CMHC's First-Time Homebuyers Survey

The Canadian Mortgage and Housing Corporation (CMHC) has just released their first time Buyer survey. Certainly some interesting thoughts and findings in there further to my Blog regarding the slowing process of mortgage financing!

The survey points out that first-time homebuyers typically have lower incomes than other homebuyers. As a matter of fact, 65% of new buyers have household incomes of less than $90k and one in five of those have a total household income of under $45k. This would strengthen my position regarding the fact that the vanishing inventory of more affordable homes (under $400k) will be a major contributor of how the market proceeds over the next few weeks, months and years. If there are fewer homes available in the range these new homebuyers can afford, it will certainly slow the market significantly. If homes are not affordable for these buyers, the opportunity for other homebuyers to sell their homes and move up will also slow down.

Another finding within the survey points toward the fact that new homebuyers typically take about three months longer to plan their purchase than repeat buyers. The median time frame for planning is about ten months. If we see further spread between what these new home buyers can afford and the actual pricing of homes, we could see that planning time period expand further as new homebuyers have to save longer for a significant down payment.

What I found especially interesting in the survey is the fact that 70% of first time homebuyers purchase single family homes, whereas only 28% purchased apartment or townhouse styled condos. Perhaps there will be a shift in this trend as single family homes become further out of reach financially and new homebuyers will need to lower their expectations as to what they want in a new home. This will certainly affect the quantity of sales of single family detached homes, possibly dragging prices downward.

We certainly need to keep a close eye on this spread between affordability and market value for new home buyers and repeat buyers alike. Keep in mind that half of repeat buyers have a household income of $90k or less as well. As financiers and Government initiatives tighten the process for obtaining mortgages further, this will put additional pressure on the market where affordable homes are becoming further and farther between.

City Centre or the Suburbs?

We are thinking we might like to move closer to the inner city ,of course, prices are generally higher there and we don't want to dip into our retirement savings too much but what are your thoughts on that sort of move? Do you expect values to increase more rapidly in the inner city versus the suburbs?

Thanks for the note and your questions, it is always good to hear from you!

The inrush to the city centre and popularity to more urban living is very interesting and certainly a diversion from the way things have been in past.  As people became more affluent over the past few decades, there seemed to be an exodus to the surrounding areas of Calgary and great homes were built on acreages that surrounded the city. I remember when I first moved to Calgary in the mid-80's, places such as Artist Point on the West side of Calgary were the envy of many. Although there still is this type of growth and development today, there has been a major shift in this paradigm and more and more of these affluent - and pretty well folks from all walks of life - have been flocking to the city centre and areas of great walkability. The hustle and bustle of the downtown, walking access to shopping and services, and easy access to public transit are of great interest and importance to more people than ever.

I do not think this is a flash in the pan movement and believe we will see more and more of this over the next few years. Without a doubt we will see a further impodus in the city core and developers will see this trend and come up with many creative styles of homes and developments in these areas.

Just looking at many of the micro markets within the Calgary real estate market certainly is proof to this change. Communities in the suburbs seem to be declining in popularity relative to more central communities and homes are taking longer to sell in the outskirts of the city. The suburbs are a great choice for many families and offers a completely different lifestyle than inner city living, and that is totally a personal choice.

If I was looking to invest in new properties today, I would certainly be taking a serious look at the inner city myself and the potential for particular communities to fall within a great walking score. I was visiting friends in a beautiful condo complex in Spruce Cliff a couple of weeks ago and thinking what a great investment they made in the area. I absolutely believe that values close to the city core will accelerate faster that the outlying areas, and retain their value as other areas within the city may falter.

 

I can certainly keep you in the loop with a customized market report for you so that you can keep an eye on some of these communities yourself. I would also be happy to sit with you to come up with a strategy together in anticipation of making this new move.

Have a great Movember! 

Is the Process of Securing Financing Slowing?

There have been some serious shifts in the process of qualifying for a mortgage when considering buying a new home. The catalyst for this change in the mortgage rules really started back in 2006 when the markets across Canada - and specifically in Calgary - shot up in an unprecedented hurry and then descended almost as quickly in 2007-2009.  Since 2008, the Government has lowered the maximum amortization period from 40 to 25 years, reduced the gross and total debt service ratios and late last year regulated a higher qualification mortgage rate. Many of these restrictions appear to be aimed at cooling the housing market and limiting Ottawa's exposure in the case that house prices slump. "If we don't get the softness we are expecting, quite frankly I think they are already talking about more restrictions." Benjamin Tal, CIBC Deputy Chief Economist

The Federal Housing Agency has served notice that it is limiting guarantees it offers financial institutions to $350 million per lender under its National Housing Act Mortgage-Backed Securities program. Earlier this year, CMHC was given the okay by Ottawa to guarantee up to $85 billion for 2013 and those commitments reached $66 billion by the end of July. Even with the restrictions that these policies have spurred, Ottawa may feel they need to implement further policy to cool a market that has remained surprisingly resilient. "The consistent policy of this government has been to restrict or curtail its exposure - I would even say involvement - in the overall mortgage market." Jim Murphy, Chief Executive of the Canadian Association of Accredited Mortgage Professionals.

Getting financing certainly has become more rigorous over the past few weeks, months and years, and for the 15% of self-employed Canadians (and even higher ratio in Calgary) it's harder still. In past there have been programs for entrepreneurs that used "stated income" and a more relaxed qualification process that has recently been tightened. Changing attitudes among lenders make it more difficult for the self-employed to deal with top-tier banks, and the trade off is often higher interest rates. Lenders care more than ever about up-front equity, meaning they are requiring a larger down payment to soften their risk. 

