My concern at this particular point in time is the economic uncertainty that has been created by the recent crisis in the USA, and prior to that in Europe. Back in the later part of 2007 and through 2008 we were just starting to move into a brutal global economic downturn. It would seem the outlook at the time was that the crisis was a short term issue and we would get over it in short order. The reality of it was that we were heading into a global recession. In October of 2008, the "sub-prime" issue was brought to a head south of the border and that really affected what was going on in our market until mid-2009. With that happening only three years ago, I believe we are all a bit jumpy with all that is going on around us and that is one of the reasons we have been seeing such low sales numbers for the past year.
Many are - once again - in a "wait and see" headspace. Whether that is warranted or not is up for debate, however, it may essentially lead to a self propelling prophecy.
Having said all of that, I do believe real estate needs to be listed to sell, there is little room to "feel out" the market. A current analysis of a specific property will recommend a certain price range (for example, a range between $448k and $465k would be an appropriate value) With the current uncertainty in the market and our economic outlook, I believe the best line of offence is to be placed as close to the proposed "end result" as possible. If we feel the home in the example above will most probably sell for $456,500, placing the listing price as close to that final sales figure would be appropriate.
I do believe we are going to see a trend to lower prices, meaning many that are overpriced when they first list will be playing "catch up" in trying to find that magic number that will sell their home. Essentially, when we are trying to catch up in a downward market, there is a great possibility that one will lose potential equity gains the longer they take to react to the market. The best strategy is to be proactive, and not reactive.
The current economic crisis may pass quickly, but I certainly would not put all my chips on that scenario. If you truly want to move forward and sell your home this year, being aggressive now would be your best strategy. I would be extremely surprised if we do not see fall out for the rest of the year in the real estate market - as well as most other markets - with the economic mess we are in the midst of. We will eventually get through all of this and our market will correct, the question is… when? I think many will have to bunker down for a few years…
If you would like to discuss your own real estate goals and needs, I would be happy to address any of your specific questions or concerns and assist you in putting together your own real estate strategies.
Wednesday, August 10, 2011
Friday, May 27, 2011
Future values in Calgary
I know you are contemplating whether to sell your home today, or rent it for a year in anticipation of values increasing. I just wanted to make a few comments to you so that you are aware of my thoughts on the market over the next few weeks, months and years. I want to point out a couple of my legal fiduciary duties to you which we discussed when I sat down with you. The first is "Undivided Loyalty" - "The Agent must act solely in YOUR best interests, always putting YOUR interests above their own interests and above the interests of other parties." And also "Reasonable Care and Skill", "the Agent MUST exercise reasonable care and skill in performing all assigned duties." In my own interpretation of these two aspects of my duties to you, I feel obligated to be sure you have all the information you need to move forward with your real estate holding, whether you want to sell your home or rent it out. I only have your best interests in mind when putting this note together for you.
First off let me be perfectly clear in my belief that holding a real estate property over a long period of time is absolutely one of the best long-term investments for anyone, and I truly believe that everyone should have some type of real estate holding in their investment portfolio. From the simple idea of owning your own home, to owning a rental property.
The advantage of owning real estate as a long-term investment is that not only are you gaining valuable equity as the value of your property increases, but you also have a renter assisting you with the payments of the mortgage on that investment. What I am hoping to do here is analyze what we think the market is going to do over the next little while, and address some of the issues you will need to deal with during, and after your rental experience with this home. I know you have rented properties in past, so I am not going to go over the process of collecting rent and addressing any issues that may transpire over the rental term that you will need to address and, of course, dealing with the accelerated "wear and tear" usually associated with renting out any property. I am hoping that you will look into using a professional property management company to keep an eye on things as you will be away from Calgary. Many owner/landlords look after their own properties, however, I would suggest this is an easier prospect when you are close in proximity to the property.
I have dealt with a number of clients in past that have been in a similar position to yourself. They were unable to get the sale price they needed in order to deal with their financial obligations or their perceived value of the property at the time they had it on the market. The original cost of a home, the cost to build the home and the amount owed on a mortgage to a home have little influence on the market value of a property. Even a bank appraisal and the City of Calgary Property Assessment do not necessarily reflect the true sales value of a home. What determines the value of a home is what a potential buyer is willing to pay for a home, period. If potential buyers are not willing to pay a certain price for a home and the potential seller is not willing to adjust their expectations accordingly, the home will not sell. In a "balanced market" where there is a limited amount of homes available for a buyer to purchase, they are willing to perhaps pay a bit more than they originally intended to, keeping the market "in balance" and the values stable.
