The Bank of Canada raised its benchmark lending rate by 25 basis points to 1% in mid-September. What does that mean to the average home owner in Canada?
Variable rate mortgages that are directly effected by bank rate changes are being chipped away by this steadily increasing interest rate environment. The Bank of Canada has increased it's lending rate three times over the past five months. Late in 2008 the mortgage fiasco in the USA dramatically effected our market in Canada, Alberta and Calgary bringing sales to a standstill. Sales in Calgary were the lowest we have seen in over a decade following the huge slide in the American housing market. It is important to note that the Canadian mortgage regulations are far different than our neighbours to the south, however, the perceived potential downfall in our market pulled many potential buyers from the market taking the "wait and see" approach. The Bank of Canada reacted quickly reducing its lending rate to a mere quarter percent. This emergency measure was brought in to increase affordability and - most specifically - to kibosh a potential disaster in our real estate sector. These measures contributed to the fact that values in our city and across the country stayed relatively constant after the US market plummeted in value at the end of 2008 and early 2009. It was only a matter of time before these emergency rates needed to be reevaluated and a more realistic lending rate be implemented.
Those of us that have opted to save interest charges by utilizing the variable rate mortgage or a Home Line of Credit (HELOC) are being effected most by these increases and are now paying more for making those choices. Interestingly enough, the current economic instability and unpredictable bond market have created a small window of opportunity to lock in historically low fixed rates.
The cost of borrowing certainly effects the real estate market and we have seen our market slow over the past few months. Many factors have contributed to this trend, including the higher cost of borrowing and more stringent lending guidelines. I am not sure this is necessarily a bad thing. At the peak of our dramatic climb from 2006 to mid 2007 we saw home prices double. Was that sustainable? Absolutely not, and many home buyers over-extended themselves out of necessity during this time. We are still seeing the effects of this climb and subsequent fall in home values. It is anybodies guess as to how long we will see this decline in value... we are in the midst of a "market adjustment" and have been for the past three years.
There are many opportunities in the market today. Interest rates are still at historical lows and inventory is quite high giving buyers a great opportunity to get into the market, to move up, or to downsize. Your home is you biggest financial asset and a real estate investment, regardless of the price category, is still a great long-term financial strategy.
Tuesday, September 28, 2010
Thursday, September 2, 2010
Canada's Housing Bubble - An Accident Waiting to Happen
The Canadian Centre for Policy Alternatives (CCPA) has just released its study "Canada's Housing Bubble: An Accident Waiting to Happen". This paper is certainly worth the read as it runs over a variety of potential scenarios we may be facing in the next few weeks, months and years.
My critisism of this study is the fact that the author is "predicting" one of these scenarios to happen in future. The over inflated prices HAVE happened in Calgary peaking in mid-2007. The question is - are we in the midst of one of these "bubbles" or about to enter one? Without a doubt, I believe we have been in this "correcting" mode for over three years. As that is the case, the next series of questions to address would pertain to understanding where we are within this price correction. Are we in the beginning, the middle or the end?
The Canadian housing market has shown remarkable resilience through the worldwide economic downturn and the recession of 2008, quickly regaining ground over the past year creating possible price bubbles in several Canadian hot zones, including Calgary. The study points out that the recent U.S. housing crash provides a stark example of what can go horribly wrong when housing prices are outside their historical norms. Although the Canadian and American banking and mortgage situations are very different, it is important to note what happened, and how it happened south of our border, "a similar crisis could potentially occur."
Canada is experiencing, for the first time in the last 30 years, a synchronized housing bubble across its six largest residential real estate markets. The paper puts together a variety of price adjustment scenarios wondering the odds of the bubble bursting, flaming out fast or slow, versus a slow price moderation - or market correction. Regardless of the road we take, this study certainly leads to the conclusion that we WILL see adjustments, whether fast or moderate changes.
Whether the crash is orderly, protracted, or sudden, seniors and new home buyers will certainly feel the effect of the changes the most. Those who purchased homes through high-ratio mortgages while prices were at their highest will find that they owe more on their homes than the value the market permits. Seniors who will be counting on selling their homes to make their retirement plans viable and can't wait a decade or so for prices to recover will be the most effected.
While the outlook seems dim, it is pointed out that those who hold real estate through the entire boom and bust would still see their property appreciate significantly despite the declines in the final years of these various scenarios. Often the process is quite lengthy, requiring a decade or more from beginning to end. In all of the bubbles examined in the paper, the new average price after the bubble burst is always higher than the initial starting point.
My critisism of this study is the fact that the author is "predicting" one of these scenarios to happen in future. The over inflated prices HAVE happened in Calgary peaking in mid-2007. The question is - are we in the midst of one of these "bubbles" or about to enter one? Without a doubt, I believe we have been in this "correcting" mode for over three years. As that is the case, the next series of questions to address would pertain to understanding where we are within this price correction. Are we in the beginning, the middle or the end?
The Canadian housing market has shown remarkable resilience through the worldwide economic downturn and the recession of 2008, quickly regaining ground over the past year creating possible price bubbles in several Canadian hot zones, including Calgary. The study points out that the recent U.S. housing crash provides a stark example of what can go horribly wrong when housing prices are outside their historical norms. Although the Canadian and American banking and mortgage situations are very different, it is important to note what happened, and how it happened south of our border, "a similar crisis could potentially occur."
Canada is experiencing, for the first time in the last 30 years, a synchronized housing bubble across its six largest residential real estate markets. The paper puts together a variety of price adjustment scenarios wondering the odds of the bubble bursting, flaming out fast or slow, versus a slow price moderation - or market correction. Regardless of the road we take, this study certainly leads to the conclusion that we WILL see adjustments, whether fast or moderate changes.