There have been signs this year that the housing market is in recovery mode. Many analysts consider this a short term blip caused by consumers rushing to buy in order to take advantage of pre-approved mortgages signed 120 days ago when long-term rates were lower. But with the Bank of Canada signaling last week that it won't be raising rates, consumers can potentially take their foot off the gas. With no panic to buy, the question is whether people will be encouraged to continue to take on more debt or slow down their spending, especially if the economy wanes.

A major concern for Finance Minister Jim Flaherty has been the ever increasing debt load of Canadians. That, in combination with the recent downgrades to the Bank of Canada's growth forecasts, may give the government no choice but to further tighten lending rules.

It is difficult to understand fully how all of this will affect the real estate market, and many economists and analysts in the field are hesitant to make predictions on the housing market as so many experts have been so wrong for so long! I would suggest that we should pay close attention to the micro-markets within our area for indicators of a slowing or heated market. However, from all indicators up to now, I would expect the probability of a simmering market a very good possibility.

If you are considering buying or selling real estate, it would be prudent to align yourself with a real estate professional with a good understanding of these variables and with experience in the industry. I would be happy to chat with you about your real estate intentions and assist you in putting together a well researched strategy to help you achieve your goals!

Indicators of a Slowing Market?

I put together a listing presentation today for a potential seller living in beautiful Panorama Hills and noticed a variety of indicators that may very well be pointing us toward some interesting trends over the next little bit. At the time I wrote this blog there were 80 homes for sale in Panorama Hills. From January to the end of May there were 137 sales in the community and a whopping 36 (26%) were sold in May alone. So far this month (June 10th to be precise) there have been six firm sales and there are 11 homes that have been posted as conditional sales. These are all great indicators for us as a seller, it would certainly seem that the market is in an upward trend.

Let’s look a little deeper at both the inventory as well as sales so far this year. Of the homes that are currently active in the community, 36% have been on the market for less than a month. 28% of the active listings have been on the market for between one and two months and 31% have been on the market over two months. It is interesting to see that so many homes have been on the market for such a long period of time as we have seen an average of just over 27 sales per month, pointing toward a fairly balanced market in the area. It would seem to me that a good portion of those homes that have been on the market for such a significant amount of time need some major changes in their listing strategy to get the job done.

 

I believe it is also paramount to point out the price breaks in relation to actual sales and active listings:

So far this year 32% of the sales were under $450k whereas only 12% of the listings are in this price category today;

27% of the sales were between $450k and $500k and only 16% of the listings are within this range;

41% of the sales were over $500k and now over 70% of the listings are asking for this price range!

The real kicker here is where the sales are so far this month... there is one firm sale over $500k and four pending sales that could possibly be in that range (29%); there are possibly five sales between $450k-$500k (29%); and seven under $450k (41%). These numbers are deviating significantly from what we have seen up to this point this year.

 

With the numbers becoming so far apart between what a seller would like to sell for, and what the typical buyer is looking for in the community, we could be in for some very interesting times indeed! If the buyers cannot afford any more than the previous sales are showing – perhaps they cannot qualify for the higher mortgage – we can expect a variety of things to happen in the next few weeks… homes will stay on the market longer and longer, and eventually we will see pricing slowly move back to the ranges we have seen in the early part of the year. Alternatively, buyers may need to re-qualify for a larger mortgage or find more cash to put toward a purchase. In my experience, finding additional cash to close is quite difficult, and unless mortgage regulations are altered, finding that higher mortgage limit will also be difficult if not impossible.

 

I hope these observations within this micro market of Calgary are not indicators for the entire city, however, I would keep close attention to these ratios and sales figures.

I put together a listing presentation for a seller in beautiful Panorama Hills today and noticed some interesting trends moving forward. At the time I wrote this, there were 80 homes for sale in Panorama Hills. From January to the end of May there were 137 sales in the community and a whopping 36 (26%) were sold in May. So far in June there have been six firm sales and there are 11 homes that have been posted as conditional sales. These are all great indicators for us as a seller, it would certainly seem that the market is in an upward trend.

Let’s look a little deeper at both the inventory as well as sales so far this year. Of the homes that are currently active in the community, 36% have been on for less than a month. 28% of the active listings have been on the market for between one and two months and 31% have been on the market over two months. It is interesting to see that so many homes have been on the market for such a long period of time as we have seen an average of just over 27 sales per month, pointing toward a fairly balanced market in Panorama Hills. It would seem to me that a good portion of those homes that have been on the market for such a significant amount of time need some major changes in their listing strategy to get the job done.

 

It is also interesting to point out the price breaks in relation to actual sales and active listings.

So far this year 32% of the sales were under $450k whereas only 12% of the listings are in that category;

27% of the sales were between $450k and $500k and only 16% of the listings are within this range;

41% of the sales were over $500k and now over 70% of the listings are asking for this price range!

 

With the numbers becoming so far apart between what a seller would like to sell for, and what the typical buyer is looking for in the community, we could be in for some very interesting times! If the buyers cannot afford any more than the previous sales are showing – perhaps they cannot qualify for the higher mortgage – we can only expect one thing… homes will stay on the market longer and longer, and eventually we will see pricing slowly move back to the ranges we have seen in the early part of the year. Alternatively, buyers may need to re-qualify for a larger mortgage or find more cash to put toward a purchase. In my experience, finding additional cash to close is quite difficult, and unless mortgage regulations are altered, finding that higher mortgage limit will also be difficult. It will definitely be interesting what the rest of the year has in store for us!