If there are not a lot of homes on the market, buyers feel the pressure to negotiate for a home that they want as they feel a certain risk of losing the home to another buyer. They feel a need to get the purchase done before they lose the property to someone else. In a market where there are more buyers than sellers, the values of homes go up. If there are too many properties on the market in relation to the amount of buyers looking for a home, that pressure is eliminated. The more and more inventory there is on the market, the less motivation a buyer has to make a purchase in a specific time frame. They will often wait to "see what happens" with the market, which essentially means they expect prices to go down in the short term so they are looking for "bargains" or homes of exceptional value. That is why we need to keep an eye on the market to see what the trend is, and try and predict where the market is going. In the long term, prices tend to move upward, however, short term prices can fluctuate dramatically depending on whether there is "buying" or "selling" pressure.
The bottom line really is that real estate is a true "supply and demand" market. If fewer and fewer people are purchasing homes, builders start to decline building new homes as the profit margins also drop. In longer periods of a buyer dominated market, we see more and more builders go out of business as they are unable to make a profit on their homes. As more buyers come on the market and we see less homes available to purchase we see the opposite happen where builders come out of the woodwork and existing builders put pressure on to build even more homes. The problem with this model is that new builds are slow to react to what the market is doing. If we see a steep incline in demand as we did in 2006, it takes months for new home builds to be completed, often over eight months. By the time the new building matches the original demand we often see an inventory that we cannot move quickly enough forcing the pricing trend down, as we saw in 2008 and are still dealing with today.
Further complicating the matter is the fact that a "buyers market", or an over abundance of inventory, tends to last a lot longer that a "sellers market" which tends to happen very quickly and last a short burst of time. Interestingly enough, the buyer frenzy that we experienced in 2006 was a direct result of the population in Calgary increasing at an amazing rate, increasing around 25%. That huge immigration to the city directly fueled the huge demand for housing in a very short period of time. At that time Calgary was a very affordable city to live in with a good demand in the job market. What happened though, is that this increased demand for housing also pushed the market to almost double its value in a short period of time actually making the city much less affordable to live in. That, in combination with a waning global economy, has slowed down our growth to a halt. As a matter of fact, last year was the first time we literally saw zero population growth since 1984!
What is also disturbing is the fact we are seeing massive new development in all sectors of our city. Drive to the outskirts of Calgary in any direction and you can see new neighbourhoods sprouting up at an astonishing rate. It is beyond my scope to address our future economy, however, I certainly wonder how we can sustain all of this development with little growth in our population. What we have been seeing over the past year or so is essentially "lateral" movement. People within the city "upsizing", "downsizing" or "rightsizing", we are moving from one home to another and selling our homes to someone else doing something similar. What is confusing then is how we going to fill up all of these new homes that are being built if we have fewer and fewer "new" citizens to our fine city?
Having said all of that I would suggest that we are in for some interesting times in the real estate market over the next few years. I would suggest we will see further decreases in value for the rest of this year. Historically the first half of the year sees the most activity in sales figures. As Canadians and Calgarians we wake from our winter blues invigorated and many look at purchasing a new home as the weather gets better. As summer approaches that excitement declines as we look forward to enjoying our short summer. As summer comes to a close we then get caught up in the new school year and getting back to work. As soon as our weather turns inclement again, we tend to cocoon back indoors avoiding the cold and snow.
With our busy time behind us and an increasing inventory, the next few months certainly points toward flat or decreasing values. At this time next year I would expect average and median values in Calgary to be lower than they are today. If you decide to hold your property in anticipation of selling your home at a higher price than you can get today, I would encourage you to look at a longer term plan than renting for a year then seeing what happens. If you are looking for increased value I would suggest you put together at least a three to five year plan to weather the coming storm.
Whether you would like to hold your beautiful home as a rental property, or sell it shortly is not what is important to me. What IS important to me is that you have all the information you need to make the decision on how to proceed with your real estate investment. If you have any questions or concerns regarding any of this information, or would like further clarification regarding any of these comments, please do not hesitate to call or drop me a line.
First off let me be perfectly clear in my belief that holding a real estate property over a long period of time is absolutely one of the best long-term investments for anyone, and I truly believe that everyone should have some type of real estate holding in their investment portfolio. From the simple idea of owning your own home, to owning a rental property.