Whether the crash is orderly, protracted, or sudden, seniors and new home buyers will certainly feel the effect of the changes the most. Those who purchased homes through high-ratio mortgages while prices were at their highest will find that they owe more on their homes than the value the market permits. Seniors who will be counting on selling their homes to make their retirement plans viable and can't wait a decade or so for prices to recover will be the most effected.
While the outlook seems dim, it is pointed out that those who hold real estate through the entire boom and bust would still see their property appreciate significantly despite the declines in the final years of these various scenarios. Often the process is quite lengthy, requiring a decade or more from beginning to end. In all of the bubbles examined in the paper, the new average price after the bubble burst is always higher than the initial starting point.
Wednesday, August 4, 2010
Sell now, or next year?
Hi Dan... I suspect that I will not be in a position to sell for at least a few months. Is it realistic to think if I hold onto it for another year that I would any further ahead?
That certainly is the billion dollar question, would you be further ahead a year from now if you were to hold onto any property? I suppose I would venture to say that there has to be a reason for everything… prices go up when demand goes up. We know that demand is at a five year low for this time of year, and that corresponds with the decline in population growth in our city. If we anticipated an influx of new Calgarians as we did in 2006, it would be a good bet that prices could potentially go up. I don't think anyone foresees such an event any time soon. I can tell you that at the beginning of this year I was involved with a few listings that were originally listed in 2008 when we had our first glut of inventory. The clients I had decided to hold off for almost two years in anticipation of selling for a higher price. I can tell you they sold well below what they originally had their home listed for then. One specific client originally listed for $509k in 2008 and were on the market for 188 days, lowered to $450k and no nibbles. In 2009 they listed again briefly for $465k.
They ended up renting the home out, and I can assure you the renter left the home in atrocious condition that cost them a lot of money to remediate. Would they have been better off getting the house off their plate back in 2008? I'd say it's safe to say in this particular example they would have had a lot less stress in their lives.
As I mentioned before, if you do anticipate waiting past 2010 you should put together a longer term plan, maybe three or four years minimum. If we lose 10% by the end of the year, why would prices increase in 2011? If gas and oil prices increase significantly, absolutely! Will it happen? If we have a massive influx of new citizens to Calgary, prices of real estate will most probably increase. Will significant population growth happen? Probably not - unless the oil and gas prices move up significantly. I believe we will see further drops in average and median sale prices by the end of this year. We will then probably have a period of flat growth where we will see prices remain steady for a significant period of time, then we will see slow, sustainable growth.
Also take into account that every year you do not sell your home, you should be decreasing the balance of your mortgage. That will certainly influence your bottom line when you do finally sell. You also need to analyze what your other options are. If you do not own a home, you will be paying someone else rent. That may not seem significant over the next 12 months, but in the long run, putting your rent toward paying down your own investment, in my opinion, is a much wiser decision.
If you are thinking of downsizing both your home and your monthly carrying costs your affordability is certainly an important consideration. You are right, there are some excellent opportunities in other areas of the city. For example, I have a beautiful property listed in Evanston for $369,900.
Assuming a Buyer puts down 20%, interest at 4.5%, amortization 25 years and it sells for full list price, monthly mortgage would be around $1,638. Assuming all the same for a house priced at $468k, mortgage payment would be around $2,072, a savings of around $434 per month. Also take into account taxes, utilities and insurance would all be lower, bringing your savings to over $500 per month.
When you are ready to sit down and discuss your options and your plans, I would be happy to do so.
All the best,
Dan
That certainly is the billion dollar question, would you be further ahead a year from now if you were to hold onto any property? I suppose I would venture to say that there has to be a reason for everything… prices go up when demand goes up. We know that demand is at a five year low for this time of year, and that corresponds with the decline in population growth in our city. If we anticipated an influx of new Calgarians as we did in 2006, it would be a good bet that prices could potentially go up. I don't think anyone foresees such an event any time soon. I can tell you that at the beginning of this year I was involved with a few listings that were originally listed in 2008 when we had our first glut of inventory. The clients I had decided to hold off for almost two years in anticipation of selling for a higher price. I can tell you they sold well below what they originally had their home listed for then. One specific client originally listed for $509k in 2008 and were on the market for 188 days, lowered to $450k and no nibbles. In 2009 they listed again briefly for $465k.
They ended up renting the home out, and I can assure you the renter left the home in atrocious condition that cost them a lot of money to remediate. Would they have been better off getting the house off their plate back in 2008? I'd say it's safe to say in this particular example they would have had a lot less stress in their lives.
As I mentioned before, if you do anticipate waiting past 2010 you should put together a longer term plan, maybe three or four years minimum. If we lose 10% by the end of the year, why would prices increase in 2011? If gas and oil prices increase significantly, absolutely! Will it happen? If we have a massive influx of new citizens to Calgary, prices of real estate will most probably increase. Will significant population growth happen? Probably not - unless the oil and gas prices move up significantly. I believe we will see further drops in average and median sale prices by the end of this year. We will then probably have a period of flat growth where we will see prices remain steady for a significant period of time, then we will see slow, sustainable growth.
Also take into account that every year you do not sell your home, you should be decreasing the balance of your mortgage. That will certainly influence your bottom line when you do finally sell. You also need to analyze what your other options are. If you do not own a home, you will be paying someone else rent. That may not seem significant over the next 12 months, but in the long run, putting your rent toward paying down your own investment, in my opinion, is a much wiser decision.