Pricing appropriately in any market!

There was an interesting article in the Calgary Herald this morning that I thought I would address:

Luxury home sales hit record as market reaches new high (The Calgary Herald, June 4th, 2013)

The bottom line is that the Calgary re-sale market has hit record highs last month, surpassing our peak numbers back in 2007.  That is great news, and we have certainly seen reflection of these numbers throughout many communities in Calgary.

 
Yesterday I sent out an email to a client looking at higher-end properties that are over 3,000 square feet with reference to a variety of price reductions over the weekend. Some of these homes are absolutely stunning, as a matter of fact, I use some photos on my Interesting homes in Calgary Facebook album

Price Reduced! $1,075,000 220 Aspen Summit Heath HE SW 3 Bedrooms, Status: Active. Residential

Price Reduced! $1,075,000 5 CRESTRIDGE VW SW 3 Bedrooms, Status: Active. Residential

Price Reduced! $1,849,000 2030 6 AV NW 5 Bedrooms, Status: Active. Residential

Price Reduced! $1,450,000 4 SPRING WILLOW PL SW 4 Bedrooms, Status: Active. Residential

Price Reduced! $1,375,000 27 STRATHRIDGE GD SW 5 Bedrooms, Status: Active. Residential

Price Reduced! $1,095,000 61 SIMCREST GV SW 5 Bedrooms, Status: Active. Residential

Price Reduced! $1,175,000 78 VARSITY ESTATES CL NW 4 Bedrooms, Status: Active. Residential

Price Reduced! $1,145,000 46 CHAPALA CL SE 7 Bedrooms, Status: Active. Residential

 

I guess the point I’m making here is the fact that homes that are priced appropriately are selling very quickly, homes that are over-priced are not. Being aggressively priced means pricing appropriately in the current market. I would also question how long the current market will last, I would suggest that the current trend is not necessarily sustainable at the pace we have set this year. Typically the real estate market in most sectors in Calgary slow considerably in the summer months, which are quickly approaching.

Another interesting listing that certainly supports the theory of pricing aggressively is a home currently listed in Mount Pleasant. This home was listed in December 2008 and was listed as high as $549,999 in that period. Yes, you read that right, at the time of this writing, it has been on the market for 1,617 consecutive days, wow! As a matter of fact, this particularly property has been listed as far back as 1999 and has no “sale” history on the MLS, the current listing price is $399,999.

736 17th Avenue NW
This would probably be the best example of a “stigmatized” property that I could find. What is the first thing that comes to your mind when you read about this? Most probably something along the line of “there must be something wrong with this property”. That may not be the case with this specific home, however, the thought process certainly leans to suspicions, which will lead it to becoming stigmatized. Although this is an extreme case of this phenomenon, any home that is on the market for a prolonged period of time in its current state could very well fall into this dilemma, something that can devalue the property.

In any market, especially one as volatile as our own, it is paramount to make well educated and strategically supported decisions both in purchasing, and marketing your real estate asset. An experienced Realtor can assist you with that process with statistics and intrinsic information.

If there is anything I can do for you, please do not hesitate to ask.

Bearish Report for the Canadian Housing Market

Thanks to one of our preferred mortgage specialists - Al Nenshi from Quantis Mortgage Solutions - for sending along this article. We are certainly in the position to see some interesting changes in the market over the next few months and years - Dan

 

Brady Yauch, BNN.ca

Another day and another bearish report on the Canadian housing market – this time from analysts at Morningstar, the Chicago-based research group.

The analysts warn that if housing prices fall by just 10 percent, the country's largest banks and the government-backed Canada Mortgage and Housing Corporation (CMHC) face a "significant risk of losses or impairment to capital levels." The analysts add that the loan-to-value ratio of mortgages at Canadian banks is at the same level it was in the U.S. prior to that country's collapse in real estate values. Loan-to-value ratio is a measure of the amount of borrowed money used to purchase home.

"Canadian banks, as a group, state that the major difference between them and U.S. banks just before the housing bubble is the higher level of equity, on average, that most Canadian banks possess in their residential loan portfolios," Morningstar analyst Dan Werner says in a note to clients. But when comparing the data, he found that the average loan-to-value ratio for Canadian banks is about 45 to 60 percent, while that figure was 54 to 55 percent for U.S. banks prior to the financial crisis.

"More important, the distribution of Canadian mortgage loan/value ratios in 2013 and currently insured by the CMHC indicates a higher proportion of loans in the higher-loan/value categories compared with 2006 levels," he adds. "We think this demonstrates higher risk to the CMHC and banks' capital levels."

He warns that the proportion of mortgages with a loan-to-value ratio greater than 80 percent is higher for Canadian banks than it was in the U.S. prior to 2007. A higher figure for a loan-to-value ratio indicates that more money was borrowed to purchase a home.

Worse still, Werner adds that because a large percentage of the mortgages held by Canadian banks have loan-to-value ratios of 70 to 80 percent, it would take only a 10-percent decline to cause these mortgages to exceed the threshold allowed by the CMHC on new loans. The CMHC provides insurance on mortgages where the borrower has put down less than 20 percent of the value of a home.

"If housing values were to fall precipitously, many of those loans would fall into the higher-loan/value categories," he says.

The CMHC may not be able to handle a major pullback in housing prices, Werner says. With 28 percent of insured Canadian mortgages posting loan-to-value ratios greater that 80 percent, he says the CMHC's liabilities could exceed its equity should home prices across the country decline.

