobs here.  So yes, I agree with your statement.  There is a big reorganization period however that must take place.  It's not like we are all of a sudden going to have factories in place that can produce all of what China used to produce.  Any way you see it, our money will be worth less vs. asian currencies (especially China's).  This usually translates into more jobs for us here.  So you will work harder to buy the same things, but at least you'll have work.  For example, in Vietnam the unemployment rate is approx 3% - their currency is very weak.  Yes, people work a lot there but the average person sure can't afford to buy imports from "the west" or own land (unless it was passed onto them from previous generations).

Regarding "biofuels" -  it will never fly for long.  Radley already touched on many of the reasons against it, but any "greenie tree hugger" worth their vegan diet knows that biofuels are very UNGREEN.  There are already rain forests being cut down to make room for sugar cane biofuel-only plantations around the world.  Research has shown that, aside from the complete destruction of diverse biological life, we are netting more C02 in the atmosphere by using biofuels.  If biofuels ever really do take hold, it'll be seen as the dumbest idea humans have ever came up with in history.  It's a classic example of good intentions having very bad outcomes due to lack of thought.  You think that Ethanol mixed in your fuel makes you green?  It's worse than using regular gas.

Also, not only does biofuel cause more greenhouse gasses as a total, biofuel production also takes away from regular agricultural food production.  In a world where we still have starvation, only the wealthy countries will be able to burn food just to drive our cars.  How does biofuel help humanity?  Please see the following links:

http://www.scientificamerican.com/article.cfm?id=biofuels-bad-for-people-and-climate

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20080209/biofuel_crops_080209/20080209

http://www.time.com/time/magazine/article/0,9171,1688893,00.html

Lastly, about the suburbs.  Save for a few suburbs in Calgary, the rest of the suburbs are unfortunately not going to be very desirable for future living.  I am very happy Calgary has realized this and is trying to put an end to sprawl and move toward a higher density within the land we already occupy.  A more vibrant city will emerge because of this.  Inner city land will be scarce and highly valued, especially in areas where ownership and NOT rentership (is that a word?) is high.

That is if you are a realtor who enjoys lots of hiking, canoeing, and time off. Also, if you are a home-buyer