If you are thinking of downsizing both your home and your monthly carrying costs your affordability is certainly an important consideration. You are right, there are some excellent opportunities in other areas of the city. For example, I have a beautiful property listed in Evanston for $369,900.
Assuming a Buyer puts down 20%, interest at 4.5%, amortization 25 years and it sells for full list price, monthly mortgage would be around $1,638. Assuming all the same for a house priced at $468k, mortgage payment would be around $2,072, a savings of around $434 per month. Also take into account taxes, utilities and insurance would all be lower, bringing your savings to over $500 per month.
When you are ready to sit down and discuss your options and your plans, I would be happy to do so.
All the best,
Dan
Tuesday, August 3, 2010
Real Estate July Statistics in Calgary
The Calgary Real Estate Board has released the latest statistics and the news is not good, but it is nothing we were not expecting. Last year, July saw 2,853 sales in Calgary and the surrounding area, which was actually quite high. July 2008 had 2,336 sales, July 2007 had 2,677 sales, July 2006 had 2,710 sales and in July 2005 - prior to our huge escalation in pricing - there were 2,723 sales. Regardless of how we look at it, we are extremely and dangerously low this year with only 1,683 sales in July. May and June also saw the lowest sales figures in comparison to May and June sales in the past five years.
Historically, August sees lower sales figures than May, June and July. We should also anticipate that sales will typically decrease the last third of the year due to the change in seasons. As a Seller, we need to pay very close attention to the sales figures over the next few months. The real estate market is one of the most pure forms of supply and demand, and as we see demand drop further, prices may also adjust suddenly and dramatically. Average sale prices have dropped 4% in the past month, which is quite concerning. Some economists have been predicting dramatic changes in pricing (see my blog) by the end of the year.
The question is… when can we expect the market to level out and start to increase again? Typically our "spring" market picks up the pace from the winter doldrums, however, we need to keep a close watch on some worrisome trends that will certainly effect our market. Most specifically, Calgary has seen a dramatic change in its growth. The Calgary Herald reported that our growth has slowed to a 26 year low (see the July 23rd edition.) More people left the city than arrived for the first time since 1992. Without a doubt, the fact our population growth is the lowest since 1984 is having a huge impact on our market right now. We are certainly in for some interesting months ahead.
If you have any questions or would like further clarification on any of this information, please do not hesitate to drop me a line.
________________________________________
News Release
Summer Cool Down Continues in Calgary Housing Market
Calgary, August 3, 2010 – The summer cool down in Calgary’s housing market continued in the month of July, according to figures released today by the Calgary Real Estate Board (CREB®).
The number of single family homes sold in July 2010 in the city of Calgary was down 42 per cent from the same time a year ago, and condominium sales saw a decrease of 44 per cent from the same time a year ago.
July 2010 saw 915 single family homes sold in the city of Calgary. This is a decrease of 14 per cent from 1,061 sales in June 2010. In July 2009, single family home sales totalled 1,585. The number of condominium sales for the month of July 2010 was 396. This was a decrease of 11 per cent from the 445 condominium transactions recorded in June 2010. In July 2009, condominium sales were 702.
“Calgary’s housing market is cooling off after its record-setting pace in the post-recession period. This slow-down is not all that surprising in the face of tighter mortgage regulations and rising interest rates. The post-recession rally we saw in the summer of 2009 was unique and that pace couldn’t be sustained,” says Sano Stante, president-elect of CREB®.
“The sense of urgency seen last summer, fall and winter in the lead-up to tighter mortgage-lending measures has diminished,” says Stante. “Rising mortgage rates and increased inventories will be the primary head-wind facing Calgary’s housing market, but improving job prospects will offer some tail winds in the latter half of 2010 and into 2011.”
The average price of a single family home in the city of Calgary in July 2010 was $464,655, showing a 4 per cent decrease from June 2010, when the average price was $481,964, and showing an increase of 6 per cent from July 2009, when the average price was $436,782. The average price of a condominium in the city of Calgary was $291,168, showing no significant change from June 2010, when the average price was $292,238 and a 2 per cent increase over last year, when the average price was $285,032. Average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods, or account for price differentials between geographical areas.
“We are seeing relative stability in our average and median prices for the Calgary market,” says Stante. “A gradual return to moderate interest rates will not trigger any kind of steep decline in prices in our housing market. Prices may soften in select markets where inventory has bulked up, but for the most part they will remain relatively sticky as the economy improves.”
“Nonetheless with the combination of historically low interest rates and a large inventory of homes, there are some great buys out there—particularly in areas where comparable stock is ample such as the condominium and multi-family market. This presents a great opportunity to get into the market or to trade up,” adds Stante.
The median price of a single family home in the city of Calgary for July 2010 was $400,000, showing a 5 per cent decrease from June 2010, when the median price was $418,900, and a 3 per cent increase from July 2009, when the median price was $390,000. The median price of a condominium in July 2010 was $268,000, showing a 1 per cent decrease from June 2010, when the median was $269,900. That’s up 2 per cent from July 2009, when the median price was $263,000.
All city of Calgary MLS® statistics include properties listed and sold only within Calgary’s city limits. The median price is the price that is midway between the least expensive and most expensive home sold in an area during a given period of time. During that time, half the buyers bought homes that cost more than the median price and half bought homes for less than the median price.