In a worst case scenario, if 100 percent of borrowers defaulted when the value of their mortgage exceeded their home, then a 10-percent decline in home prices "would more than exhaust CMHC's capital."

As for the banks, Werner says National Bank of Canada (NA-T 74.5 -0.21 -0.28%) and CIBC (CM-T 78.54 -0.78 -0.98%) will be hit hardest by a significant decline in prices, while Toronto Dominion (TD-T 82.64 -0.32 -0.39%) and the Bank of Montreal (BMO-T 61.62 -0.42 -0.68%) will be the least effected.

The recent catalyst for the more than decade-long run-up in home prices has been cheap funding, a result of the Bank of Canada maintaining low interest rates since the financial crisis. The Bank of Canada has held interest rates at one percent for more than two years, but has in the past year warned consumers that its next move will be to hike rates – a move that would make it more expensive to service debt.

 he debt-to-income level for Canadians is currently at a record 165 percent.

"We think sustained low interest rates will continue to feed cheap funding into the residential real estate sector and drive consumer debt," he says. "However, we continue to think that the growth of household debt to disposable income for Canadians is unsustainable in the long-term."

Like the weather, the real estate market is keeping us on our toes!

I thought I would drop you a line with my thoughts on what is going on in our neck of the woods.

I just listed a condo in the Willows in Hidden Valley and thought I would share this situation with you as it is typical for what is going on in the market throughout the city. This is a lovely four level split townhouse with quite a few upgrades. As with all of our listings, the home has been staged nicely and has a great presentation. Here is a look at this listing, along with the past two sales of similar type properties in the Willows, dating all the way back to February of last year.

In looking at the two sales, we found some interesting facts. The property that sold in December was on the market for 79 days, and prior to that they were on the market in 2010 for another 110 days to no avail. The property that sold early in 2012 actually sold for 8% less than the seller purchased it for back in April 2009, one of the most intense times in the market in recent history.  On the first day our new listing was on the market, we received an offer from the only viewing of the day that we accepted and are now awaiting the conditions to be met. What is interesting about the offer is how strong it was right off the bat, they pretty well wrote the offer as we presented it online. Why would the buyers do such a thing?

The answer lies in the fact that they have been looking for a new home for quite some time and according to their Realtor, actually lost out on a variety of listings that sold very quickly. They took a pro-active stance on this particular home because they did not want to lose out on another property being sold to someone else from under them. This is a very interesting phenomenon where the Buyers become more savvy and aggressive due to their experiences in losing out on previous listings.  

Single family homes in Hidden Valley are seeing similar action. At the moment there are 15 homes for sale in the community at various price points. So far this year there have been 61 sale in Hidden Valley, just over 15 sales per month.

In Kincora, there are 14 active listings and there have been 39 sales so far this year, just under ten sales per month.

Even in Panorama Hills, one of the largest communities in Calgary, there are only 71 active listings and they have seen about 27 sales per month.

In Hanson Ranch there is currently only one active listing. There have been six sales this year and there are two pending sales in the community.

It would certainly seem that we are in the midst of a “Sellers” market, the last time we were leaning so far toward the Seller was back in 2006, and we certainly recall what happened back then! The next questions would be, will that happen again to us this year?

I would suggest that there are a whole variety of variables that will help cool off the huge demand in the market at the moment. Perhaps the most influential cooling system will be the financial institutions. We are seeing more and more bank appraisals falling short of the price agreed upon between the Buyers and Sellers. As a matter of fact, I am currently dealing with another sale where the appraised value was about 5% lower than the agreed upon price. There are more and more deals falling apart due to financing, and that is a trend we will probably see continuing.  The banks, mortgage companies and insurers such as CMHC took a huge hit in subsequent years to our peak in 2006-2007 where there were many foreclosures due to the huge loss of equity in the market from 2008-2011. Rest assured that they have written and re-written policy to help hedge them from a similar situation happening again.

Although we currently have a lack of inventory, I would suggest that the supply versus demand crisis we are currently experiencing will be short lived. Typically we see more homes added to the inventory as the weather turns better, then as the summer approaches, demand typically slows as many Calgarians take advantage of our short summer. I would expect that the current situation may last until mid to late June where we should see the market settle down a bit. We should see values stay constant, perhaps even creep up a bit in the next six weeks, however, coming July we could see a reverse in that trend.

The economic forecast is uncertain at best for the rest of the year, and the outlook for 2014 is even more questionable. Although Alberta seems to be bucking the National and International economic trends, I would caution that it will be difficult to continue in that direction due to our reliance on the energy sector in Calgary and all of Alberta.

I would be happy to chat with you about the market, and any concerns you have with the current trends and where we may be heading in the next few weeks, months and years. I would also be happy to chat with you about your current and long-term real estate strategy. Please do not hesitate to let me know if you would like to book a real estate consultation.

Real Property Reports (RPR's)

 

Real Property Reports

What is a Real Property Report (RPR)?

It is a document prepared by a registered member of the Alberta Land Surveyors Association. It is a visual representation that illustrates the boundaries, improvements and encroachments, right of ways, and easements on a property.

 

Why is an RPR necessary?

For a seller, it identifies unknown issues with property and gives them an opportunity to remedy problems before selling and ultimately may assist in preventing future litigation. It also provides disclosure/documentation of known issues.

For the buyer, it identifies boundaries, discloses any issues with the property or provides confirmation that the property meets municipal requirements.

For the REALTOR®, it identifies issues related to title that may impact a sale, provides disclosure of boundary issues that might create future litigation, and meets the AREA contract requirements.