The advantage of owning real estate as a long-term investment is that not only are you gaining valuable equity as the value of your property increases, but you also have a renter assisting you with the payments of the mortgage on that investment. What I am hoping to do here is analyze what we think the market is going to do over the next little while, and address some of the issues you will need to deal with during, and after your rental experience with this home. I know you have rented properties in past, so I am not going to go over the process of collecting rent and addressing any issues that may transpire over the rental term that you will need to address and, of course, dealing with the accelerated "wear and tear" usually associated with renting out any property. I am hoping that you will look into using a professional property management company to keep an eye on things as you will be away from Calgary. Many owner/landlords look after their own properties, however, I would suggest this is an easier prospect when you are close in proximity to the property.
I have dealt with a number of clients in past that have been in a similar position to yourself. They were unable to get the sale price they needed in order to deal with their financial obligations or their perceived value of the property at the time they had it on the market. The original cost of a home, the cost to build the home and the amount owed on a mortgage to a home have little influence on the market value of a property. Even a bank appraisal and the City of Calgary Property Assessment do not necessarily reflect the true sales value of a home. What determines the value of a home is what a potential buyer is willing to pay for a home, period. If potential buyers are not willing to pay a certain price for a home and the potential seller is not willing to adjust their expectations accordingly, the home will not sell. In a "balanced market" where there is a limited amount of homes available for a buyer to purchase, they are willing to perhaps pay a bit more than they originally intended to, keeping the market "in balance" and the values stable.
If there are not a lot of homes on the market, buyers feel the pressure to negotiate for a home that they want as they feel a certain risk of losing the home to another buyer. They feel a need to get the purchase done before they lose the property to someone else. In a market where there are more buyers than sellers, the values of homes go up. If there are too many properties on the market in relation to the amount of buyers looking for a home, that pressure is eliminated. The more and more inventory there is on the market, the less motivation a buyer has to make a purchase in a specific time frame. They will often wait to "see what happens" with the market, which essentially means they expect prices to go down in the short term so they are looking for "bargains" or homes of exceptional value. That is why we need to keep an eye on the market to see what the trend is, and try and predict where the market is going. In the long term, prices tend to move upward, however, short term prices can fluctuate dramatically depending on whether there is "buying" or "selling" pressure.
The bottom line really is that real estate is a true "supply and demand" market. If fewer and fewer people are purchasing homes, builders start to decline building new homes as the profit margins also drop. In longer periods of a buyer dominated market, we see more and more builders go out of business as they are unable to make a profit on their homes. As more buyers come on the market and we see less homes available to purchase we see the opposite happen where builders come out of the woodwork and existing builders put pressure on to build even more homes. The problem with this model is that new builds are slow to react to what the market is doing. If we see a steep incline in demand as we did in 2006, it takes months for new home builds to be completed, often over eight months. By the time the new building matches the original demand we often see an inventory that we cannot move quickly enough forcing the pricing trend down, as we saw in 2008 and are still dealing with today.
Further complicating the matter is the fact that a "buyers market", or an over abundance of inventory, tends to last a lot longer that a "sellers market" which tends to happen very quickly and last a short burst of time. Interestingly enough, the buyer frenzy that we experienced in 2006 was a direct result of the population in Calgary increasing at an amazing rate, increasing around 25%. That huge immigration to the city directly fueled the huge demand for housing in a very short period of time. At that time Calgary was a very affordable city to live in with a good demand in the job market. What happened though, is that this increased demand for housing also pushed the market to almost double its value in a short period of time actually making the city much less affordable to live in. That, in combination with a waning global economy, has slowed down our growth to a halt. As a matter of fact, last year was the first time we literally saw zero population growth since 1984!
What is also disturbing is the fact we are seeing massive new development in all sectors of our city. Drive to the outskirts of Calgary in any direction and you can see new neighbourhoods sprouting up at an astonishing rate. It is beyond my scope to address our future economy, however, I certainly wonder how we can sustain all of this development with little growth in our population. What we have been seeing over the past year or so is essentially "lateral" movement. People within the city "upsizing", "downsizing" or "rightsizing", we are moving from one home to another and selling our homes to someone else doing something similar. What is confusing then is how we going to fill up all of these new homes that are being built if we have fewer and fewer "new" citizens to our fine city?
Having said all of that I would suggest that we are in for some interesting times in the real estate market over the next few years. I would suggest we will see further decreases in value for the rest of this year. Historically the first half of the year sees the most activity in sales figures. As Canadians and Calgarians we wake from our winter blues invigorated and many look at purchasing a new home as the weather gets better. As summer approaches that excitement declines as we look forward to enjoying our short summer. As summer comes to a close we then get caught up in the new school year and getting back to work. As soon as our weather turns inclement again, we tend to cocoon back indoors avoiding the cold and snow.