There was a slowdown in the number of Calgarians putting homes up for sale in the month of July. Single family listings in the city of Calgary added for the month of July totalled 1,942, a decrease of 29 per cent from June 2010 when 2,733 new listings were added, and showing a decrease of 7 per cent from July 2009, when 2,089 new listings came to the market.
Condominium new listings in the city of Calgary added for July 2010 were 890, down 18 per cent from June 2010, when the MLS® saw 1,084 condo listings coming to the market. This is a decrease of 3 per cent from July 2009, when new condominium listings added were 918.
“Indeed Alberta and Calgary’s economic recovery is lagging behind the rest of the country right now. But on the bright side we see this trend reversing itself as we move into 2011. We expect Alberta to lead in economic growth and recovery—outperforming much of the country in 2011,” says Stante.
To view the CREB statistics page, please visit the media page here:
Calgary Real Estate Statistics
Historically, August sees lower sales figures than May, June and July. We should also anticipate that sales will typically decrease the last third of the year due to the change in seasons. As a Seller, we need to pay very close attention to the sales figures over the next few months. The real estate market is one of the most pure forms of supply and demand, and as we see demand drop further, prices may also adjust suddenly and dramatically. Average sale prices have dropped 4% in the past month, which is quite concerning. Some economists have been predicting dramatic changes in pricing (see my blog) by the end of the year.
The question is… when can we expect the market to level out and start to increase again? Typically our "spring" market picks up the pace from the winter doldrums, however, we need to keep a close watch on some worrisome trends that will certainly effect our market. Most specifically, Calgary has seen a dramatic change in its growth. The Calgary Herald reported that our growth has slowed to a 26 year low (see the July 23rd edition.) More people left the city than arrived for the first time since 1992. Without a doubt, the fact our population growth is the lowest since 1984 is having a huge impact on our market right now. We are certainly in for some interesting months ahead.
If you have any questions or would like further clarification on any of this information, please do not hesitate to drop me a line.
________________________________________
News Release
Summer Cool Down Continues in Calgary Housing Market
Calgary, August 3, 2010 – The summer cool down in Calgary’s housing market continued in the month of July, according to figures released today by the Calgary Real Estate Board (CREB®).
The number of single family homes sold in July 2010 in the city of Calgary was down 42 per cent from the same time a year ago, and condominium sales saw a decrease of 44 per cent from the same time a year ago.
July 2010 saw 915 single family homes sold in the city of Calgary. This is a decrease of 14 per cent from 1,061 sales in June 2010. In July 2009, single family home sales totalled 1,585. The number of condominium sales for the month of July 2010 was 396. This was a decrease of 11 per cent from the 445 condominium transactions recorded in June 2010. In July 2009, condominium sales were 702.
“Calgary’s housing market is cooling off after its record-setting pace in the post-recession period. This slow-down is not all that surprising in the face of tighter mortgage regulations and rising interest rates. The post-recession rally we saw in the summer of 2009 was unique and that pace couldn’t be sustained,” says Sano Stante, president-elect of CREB®.
“The sense of urgency seen last summer, fall and winter in the lead-up to tighter mortgage-lending measures has diminished,” says Stante. “Rising mortgage rates and increased inventories will be the primary head-wind facing Calgary’s housing market, but improving job prospects will offer some tail winds in the latter half of 2010 and into 2011.”
The average price of a single family home in the city of Calgary in July 2010 was $464,655, showing a 4 per cent decrease from June 2010, when the average price was $481,964, and showing an increase of 6 per cent from July 2009, when the average price was $436,782. The average price of a condominium in the city of Calgary was $291,168, showing no significant change from June 2010, when the average price was $292,238 and a 2 per cent increase over last year, when the average price was $285,032. Average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods, or account for price differentials between geographical areas.
“We are seeing relative stability in our average and median prices for the Calgary market,” says Stante. “A gradual return to moderate interest rates will not trigger any kind of steep decline in prices in our housing market. Prices may soften in select markets where inventory has bulked up, but for the most part they will remain relatively sticky as the economy improves.”
“Nonetheless with the combination of historically low interest rates and a large inventory of homes, there are some great buys out there—particularly in areas where comparable stock is ample such as the condominium and multi-family market. This presents a great opportunity to get into the market or to trade up,” adds Stante.
The median price of a single family home in the city of Calgary for July 2010 was $400,000, showing a 5 per cent decrease from June 2010, when the median price was $418,900, and a 3 per cent increase from July 2009, when the median price was $390,000. The median price of a condominium in July 2010 was $268,000, showing a 1 per cent decrease from June 2010, when the median was $269,900. That’s up 2 per cent from July 2009, when the median price was $263,000.
All city of Calgary MLS® statistics include properties listed and sold only within Calgary’s city limits. The median price is the price that is midway between the least expensive and most expensive home sold in an area during a given period of time. During that time, half the buyers bought homes that cost more than the median price and half bought homes for less than the median price.
There was a slowdown in the number of Calgarians putting homes up for sale in the month of July. Single family listings in the city of Calgary added for the month of July totalled 1,942, a decrease of 29 per cent from June 2010 when 2,733 new listings were added, and showing a decrease of 7 per cent from July 2009, when 2,089 new listings came to the market.
Condominium new listings in the city of Calgary added for July 2010 were 890, down 18 per cent from June 2010, when the MLS® saw 1,084 condo listings coming to the market. This is a decrease of 3 per cent from July 2009, when new condominium listings added were 918.
“Indeed Alberta and Calgary’s economic recovery is lagging behind the rest of the country right now. But on the bright side we see this trend reversing itself as we move into 2011. We expect Alberta to lead in economic growth and recovery—outperforming much of the country in 2011,” says Stante.