Financial institutions often request RPRs before they will provide financing.

Lawyers cannot close on the sale if an RPR is unavailable, is not current, or indicates problems.

When should my client get an RPR?

If the client has an existing RPR with compliance stamps and no improvements or adjustments have been made to the property, they may not need a new RPR. However, if there have been changes to the property they may need to get a new Real Property Report. Even if there have been no changes, financial institutions may request a current RPR.

Be aware that obtaining a current RPR can be time consuming. The completion of the RPR can take several weeks. Added to that the time it takes to obtain a compliance stamp from a municipality can take several weeks. Not having a current RPR can hold up a closing.

For that reason, REALTORS® should ask their sellers about current RPRs as soon as possible.

 

Who is obligated to get an RPR?

Under the AREA purchase contract the obligation to provide a current RPR lies with the seller of the property, unless specifically contracted otherwise.

What if I Can't get what I NEED for my property?

Last evening I met with some great homeowners that have built and customized a beautiful home in a new community in NW Calgary (thanks B&D!) What we found after looking at the sales and active listings in the area is that the market is dictating that the value today is considerably less than what it cost them to build this home only four years ago. What we find in this scenario is this... if the Seller needs a specific price to make a sale happen (taking into account the amount owed on the property and such) and a Buyers perceived value is considerably less, we come to a stalemate. If a Buyer and a Seller cannot find a price they are both comfortable with we will not see a sale. The bottom line as a Seller is we want to get the most that we possibly can in the current market, and if that is not a possibility we need to explore other avenues to look after our real estate investment.

Leasing is certainly a good alternative for a long term holding. I would suggest it may be quite some time before we return to where we are right now in the market. With the uncertainty in the world economy, and especially with regards to our neighbours to the south, the possibility of us escaping these issues unscathed is miniscule. We – as Calgarians and Albertans – did quite well last year in a world that is in turmoil. I feel it is only a matter of time before these national and  international issues and challenges catch up with us. If we see a flat market this year, I feel we will be ahead of the game. Realistically, I think we may lose steam this year and see further declines in pricing. If you do decide to rent or lease your property, I would suggest you consider a long term plan, at least five years as that is how long it may very well take before we see any significant changes in the market.

I would also caution you to be diligent in your research if you are considering a lease-to-own strategy. I personally designed a rent-to-own program back in 2006 where we set up a scenario for renters to put them into homes with a five year program to set them up to purchase their home.  My belief was then - as it is now - that all Calgarians should have the opportunity to own their own home. We were actually able to get most of the folks that applied for this program their own mortgage approval right off the bat (that’s why I love mortgage brokers!)  The only two families that we did need to use the program for have walked from their deals and the properties have reverted back to us. These properties are more of a hindrance than an asset for us, they are not properties that I would have personally chosen for their investment potential. Ask yourself this, why would someone get involved as a Tenant in a lease-to-own situation with mortgage rates at historical lows? Our philosophy at the time was to assist renters that could not get approved for a mortgage from the banks by building their credit so that they could get their own mortgage at the end of the term. We even enlisted the help of a financial advisor for them.  I’m afraid that what I have learned from this experience is that there is often good reason these folks were initially turned away by the banks.

 

As I have mentioned many times in Blogs past, it is essential to enlist the expertise of a knowledgeable real estate professional to assist you with your own real estate investment strategy.

 

Let me help you make it happen!

What if you can't get what you need for your property?

Last evening I met with some great homeowners that have built and customized a beautiful home in a new community in NW Calgary (thanks B&D!). What we found after looking at the sales and active listings in the area is that the market is dictating that the value today is considerably less than what it cost them to build this home only four years ago. What we find in this scenario is this... if the Seller needs a specific price to make a sale happen (taking into account the amount owed on the property and such) and a Buyers perceived value is considerably less, we come to a stalemate. If a Buyer and a Seller cannot find a price they are both comfortable with we will not see a sale. The bottom line as a Seller is we want to get the most that we possibly can in the current market, and if that is not a possibility we need to explore other avenues to look after our real estate investment.

Leasing is certainly a good alternative for a long term holding. I would suggest it may be quite some time before we return to where we are right now in the market. With the uncertainty in the world economy, and especially with regards to our neighbours to the south, the possibility of us escaping these issues unscathed is miniscule. We – as Calgarians and Albertans – did quite well last year in a world that is in turmoil. I feel it is only a matter of time before these national and  international issues and challenges catch up with us. If we see a flat market this year, I feel we will be ahead of the game. Realistically, I think we may lose steam this year and see further declines in pricing. If you do decide to rent or lease your property, I would suggest you consider a long term plan, at least five years as that is how long it may very well take before we see any significant changes in the market.

I would also caution you to be diligent in your research if you are considering a lease-to-own strategy. I personally designed a rent-to-own program back in 2006 where we set up a scenario for renters to put them into homes with a five year program to set them up to purchase their home.  My belief was then - as it is now - that all Calgarians should have the opportunity to own their own home. We were actually able to get most of the folks that applied for this program their own mortgage approval right off the bat (that’s why I love mortgage brokers!)  The only two families that we did need to use the program for have walked from their deals and the properties have reverted back to us. These properties are more of a hindrance than an asset for us, they are not properties that I would have personally chosen for their investment potential. Ask yourself this, why would someone get involved as a Tenant in a lease-to-own situation with mortgage rates at historical lows? Our philosophy at the time was to assist renters that could not get approved for a mortgage from the banks by building their credit so that they could get their own mortgage at the end of the term. We even enlisted the help of a financial advisor for them.  I’m afraid that what I have learned from this experience is that there is often good reason these folks were initially turned away by the banks.