With our busy time behind us and an increasing inventory, the next few months certainly points toward flat or decreasing values. At this time next year I would expect average and median values in Calgary to be lower than they are today. If you decide to hold your property in anticipation of selling your home at a higher price than you can get today, I would encourage you to look at a longer term plan than renting for a year then seeing what happens. If you are looking for increased value I would suggest you put together at least a three to five year plan to weather the coming storm.
Whether you would like to hold your beautiful home as a rental property, or sell it shortly is not what is important to me. What IS important to me is that you have all the information you need to make the decision on how to proceed with your real estate investment. If you have any questions or concerns regarding any of this information, or would like further clarification regarding any of these comments, please do not hesitate to call or drop me a line.
Friday, January 28, 2011
Investing in Real Estate in the Current Market
I recently looked through the "BMO Bad List", the list of over 200 defendants to the bank's accusation of mortgage fraud. It will be interesting to see how this all irons out. Rest assured if they see any amount of success, we will see many other financial institutions following suit. Over the past few years there was a ton of money lost and gained in the industry… when it is the "Big Banks" that are in the losing position, you can bet their pockets are deep to remediate their position!
With the real estate market in such a volatile position today, it would seem that many potential sellers will be trying a variety of things to entice a buyer. Rent to own, seller financing, "guaranteed" pricing and such. The bottom line is that we will have to be very careful as many of these schemes rare their heads. I'm not saying they will all be shady - some may be clever and well thought out - but we will certainly need to do our homework… and utilize a knowledgeable real estate lawyer in putting together any type of new or strange situation.
I believe three things are of prime importance in selling a home. The first is the property itself - how is it presented? There are many homes that are online that certainly are not at their finest. Many are full of clutter, messy, dirty and certainly not staged in the best light. A home really should look its finest when presented to a potential buyer, which leads me to the second criteria, marketing. The first line of offense is, of course, the MLS. Are you utilizing all of the tools available to you? Are all 20 photos looking their finest? Other support marketing should also pique a potential buyers curiosity, making them ask questions, and leading to a viewing of the home.
Taking these two important aspects of the listing into account, the third - and most important - aspect of the listing is the price. If the property is at its finest, and the marketing shows off the property in a fine light, one can ask a premium price for the property. Coming to this "premium" price takes into account recent sales, where the market is heading, property assessments and such. Pricing is a very pragmatic process, there is no magic involved. If the property requires updating, if it does not show well, if it is located on a busy street, if it is messy, needs paint etc etc the pricing needs to be adjusted to reflect these insufficiencies. And if the home looks bad online, or the marketing is inefficient, again, the price has to be adjusted to reflect these deficiencies.
If you are interested in a bargain in purchasing a home, they will certainly present themselves over the next few weeks and months. I would suggest we will see a variety of "handyman" specials, foreclosures, and desperate sellers that may list their homes for below the current market value. I can also ensure you that if homes come up that are truly below current market value, there will be a great many bargain hunters, investors and such also looking at those homes. Homes that are of exceptional value will sell quickly.
Having said all of that, to be sure you are in a position to pull the trigger when a home comes up that appeals to you, we should have all of our ducks in a row, starting with the financing. Chatting with a Mortgage Broker can present you with a variety of purchase and financing options.
I am certainly a huge believer in real estate as a viable investment and wealth building tool. Real Estate, however, is a long term investment. Many have been extremely fortunate in "flipping" homes over the past few years. Making a lot of money in an inclining market, or buying "fixer uppers" and renovating for profit. In the current market, however, there seems to be very little profit margin for the handyman. As a matter of fact, if we lose value in general over the time one buys, fixes up and then relists, one may actually lose money. Even worse, many have tried to invest short term and have lost their shirts. I suggest we will not see any significant equity gains over the next year, maybe two or three. That does not mean that real estate is not a good investment, one still can make a profit in the rental market. And if you are anticipating moving into a specific property in a decade and buying a "holding property", chances are pretty good that the values will be significantly higher in the long run.
With the real estate market in such a volatile position today, it would seem that many potential sellers will be trying a variety of things to entice a buyer. Rent to own, seller financing, "guaranteed" pricing and such. The bottom line is that we will have to be very careful as many of these schemes rare their heads. I'm not saying they will all be shady - some may be clever and well thought out - but we will certainly need to do our homework… and utilize a knowledgeable real estate lawyer in putting together any type of new or strange situation.
I believe three things are of prime importance in selling a home. The first is the property itself - how is it presented? There are many homes that are online that certainly are not at their finest. Many are full of clutter, messy, dirty and certainly not staged in the best light. A home really should look its finest when presented to a potential buyer, which leads me to the second criteria, marketing. The first line of offense is, of course, the MLS. Are you utilizing all of the tools available to you? Are all 20 photos looking their finest? Other support marketing should also pique a potential buyers curiosity, making them ask questions, and leading to a viewing of the home.