To view the CREB statistics page, please visit the media page here:
Calgary Real Estate Statistics
Tuesday, June 22, 2010
Deciding on Selling or Renting your second property
With the market in a very fragile position, it is obvious potential Buyers do not have the drive or incentive to make quick decisions, i.e. there are a lot of homes available, they will wait until the "perfect" home comes up, or will wait for prices to adjust further down.
I would suggest that we will see the average prices in Calgary and the area dip further as inventory is extremely high in comparison to what is being sold. Many economists are predicting a further decrease of up to 10% in property value by the end of the year. While looking at my own listings, I can see that phone calls have certainly slowed to a trickle regardless of the area, type of property or price break. There are still sales, they are just fewer and farther between and they need to be worked on diligently through marketing and Realtor to Realtor contact.
If you decide not to sell your second property and opt to rent until the market corrects itself, you need to extensively analyse your plan of action. I would suggest that if you do decide to hold off on the sale of your property you need to make a long term commitment to the "holding property". Many homes will be taken off the market in the next few months and many of these homes will be put into the rental pool. A similar thing happened in 2008 when our inventory was at an all time high. These "rentals" from 2008 are certainly contributing to our abnormally high inventory today. This same issue will raise its ugly head for the next few years as the inadvertent landlords keep bringing their properties to the market to sell.
Other contributing factors to the market such as rising interest rates, stricter policies for first time home buyers and investors, a volatile oil and gas sector and a devastated world economy will also add to our plate. Although it looks like an issue in the next few years, holding property for a longer term typically makes good investment sense. Over the term you will be paying down the debt of the mortgage, a renter will assist you with these payments and you should see long-term growth in value.
Becoming a landlord should be a well thought out process. There are many activities associated with becoming a landlord that you need to consider.... late rent cheques, renters leaving early, damage to your property, regular maintenance, neighbour conflicts, insurance costs, municipal taxes and replacement costs to name a few. Most "Renters" are great people, and they are helping you pay down your mortgage, however, you do need to have a contention plan in the case the unexpected happens. Expect the unexpected!
I would suggest that we will see the average prices in Calgary and the area dip further as inventory is extremely high in comparison to what is being sold. Many economists are predicting a further decrease of up to 10% in property value by the end of the year. While looking at my own listings, I can see that phone calls have certainly slowed to a trickle regardless of the area, type of property or price break. There are still sales, they are just fewer and farther between and they need to be worked on diligently through marketing and Realtor to Realtor contact.
If you decide not to sell your second property and opt to rent until the market corrects itself, you need to extensively analyse your plan of action. I would suggest that if you do decide to hold off on the sale of your property you need to make a long term commitment to the "holding property". Many homes will be taken off the market in the next few months and many of these homes will be put into the rental pool. A similar thing happened in 2008 when our inventory was at an all time high. These "rentals" from 2008 are certainly contributing to our abnormally high inventory today. This same issue will raise its ugly head for the next few years as the inadvertent landlords keep bringing their properties to the market to sell.
Other contributing factors to the market such as rising interest rates, stricter policies for first time home buyers and investors, a volatile oil and gas sector and a devastated world economy will also add to our plate. Although it looks like an issue in the next few years, holding property for a longer term typically makes good investment sense. Over the term you will be paying down the debt of the mortgage, a renter will assist you with these payments and you should see long-term growth in value.
Becoming a landlord should be a well thought out process. There are many activities associated with becoming a landlord that you need to consider.... late rent cheques, renters leaving early, damage to your property, regular maintenance, neighbour conflicts, insurance costs, municipal taxes and replacement costs to name a few. Most "Renters" are great people, and they are helping you pay down your mortgage, however, you do need to have a contention plan in the case the unexpected happens. Expect the unexpected!
Thursday, June 3, 2010
Making sense of media coverage - a brief history of Calgary Real Estate
The Canadian Real Estate Association (CREA) revises it's forecast to reflect a slowdown in sales by the end of the year, the Canada Mortgage and Housing Corporation (CMHC) is calling for a slight gain in sales this year, Interest rates and tighter rules crimp demand according to the Calgary Real Estate Board (CREB), yet average and median sale prices increased last month. And that information is from just two days in the Calgary Herald! (June 2nd & 3rd, 2010)
Although there have been some strange twists and turns in the market over the past five years, hindsight being 20/20, it is interesting to look at why different changes have happened in our market. This information should give us insight into what can and may happen over the next few weeks, months and years.
In late 2005 and most of 2006 we saw a significant change in property value in Calgary, where many homeowners saw the value of their homes increase dramatically, often doubling or more in value over only a few months. Prior to this time, we had been in a "balanced" market for many years, meaning the demand for property was relative to the amount of homes on the market. If we have between two to four active listings per month to every sale, we consider that a healthy, normal market. Buyers and Sellers are in a balanced position when negotiating a fair market value for the property.
In April and May 2005, Calgary saw an increase in demand for housing that started to surpass our inventory. Looking back, we can see a change in the composition and rate of increase in the population of Calgary. We had an increase of new Canadians coming to a rich, healthy economy with a lack of workforce. This demand of employees also increased our pay structures, even the most basic employment positions were difficult to fill, bringing wages up. This was also appealing to Canadians from other parts of the country where the economies were not so rosy. This influx of new Calgarians spurted higher demand for housing in the city. Early in 2006, with these forces, in combination with the normal seasonal increases in demand for housing, pushed demand to an all time high. Homes were being bought up the moment they came on the market as the vent up demand had many potential Buyers lining up outside new listings and making rash decisions with a feeding frenzy mentality. Many properties sold for well above list price, driving prices up even further.