 

As I have mentioned many times in Blogs past, it is essential to enlist the expertise of a knowledgeable real estate professional to assist you with your own real estate investment strategy.

 

Let me help you make it happen!

Micro Market Analysis Case Study

With the good news regarding growth in both pricing and activity in the Calgary area last year I think it is important that we be cautious on how we view these figures and statistics in making educated and informed decisions on how to move forward with our real estate direction, whether deciding to buy, sell or invest.

Without a doubt, real estate is an excellent strategy for long term financial growth. When deciding how to move forward with your real estate needs, it is imperative to have a professional real estate adviser and strategist on your team. I recently put together some information for clients to assist them with their future real estate goals and thought that this information was pertinent for anyone that is trying to get a grip on the media coverage on the significant growth we have seen over the past year. And more importantly, how it pertains to making sound real estate decisions.

Before I analyze these two communities, let’s have a look at how we fared for sales for single family sales in Calgary Metro. In 2011 the average sale price was $466,506 for the 13,120 sales throughout the City. We saw increases year by year in both sales figures, up 1,989 to 15,109 sales, an increase of 15%. And the average price also increased, up $14,730 to $481,236, an increase of 3%. It is also interesting to note that the average price in January 2012 was lower than any of the previous months in 2011 and 3% below the average price in January 2011 and sales volume was also down in comparison to the year prior. If we were to make predictions of how the year would iron out after that first dismal month, we would have probably been way off on our yearly forecast… hindsight is 20/20!

In looking at the activity of both Hidden Valley and Hanson Ranch in the same period, it is quite obvious that - although these figures above are showing significant growth generally speaking in our beautiful city – it is extremely important to understand that within the city there are huge variances in pricing and activity. Hidden Valley and Hanson Ranch are married as communities sharing the same community association and schools – they are definitely each other’s closest neighbours. You would expect that growth would be very similar in these attached communities, however, after careful analysis we can certainly see that is not the case.

Hidden Valley showed significant sales and equity growth from 2011 to 2012, outperforming the general statistics for the rest of Calgary. The average price increased from $360,260 in 2011 to $385,794 last year, a growth rate of 7%! The volume of sales also increased 25% from 120 sales in 2011 to 153 sales last year. One of the major contributors to this huge growth were higher priced homes within the community. In 2011 the highest sale price for a home was $551k, all other sales were below $450k. Last year there were 13 homes that sold over $450k, and five of those sales were above the ceiling reached the year before… and the real kicker… a sale for $710k (and one for $665k, and one for $630k!)

In contrast, Hanson Ranch saw a significant drop in their average price, whereas sales remained steady (22 in 2011 and 24 in 2012). The average price in 2011 was $541,079, significantly higher than the citywide average. Last year we saw a drop in value of the average sales price to $517,954, a decrease of 4%. There certainly are a variety of factors that have contributed to this detraction in value. The first is this single high sale in 2011 for $870k, the highest price last year was considerably lower at $650k. It is interesting to note that that “high” price in 2011 was actually purchased in 2007 for $962k. And the highest sale in 2012 ($650k) was also sold in 2011 ($568k) after some major renovations.

This is a great case study to point out the importance of taking into account the micro analysis of an area and a specific property as the trend of the entire area may not be a good indication of current values in a specific area. We are seeing more and more variance from one community to another, and even from one street to the next. Coming up with a value for a particular property takes a great deal of information gathering, analysis and strategic marketing in order to maximize the equity of that home. I do believe that in the coming weeks, months and years it will be essential to understand these various nuances in the market so that we can achieve sustainable growth throughout Calgary.

Hey Dan,

My husband and I have been discussing moving, and we have a few questions -

 

     1. Is it better to look for a house and list our house at the same time?

 

     2. Or is it better to sell our house first and then look... and hopefully we find something.

 

We're having the bank do a pre approval for us which will be good for 120 days, just in case we do find something we love love love in the new year. And I did contact my mortgage lady who said basically what I already knew - that selling first can possibly create a rush situation, and selling and buying at the same time can sometimes create a less desirable offer to the other seller when your condition is based upon the sale of your current home.

 

She suggested I talk to you as well to see what you recommend. Soooo... Any insight you have would be great!

 

Thank you so much for your note and inquiry, I look forward to assisting your family in putting together a strategy in finding a new home and selling your current home. To start, let me say that there really is no solid answer to whether you should sell first or buy first. Please do read through my last two Blogs...

 

Let's start by going over the listing process.

Getting a home ready to list and view is a bit of a hectic matter. The days of sticking a sign in the ground and hoping for the best are long gone. Today there are many aspects to the listing that are of prime importance in getting a potential buyer through the door. There are essentially three things that affect your success in having a successful and less stressfull selling experience.

 

First and foremost is pricing your home effectively and aggressively. A detailed analysis of sales of similar homes in your community and area is of prime importance to understand better what is going on in your micro-market. Within Canada, Alberta, Calgary and specific communities and jurisdictions we can see quite a variety of activity. We can see that the Canadian market is doing well, or not doing so well, and that trend may or may not be the same in Alberta. On the same token, what is happening generally in Alberta may not be the norm in your own town or city. And even more specific, what is happening within the city may be very different from one community to the next. We have seen a huge expansion in communities close to the city core, both in re-development and pricing. More suburban areas may have not fared so well over the past few months. We need to take the "micro-market" very seriously in determining how quickly homes are selling, and whether prices are trending upward or downward. And most importantly, what trends to expect in the short term.