Taking these two important aspects of the listing into account, the third - and most important - aspect of the listing is the price. If the property is at its finest, and the marketing shows off the property in a fine light, one can ask a premium price for the property. Coming to this "premium" price takes into account recent sales, where the market is heading, property assessments and such. Pricing is a very pragmatic process, there is no magic involved. If the property requires updating, if it does not show well, if it is located on a busy street, if it is messy, needs paint etc etc the pricing needs to be adjusted to reflect these insufficiencies. And if the home looks bad online, or the marketing is inefficient, again, the price has to be adjusted to reflect these deficiencies.
If you are interested in a bargain in purchasing a home, they will certainly present themselves over the next few weeks and months. I would suggest we will see a variety of "handyman" specials, foreclosures, and desperate sellers that may list their homes for below the current market value. I can also ensure you that if homes come up that are truly below current market value, there will be a great many bargain hunters, investors and such also looking at those homes. Homes that are of exceptional value will sell quickly.
Having said all of that, to be sure you are in a position to pull the trigger when a home comes up that appeals to you, we should have all of our ducks in a row, starting with the financing. Chatting with a Mortgage Broker can present you with a variety of purchase and financing options.
I am certainly a huge believer in real estate as a viable investment and wealth building tool. Real Estate, however, is a long term investment. Many have been extremely fortunate in "flipping" homes over the past few years. Making a lot of money in an inclining market, or buying "fixer uppers" and renovating for profit. In the current market, however, there seems to be very little profit margin for the handyman. As a matter of fact, if we lose value in general over the time one buys, fixes up and then relists, one may actually lose money. Even worse, many have tried to invest short term and have lost their shirts. I suggest we will not see any significant equity gains over the next year, maybe two or three. That does not mean that real estate is not a good investment, one still can make a profit in the rental market. And if you are anticipating moving into a specific property in a decade and buying a "holding property", chances are pretty good that the values will be significantly higher in the long run.
Wednesday, January 26, 2011
Bungalows
Bungalows may very well become the preferred house style of the future as the population grows older. Even more interesting are the "villa" either attached or detached style homes, often condo ownership or having a Home Owner Association. The owners want to be able to lock and go. Read that - not having to deal with snow removal or yard maintenance such as cutting the grass!
Bungalows with more than one bedroom upstairs are at a premium, but not necessarily the most popular of this style. They do mostly appeal to "empty nesters" (I will be one before you know it.) Typically retirees or close to retirement type folks would have - in past - moved away from the hustle and bustle of the big city (maybe to the Okanagan or Shuswap.) The trend I am seeing more and more is these folks want to stay in the city for a variety of reasons. The first is what the city has to offer such as culture, proximity to an international airport, and even sports entertainment.
The second, and most important, is that they want to be close to their offspring… and even MORE importantly, to their grandchildren. I would suggest that over time, value of this type of ownership could potentially surpass the rates of other styles of homes such as the two storey house.
As the aging population become more financially independent we also see Canadians purchasing winter homes abroad in such places as Arizona, Florida, Mexico and Costa Rica just to name a few, and the fact you can pick up properties in these areas for a mere percentage of the values in areas like Calgary make two homes more viable for more and more people. I can tell you the thought has crossed my mind this winter, especially with the brutal cold temperatures we have seen this year.
Food for thought!
Bungalows with more than one bedroom upstairs are at a premium, but not necessarily the most popular of this style. They do mostly appeal to "empty nesters" (I will be one before you know it.) Typically retirees or close to retirement type folks would have - in past - moved away from the hustle and bustle of the big city (maybe to the Okanagan or Shuswap.) The trend I am seeing more and more is these folks want to stay in the city for a variety of reasons. The first is what the city has to offer such as culture, proximity to an international airport, and even sports entertainment.
The second, and most important, is that they want to be close to their offspring… and even MORE importantly, to their grandchildren. I would suggest that over time, value of this type of ownership could potentially surpass the rates of other styles of homes such as the two storey house.
As the aging population become more financially independent we also see Canadians purchasing winter homes abroad in such places as Arizona, Florida, Mexico and Costa Rica just to name a few, and the fact you can pick up properties in these areas for a mere percentage of the values in areas like Calgary make two homes more viable for more and more people. I can tell you the thought has crossed my mind this winter, especially with the brutal cold temperatures we have seen this year.
Food for thought!
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