This high demand lasted through the summer and early autumn. In the winter of 2006/2007 the market slowed to normalcy as seasonal demand does mellow in the cold months. Prices stabilized from September to January, giving us a reprieve from the frenzied activity. Early in 2007 we saw further increases in value as demand was, again, higher than our inventory. Perhaps many Buyers were afraid the same frenzy would happen as happened the summer before. In July/August of that year our average and median prices peaked.
And then everything changed... with our new found wealth in the "equity" of our homes, a new shift in our outlook on real estate and investment took place. Many Calgarians that were originally from other parts of the country decided to cash in on their new found wealth, and move back to their home provinces where they could purchase a home for much less, and bank the difference. This promised them a better quality of life in areas that perhaps did not have appeal for them as far as employment in past.
The second thing that happened was more demanding on our market. Many home owners dipped into their new found equity through a Home Line of Credit (HELOC). Many "new investors" decided to build a second home in anticipation of taking possession of the property and "flipping" it for a quick financial gain. There were many stories of Sellers making piles of money in profit when the buying frenzy was in its early stages. That was most certainly true, however, those circumstances were an exception to normal market conditions.
From September 2007 for 18 months we shifted into a Buyers market. Affordability eliminated many first time homebuyers from the market as financial institutions would not provide mortgages without exceptional household incomes. Qualified Buyers were at a premium and now had a strong control of the market, driving prices down. First time homebuyers are the backbone of our industry as they enter the market, Sellers of those homes are turned into Buyers that are looking for higher priced homes.
This time period saw a huge shift in paradigm in the way banks and financial institutions did business with stricter regulations and qualifications. As demand for housing decreased, pricing rapidly dropped. From July 2007 to January 2009 average prices dropped about 20%. We are just now seeing some of the repercussions of these times and changes with BMO's court action against many they feel were fraudulent in real estate transactions, this may very well be the tip of the iceberg in banks and financial institutions demanding restitution.
In May 2008 we broke another record... we had just under 15,000 homes for sale in the Calgary area. With supply so high, many potential Sellers started pulling their homes and investment properties off of the market and looked to alternative measures to look after this new issue. Many homeowners and new investors that were hoping to make profits now found they were losing money on their new investments. Some owners inadvertently became landlords out of necessity deciding to wait out this blip in the market and sell later when things ironed themselves out. What they didn't expect is the difficulties of being a landlord. Often rents are lower than the holding cost of a property, sometimes rents become overdue and often renters do not respect the property as one would hope. Don't get me wrong, I am a huge advocate of holding properties for long term gains, but this investment strategy needs to be carefully thought out and planned. Many owners did not, and do not, want to be landlords. This role, along with increased financial pressures, is taking a toll on many investors that fall into this category.
Adding fuel to the flame was the collapse of the mortgage industry in the US in October 2008. Although the policies and procedures of our industry is far stronger than that of our neighbours south of the border, what this did do was create a wait and see attitude in many potential Buyers in Calgary. In December 2008 and January 2009 sales were at their lowest in over a decade. Miraculously enough, prices remained stable for six months after the crisis, only dropping about 3%.
In 2009 we saw an increased demand in purchasing properties as prices stabilized, and interest rates were at an all time low. Normal seasonal sales, in combination with Buyers who had been on the fence since the mortgage crisis in the States added up to brisk sales throughout the year.
What is happening in 2010? Now that the vent-up demand from 2008/2009 has diminished, we are seeing sales figures returning to a sustainable level. There are a few factors that will certainly effect the market this year. The first is the International economic outlook. I am no economist, but it is easy to point out that we are in for some interesting times with the financial crisis throughout Europe. Demand for oil and gas is a major indicator for our local economy, and this crisis is certainly taking its toll on the industry. On the other hand, perhaps the silver lining to the oil spill in the Gulf of Mexico will be higher demand for oil production in Alberta.
Many of the properties that were pulled off the market in 2007/2009 are coming back on the market, adding to our increasing inventory. We had just short of 13,000 properties for sale in the Calgary area in May, the last time inventory has been that high was in July 2008. Interest rates have gone up this month by a quarter percent, ahead of the promise by the Bank of Canada to hold rates until the second half of the year. Average sale prices are back to where they were in May 2008, which is great news. Many higher priced homes are selling, driving that average and median price upward.
As interest rates move up and regulations become more stringent, we are going to see a decrease in the amount of sales of entry level homes over the rest of this year. As the amount of new homebuyers decreases, the overall sales figures will continue to decline, seeping into all price categories.
With this increase in inventory, in combination with slowing sales, Sellers will have to be very accurate in their pricing to realize their best profitability this year. Trying to catch a downward market is a difficult task, as we learned in 2007/2008. It may be some time until we see significant increases in value as much of the inventory gets pulled off the market toward the end of the year, only to re-enter on the market early next year.
When making a decision on what to do with your real estate investment, it is a good idea to look at a long term plan of at least five years with a professional industry member. With the many changes in the market and the economy, it is certainly a roller coaster ride in the short term and on a year-by year basis. If you are in need of liquidating a real estate holding in the next few months, sooner than later may be the best advice... I would be happy to chat with you further about your real estate needs.
Although there have been some strange twists and turns in the market over the past five years, hindsight being 20/20, it is interesting to look at why different changes have happened in our market. This information should give us insight into what can and may happen over the next few weeks, months and years.