 

The second aspect to take into account is how the house and property presents itself to the potential buyer. Without a doubt, Calgary has seen excellent sales over the past year. Something we need to take into account, though, is how the buyer is looking at their investment. In the past seven years or so, we have seen great volatility in the market. Buyers often looked at potential growth of their real estate investment in the short and mid-term. Will the market show significant growth over the next few months and years so that I make a decent profit on my investment? I do believe we are seeing a shift in paradym and buyers are starting to look at their investment once again in the long term. Can I see myself living in this home for many years, or over a decade? This paradym shift really is moving back to the way we looked at our real estate purchase prior to our unsustainable growth in 2006 and early 2007, but that's a topic for another day!

 

Having said that, it would also be prudent to point out how important it is to present a property in the best light possible. Staging a property is of prime importance to show off all of the attributes of a specific home, and to be sure a potential buyer is not turned off because of something that has been overlooked. Even though there has been significant growth in the market over the past year, there are also many, many homes that have been on the market for a significant amount of time, some for many months, and even years. In a volatile market with the potential of a downturn, it is very important to sell your home quickly to maximize your equity and profit.

 

The third aspect to selling your home quickly and for a maximum profit is to be sure it looks good - no GREAT - online and through the marketing of the property. It irks me to no end when I see questionable photography and inaccurate information in a listing. Without a doubt, the vast majority of potential buyers are going to look at your home online prior to making a decision to visit your home. We are in a very busy and hectic world, a potential buyer will most likely narrow down their search on their computer, losing a potential buyer because of a lackluster presentation is a major consideration today.

 

Having Realtors make appointments at all times of the day, having the house in top shape for every showing and having to move out the troops for those showings is a bit of a pain! Our strategy and goal is always to sell the listing in as short a period of time as possible. In my opinion, that achieves both the best price for the home and the least amount of hassle and stress for you. Having said that, the question remains should one sell first or buy first…

 

The first question is whether or not you can be approved for financing to carry two properties simultaneously, even if it is for a short while. The probability of holding two properties is daunting to most, and that scenario got a lot of homeowners in trouble in the latter part of 2007 and well into 2008 and 2009. Although we have seen that many homes have sold quickly in Southern Alberta this past year, there is always a possibility that a sale will take longer than anticipated.

I have recently been in contact with a homeowner that has purchased a new home and take possession in the next month or so. They have explained to me what their "bottom line" is in selling their existing home in making both transactions work smoothly for them. The issue with having a “bottom line” is that we are trying to predict what a buyer in the current market is willing to pay for a specific property at this point in time. If that price is less than the sellers “bottom line” there is only one outcome… they will not sell their home... so they may be in for a huge reality check with two homes and two mortgages. This is a scenario that I try to avoid for any of my own clients, it can certainly get messy.

 

Alternatively, one can make an offer on a property with a condition to sell their home within a specific period of time. The issue with this scenario at this particular point in time is that there are quite a few buyers looking for premium properties and the inventory is quite low. So the question is, would a Seller be willing to entertain an offer with a condition to sell another home when they could possibly secure a deal in a short period of time with no such conditions? The other consideration is this... even if you are able to secure a potential sale, there is a very good chance that another buyer will come along and make a second offer on the property, forcing you to make a decision on whether to move forward with the purchase of the new home with no condition to sell your home, or walk away from the purchase. Although it may not sound like a problematic issue, the fact is that you will have made a decision to purchase the new home, and if you are unwilling or unable to hold two properties at the same time, it is a heartbreaking experience to "lose your new home". In my experience, after a deal falls apart for this reason, the Buyer is now always comparing their new search to the home they lost.

 

The third choice is to sell your current home and search for a new home once an offer is secured. The advantage to this scenario is that you are totally aware of your budget and what your home sells for. The disadvantage is the fact there may not be a property that you like, or are able to secure, for some time. That would mean you may have to rent or stay with friends or relatives until a property comes up that works for you. Alternatively, you may settle for a home that does not meet all of your criteria. This is exactly what happened in 2006 where there was such high demand and very little supply. Many Buyers ended up purchasing less than they anticipated just to secure a place to stay. When this happens, many, many buyers will want to find a new home that they anticipate living in for a short time. If values fluctuate so that the value of the home they “settled” on decreases, they may not be in a position to relocate for quite some time.

 

The current market in Calgary does seem to be leaning towards a “Seller’s” market, however, is that just a short term phenomenon or something we can anticipate throughout the next year? Many in the industry are anticipating an ease in the market in 2013, and I would lean toward that prediction. There are many, many variables that I feel will certainly affect our economy over the next year including the world economy, the price of oil and gas, the “fiscal cliff” south of the border, the European debt crisis, unrest in the Middle East and the list goes on and on. We have fared well over the past year, and have essentially bucked against both national and international trends. How long can we be an island in the turmoil the rest of the world is going through? If we reach the predictions in this article I believe we will be doing well, however, I would suggest that if we see no changes in market values over the coming year, we will be doing well.

 

Eventually we will work through all of the chaos and will return to a “normal” market. One should put a strategy together to anticipate at least three to five years before we see things hit a predictable pace again. In your own scenario, it may be prudent to work through the pros and cons of relocating, and if you feel that is your best strategy for family and peace of mind, I would consider the move sooner than later. If values do trend downward, your own affordability will also start to diminish as you will be pulling out less equity from your current home. If you are comfortable with your current location, putting together a strategy to stay put for that three to five years will be paramount.