In late 2005 and most of 2006 we saw a significant change in property value in Calgary, where many homeowners saw the value of their homes increase dramatically, often doubling or more in value over only a few months. Prior to this time, we had been in a "balanced" market for many years, meaning the demand for property was relative to the amount of homes on the market. If we have between two to four active listings per month to every sale, we consider that a healthy, normal market. Buyers and Sellers are in a balanced position when negotiating a fair market value for the property.
In April and May 2005, Calgary saw an increase in demand for housing that started to surpass our inventory. Looking back, we can see a change in the composition and rate of increase in the population of Calgary. We had an increase of new Canadians coming to a rich, healthy economy with a lack of workforce. This demand of employees also increased our pay structures, even the most basic employment positions were difficult to fill, bringing wages up. This was also appealing to Canadians from other parts of the country where the economies were not so rosy. This influx of new Calgarians spurted higher demand for housing in the city. Early in 2006, with these forces, in combination with the normal seasonal increases in demand for housing, pushed demand to an all time high. Homes were being bought up the moment they came on the market as the vent up demand had many potential Buyers lining up outside new listings and making rash decisions with a feeding frenzy mentality. Many properties sold for well above list price, driving prices up even further.
This high demand lasted through the summer and early autumn. In the winter of 2006/2007 the market slowed to normalcy as seasonal demand does mellow in the cold months. Prices stabilized from September to January, giving us a reprieve from the frenzied activity. Early in 2007 we saw further increases in value as demand was, again, higher than our inventory. Perhaps many Buyers were afraid the same frenzy would happen as happened the summer before. In July/August of that year our average and median prices peaked.
And then everything changed... with our new found wealth in the "equity" of our homes, a new shift in our outlook on real estate and investment took place. Many Calgarians that were originally from other parts of the country decided to cash in on their new found wealth, and move back to their home provinces where they could purchase a home for much less, and bank the difference. This promised them a better quality of life in areas that perhaps did not have appeal for them as far as employment in past.
The second thing that happened was more demanding on our market. Many home owners dipped into their new found equity through a Home Line of Credit (HELOC). Many "new investors" decided to build a second home in anticipation of taking possession of the property and "flipping" it for a quick financial gain. There were many stories of Sellers making piles of money in profit when the buying frenzy was in its early stages. That was most certainly true, however, those circumstances were an exception to normal market conditions.
From September 2007 for 18 months we shifted into a Buyers market. Affordability eliminated many first time homebuyers from the market as financial institutions would not provide mortgages without exceptional household incomes. Qualified Buyers were at a premium and now had a strong control of the market, driving prices down. First time homebuyers are the backbone of our industry as they enter the market, Sellers of those homes are turned into Buyers that are looking for higher priced homes.
This time period saw a huge shift in paradigm in the way banks and financial institutions did business with stricter regulations and qualifications. As demand for housing decreased, pricing rapidly dropped. From July 2007 to January 2009 average prices dropped about 20%. We are just now seeing some of the repercussions of these times and changes with BMO's court action against many they feel were fraudulent in real estate transactions, this may very well be the tip of the iceberg in banks and financial institutions demanding restitution.
In May 2008 we broke another record... we had just under 15,000 homes for sale in the Calgary area. With supply so high, many potential Sellers started pulling their homes and investment properties off of the market and looked to alternative measures to look after this new issue. Many homeowners and new investors that were hoping to make profits now found they were losing money on their new investments. Some owners inadvertently became landlords out of necessity deciding to wait out this blip in the market and sell later when things ironed themselves out. What they didn't expect is the difficulties of being a landlord. Often rents are lower than the holding cost of a property, sometimes rents become overdue and often renters do not respect the property as one would hope. Don't get me wrong, I am a huge advocate of holding properties for long term gains, but this investment strategy needs to be carefully thought out and planned. Many owners did not, and do not, want to be landlords. This role, along with increased financial pressures, is taking a toll on many investors that fall into this category.
Adding fuel to the flame was the collapse of the mortgage industry in the US in October 2008. Although the policies and procedures of our industry is far stronger than that of our neighbours south of the border, what this did do was create a wait and see attitude in many potential Buyers in Calgary. In December 2008 and January 2009 sales were at their lowest in over a decade. Miraculously enough, prices remained stable for six months after the crisis, only dropping about 3%.
In 2009 we saw an increased demand in purchasing properties as prices stabilized, and interest rates were at an all time low. Normal seasonal sales, in combination with Buyers who had been on the fence since the mortgage crisis in the States added up to brisk sales throughout the year.
What is happening in 2010? Now that the vent-up demand from 2008/2009 has diminished, we are seeing sales figures returning to a sustainable level. There are a few factors that will certainly effect the market this year. The first is the International economic outlook. I am no economist, but it is easy to point out that we are in for some interesting times with the financial crisis throughout Europe. Demand for oil and gas is a major indicator for our local economy, and this crisis is certainly taking its toll on the industry. On the other hand, perhaps the silver lining to the oil spill in the Gulf of Mexico will be higher demand for oil production in Alberta.
Many of the properties that were pulled off the market in 2007/2009 are coming back on the market, adding to our increasing inventory. We had just short of 13,000 properties for sale in the Calgary area in May, the last time inventory has been that high was in July 2008. Interest rates have gone up this month by a quarter percent, ahead of the promise by the Bank of Canada to hold rates until the second half of the year. Average sale prices are back to where they were in May 2008, which is great news. Many higher priced homes are selling, driving that average and median price upward.
As interest rates move up and regulations become more stringent, we are going to see a decrease in the amount of sales of entry level homes over the rest of this year. As the amount of new homebuyers decreases, the overall sales figures will continue to decline, seeping into all price categories.
With this increase in inventory, in combination with slowing sales, Sellers will have to be very accurate in their pricing to realize their best profitability this year. Trying to catch a downward market is a difficult task, as we learned in 2007/2008. It may be some time until we see significant increases in value as much of the inventory gets pulled off the market toward the end of the year, only to re-enter on the market early next year.
When making a decision on what to do with your real estate investment, it is a good idea to look at a long term plan of at least five years with a professional industry member. With the many changes in the market and the economy, it is certainly a roller coaster ride in the short term and on a year-by year basis. If you are in need of liquidating a real estate holding in the next few months, sooner than later may be the best advice... I would be happy to chat with you further about your real estate needs.
Tuesday, June 1, 2010
Inventory and Interest Rates UP
I think we are in for a challenging summer as Sellers and Listers in this volatile market. Interest rates did go up a bit today, and hopefully, some buyers will rush around to purchase in the next month so that they can lock into the lower rate. The new statistics have been released by CREB, here is a quote from the front page, "The number of single family homes sold in May 2010 in the city of Calgary was down 20 per cent from the same time a year ago, and condominium sales saw a decrease of 21 per cent from the same time a year ago." Although average and median sale prices have gone up - I believe there were more sales of higher end properties - the inventory is WAY up. As a matter of fact, the last time we saw this amount of inventory (12,989) was in July 2008! Yikes!
The next month is going to be paramount in getting the most we can for any property in the city. Inventory will most probably increase over the next couple of months, driving prices down. Some economists are expecting drops of up to 10%, I would hope closer to 5% (or less.)
The next month is going to be paramount in getting the most we can for any property in the city. Inventory will most probably increase over the next couple of months, driving prices down. Some economists are expecting drops of up to 10%, I would hope closer to 5% (or less.)
Tuesday, May 25, 2010
Three components of a successful sale
I believe there are three things that are of major importance in a successful sale of your home. The first, and most important component is price. How we come up with that price together is through careful analysis of past sales and predicting where the market is going in the short and long term. Our goal is to come up with an accurate price of what a potential Buyer is willing to pay for your house.
The second major component is the product. We need to present the property in the best possible light. We provide an in-depth analysis on staging your home so that it absolutely shines. Please do have a look at the staging pages on our web site:
Nash Homes Staging
Let's put this philosophy into action... here is a great example of an active listing that is cluttered and dated. Do you think this home would be more appealing if it was staged?
Cluttered home
And the third component is the marketing of the property. The first and foremost tool in promoting and marketing your home is Realtor.ca. We have a maximum of 20 photos permitted on this site... in most instances, this is the first introduction to your home. Of the 11 active listings in Hanson Ranch, three are not utilizing this tool. Here's one that is using only eight photo's:
Not Maximizing photo opportunity
Are they maximizing their exposure? Absolutely not. Have a look through all the listings and you can see for yourself, are they putting their listing in the best possible light? Especially that first photo, what is the impact of the home?
Active listings in Hanson Ranch
Here is a look at six listings I sold in Hanson Ranch last year. All of them have been staged and photographed to expose their character and design:
Dan's sales in Hanson Ranch
The exposure on Realtor.ca is but one aspect of our marketing strategy. This brief look at our approach to this sight is to show you our attention to detail in marketing your home.
I would be happy to sit with you and discuss all of this information and philosophy in more detail
Wishing you the best,
Dan Nash
MaxWell Capital Realty
The second major component is the product. We need to present the property in the best possible light. We provide an in-depth analysis on staging your home so that it absolutely shines. Please do have a look at the staging pages on our web site:
Nash Homes Staging
Let's put this philosophy into action... here is a great example of an active listing that is cluttered and dated. Do you think this home would be more appealing if it was staged?
Cluttered home
And the third component is the marketing of the property. The first and foremost tool in promoting and marketing your home is Realtor.ca. We have a maximum of 20 photos permitted on this site... in most instances, this is the first introduction to your home. Of the 11 active listings in Hanson Ranch, three are not utilizing this tool. Here's one that is using only eight photo's:
Not Maximizing photo opportunity
Are they maximizing their exposure? Absolutely not. Have a look through all the listings and you can see for yourself, are they putting their listing in the best possible light? Especially that first photo, what is the impact of the home?
Active listings in Hanson Ranch
Here is a look at six listings I sold in Hanson Ranch last year. All of them have been staged and photographed to expose their character and design:
Dan's sales in Hanson Ranch
The exposure on Realtor.ca is but one aspect of our marketing strategy. This brief look at our approach to this sight is to show you our attention to detail in marketing your home.
I would be happy to sit with you and discuss all of this information and philosophy in more detail
Wishing you the best,
Dan Nash
MaxWell Capital Realty
Introduction to Real Estate services
This is my first post. I am hoping to use this tool to show some of the information I send off to my clients, and potential clients. There is a lot of pertinent information that will help any potential Seller or Buyer make viable decisions on how they want to move forward with their real estate goals, whether you are deciding to purchase your first home, or building your investment portfolio. My role as a Realtor and a real estate professional is to provide you with information and analysis of the market to assist you in making a decision whether to buy, sell, or enter into the market at all. I will give you a realistic view as to where the market is, and where it is going in the next few weeks, months and years. We are in an extremely volatile position in real estate history... making informed, well researched and pertinent decisions is of paramount importance in building wealth through real estate.
Subscribe to:
Posts (Atom)