 

Lauren, there is nothing holding us back from looking at properties in anticipation of finding a new home, just be aware that when we do find a property that ticks all your boxes there may be a good chance of losing that home if we do not put a strategy together. I would be happy to sit with you and Brad to discuss the market further and to put together a plan and strategy together.

 

Condo Values in Hidden Valley and Hanson Ranch

Welcome to 2013!

Last year was a robust year in real estate in Calgary, and according to the media great gains were made throughout the city in all sectors. I thought I would try to make some sense all of the hoopla and give us a realistic view of what happened in our neck of the woods with condo sales in Hanson Ranch and Hidden Valley.

Before I analyze these communities, I will make a few points regarding general sales and inventory of townhouse condo statistics for all of Calgary Metro. On the low end of the spectrum, in 2011 there were FIVE properties that sold for under $100k, whereas last year there were no sales in that low price category. It is interesting to note that there is one townhouse condo listed for $79,750 today (it is a former grow op). So we will dip down into that price category again this year. On the opposite side of the spectrum, there were 14 sales over a million dollars in 2011 and that number decreased last year to 11, perhaps that is an indication that the range of pricing actually became a bit tighter.

The price category that I am most interested in reviewing here includes condo townhomes that sold between $200k and $350k, within the sales range in Hidden Valley and Hanson Ranch over the past couple of years. The growth in this category increased about 16% in volume from 2011 to 2012, slightly above the total increase in sales volume of 14% for all categories.  It is prudent to note that although we saw a total volume growth of 14%, the average sales price only increased by 2% in 2012.

Now let’s look specifically at Hidden Valley condo sales. In 2011, there were seven sales and the average price was $251,742. Our sales increased in 2012 with 11 firm sales, however, our average price actually dropped to $242,727, a decrease of 4%. That is a huge contrast to the overall trend in Calgary.

Hanson Ranch also increased its sales from 18 in 2011 to 23 last year. Similar to Hidden Valley, the average price also decreased from $299,916 in 2011 to $291,950 last year , a decrease of 3%. I’m sure that many in the area have noticed a decrease in their City of Calgary Property Assessment that were mailed out last week, I’m sure the City has taken this into account in the assessment of the area.

You are probably wondering at this point why this area is trending against the growth that the rest of the City is seemingly showing, and I believe there are a variety of contributing factors to this trend.

Firstly, there were some changes to the mortgage rules that may have affected the affordability for many first time homebuyers, many of which are looking in this price range. This has certainly contributed to a decrease of new homebuyers in the market, and that in turn will negatively affect sales in the medium and lower price categories. If that is true, then why do we see an increase in the general sales across the city, yet we see a decrease in this area? There may be a variety of reasons for this, and one is location with relation to the City Centre and public transportation. I’m sure after deeper analysis of sales across the city we would see that proximity to both of these locations will factor greatly into the decision making process. Do have a look through my last Blog "City Centre Development Driving Our Market" for further perspective on this.

Also of note are “new home sales”. Last year about 7% of the sales of condo ownership of attached homes , duplexes, and townhouses in Calgary were new builds, average price for these new home sales on the MLS was around $367k. In contrast, the average sales price for the remaining sales was closer to $316k, a difference of over $50k – a whopping 14% differential. Hidden Valley and Hanson Ranch have not had a new condo project in over a decade, whereas many of the adjacent communities are still building and developing, contributing to higher price growth. We could certainly go on and on about the attributes of an established neighbourhood (with schools!) and loads of green space, however, many buyers will prefer a new home and are willing to pay a premium for that.

The good news is there are only three active condominium listings in Hanson Ranch, and no Hidden Valley listings as of today. Inventory is extremely low and that may contribute to stronger equity growth. Keep in mind that this is typically a very slow time of the year for both new listings and sales. I would suggest we will see sales and inventory increase substantially as we move toward the spring and warmer weather.

 

City Centre Development Driving Our Market Forward.

I do believe the trend of moving into the City Core is one that will be with us for some time. We do still have buyers with a higher budget moving to higher end suburbs and small acreages outside of the city limits, however, I think the real value is in these inner city redevelopments. This subtle change is partially responsible for what is driving our real estate market forward.

 

What we saw happening in the early to mid 2000's were investors and small home builders finding older properties close to the city centre with frontages over 50' wide, having them subdivided into two parcels, then tearing down the existing home and redeveloping the properties for resale either with attached homes or detached "infills". I believe over the past couple of years we have seen a shift in that paradigm and more and more redevelopments of this magnitude are being developed specifically for the purchaser. Profitability and logistics of the sale once they build are not as high a priority in the development of their new home. What they are looking for is a home they can live in and be extremely comfortable with for many years to come with whatever budget they may have.

 

This inadvertently brings up the value in a specific area and – more importantly – the appeal and demand in that community. Where a builder that is building a spec home for resale will consider and try to avoid "overdeveloping" a project for a specific area, someone building for themselves will not worry so much about that aspect of the development or design, they just want what they want. Take a drive in some of these beautiful communities that are evolving in our city centre to see the variety of design and obvious attention to detail, things that only excel values and appeal creating outstanding communities.

 

This is something that evolves naturally and is not created by municipal initiatives or media hype. We will still see developments of side by sides and such, however, I believe that “building to suit” is becoming more predominant. In my opinion this is certainly a healthy turn of events, it is better to have the scale tipped in favour of the development for owners as opposed to the development strictly for the sake of resale where profitability is the key concern.