Looking Forward to 2018

2017 was a very interesting year in Alberta. It would seem that our economy is back on the upswing, oil prices are on the rebound and our future is so bright, we gotta wear shades… it seems those rose coloured glasses are being worn by most economists. I do hope they're right and look forward to an awesome year as well!

Before we do that, though, let’s have a closer look at how real estate fared this past year in Calgary. For, perhaps, some insight into the coming year.

The first half of 2017...

We were off to a good start in early 2017 with 12% more sales in the first six months compared to the prior year. Those numbers were looking very promising and many were predicting that we were finally moving out of the lacklustre sales period following the oil price collapse in late 2014. In that year, prior to the oil fiasco, our sales were the best in many years and very similar to our peak numbers in 2007.

In 2015, we saw a decrease of 26% in sales compared to the first six months of that prior record breaking year. 2016 also saw falling sales, dipping 10% below sales figures from the year before, and well below (a 34% decrease) compared to 2014. Although the numbers were looking good in the first half of last year, keep in mind the fact we were comparing them to two very troubling years. If we look back to the first half of 2014 and compare it to our “great” start to 2017, we were still 26% below that landmark sales period.

The rest of the year...

In the latter half of 2017 we saw three major events that deeply effected the real estate market in Calgary and all of Alberta. The first event was an increase in the Bank of Canada interest rate in mid-July. We typically see a sales decrease when we get into the summer months, however, a good portion of the 24% decrease in sales from June to July had to do with this rate increase. In the three years prior to 2017 rates decreased between 9 -14% from June to July.  The second rate increase was early September where there was a decrease in sales from August by 8%.

The third major event is the change in the mortgage qualification rules set by the Bank of Canada. The new rules, which were implemented on January 1^st, 2018, essentially dictate that all mortgagees must qualify 2% above the posted Bank of Canada prime rate, which currently is 3.2%. What that means is about a 20% decrease in buying power for those that wish to put 20% down on a home. A similar policy was put into place in October 2016 for all insured mortgages (those where less that 20% was put down by the mortgagee). This had a major effect on sales in the market in October of that year, where we saw a spike in sales that month when folks were trying to get into the market under the old rules.

Although we saw a decent sales month this past December – 8% above last years sales and 5% above the average sales figures from the prior three years – we did not see the significant sales jump that we did when the policy changed for insured mortgages two years ago.

This change in policy will certainly effect the affordability of those looking for a new home and wanting to put 20% down on the purchase. I would suggest that perhaps a portion of those buyers may decide to put less down and qualify for a higher insured mortgage, taking some of the pressure off of the downward trend in affordability. 

The first six months of this year will be crucial in seeing how the new policy affects sales and values, and how that portion of the market (conventional mortgages) reacts to the changes.

A volatile 2017...

Real Estate values have also fluctuated dramatically over this past year. The average sales price in Metro Calgary in December was $451,587, the lowest it has been since January 2013. The silver lining to that is the fact the highest average sales price in Metro Calgary – ever – were in May ($504,230) and June ($500,889). These have been the only two times we have surpassed that half a million dollar threshold. That 10% decline in average value between May and December is one of the most volatile in the past few decades as well. 

What will 2018 bring?

Inventory levels are on the increase, there were 15% more listings this December compared to last year and one of the highest inventories that we have seen in a decade. 

Sellers will need to be well aware of the market and any nuances that may effect values to maximize their equity position. There are many extraneous variables that may effect the market over the next year such as the net migration of new folks moving to Calgary, the employment rate and - of course - the price of oil. Average values will most likely deteriorate as we move through 2018 and adjust to the new mortgage rules, however, there are still exceptions to the "average". Being cognizant of the market and aware of how a property is presented and marketed will be prime components of how successful one is in the coming market.

How the Mortgage Rule Changes will affect the market

My thoughts on the new mortgage rules and how they most likely will play out... Although the qualification process will not directly affect those purchasing with cash, that is a very small percentage of the buying pool, most buyers have some sort of a mortgage or loan on a property they are purchasing.

From now until the end of December we will most likely see a bit of a frenzy in sales, especially for those buyers that have been sitting on the fence waiting to “see what happens” in the market. As of the beginning of 2018, those new rules will make a huge change in transactions. I predict sales will be down for the entire year. (Thanks Ram Sund for this image!)

Overnight, most buyers purchasing power will drop about 20%!! The question is how that will affect the value of properties in the beginning of the year. I would suggest that values will not drop 20% overnight, but will see a steady decline for the first few weeks and months of the year. It will take much longer for the change to make a big difference in pricing. What WILL happen is a huge drop in the number of sales. First off, January, February and often March typically see a lower number of sales due to the season and the inclement weather associated with deep winter. So the seasonal slow down along with the new mortgage process will grind sales figures even further.

Normally, we see an increase in sales when the weather turns to spring (whenever that may be!) and the bulk of our sales are from late spring to early summer. This is prime time for sales and how we do in that short period of time will dictate how the rest of the year goes. If we still see dismal sales figures in April, May and June, it could trigger sellers to become more anxious causing further price reductions pushing values down as sellers compete with other sellers for the shallow buying pool.

Future interest rate increases will undoubtedly further complicate our challenges. Although we had a reprieve this week when the Bank of Canada kept lending rates in check, they did hint that an increase is likely in the foreseeable future.

So what does this mean “now”?

The next couple of weeks may be key for a buyer making a new purchase to maximize their buying power. That same period of time is also going to be key for a seller to maximize their equity position for the next few weeks, months and possibly years.

The time is NOW!

Looking Forward in the Real Estate Market

I have had the opportunity to chat with a wide variety of home owners over the past few weeks regarding the current real estate market in Calgary and area and thought I would share some of the information I have gathered. I have been reading in the news that many economic experts feel that we have “turned a corner” from the economic downturn we have been experiencing in Alberta since the chaotic fall of oil prices in late 2014. I am still looking for evidence of that in the real estate market…

The first half of this year did seem to see somewhat of a recovery in sales numbers when compared to our dismal market from October 2014 to the end of 2016. Buyers were coming back to the market in droves and for a few weeks supply had a difficult time keeping up with this new demand. I would suggest that a good portion of this wave of new buyers was from the pent up buyer pool created in the past two years. Many potential buyers were on the fence for a long period of time waiting “to see what happens”, those buyers contributed to the great run of sales in the first few months of this year. This large pool of buyers that had been accumulating in that time has quickly diminished as many found their new homes and many new listings were added to the inventory as sellers saw a great influx of sales – and increased values.
In the first three months of this year, inventory levels were between 25 and 32% below the same period of time last year. Moving in the opposite direction, single family sales increased 19% year over year in the first quarter. This increase in sales in combination with the lower inventory helped flame the buying frenzy.

Then a couple of increases in the Bank of Canada rate added to the turmoil, but contributing in the opposite direction… The first increase of a quarter percent in July was partially responsible for the 27% decrease in sales across the board from June to July. Granted we often see a seasonal decrease in sales this time of year – last year there was a 13% drop and in 2015 we saw an 8% decrease – but doubling last years rate and tripling the drop from the year before is concerning. The second increase in lending rates in September has contributed further to lower sales figures and an ever increasing level in inventory, there are now more detached homes for sale than we have seen in the past three years.

Looking at a few communities for a micro view of the market, we see similar trends throughout the city. In Panorama Hills, the largest community in Calgary, there are currently 90 detached homes for sale. This year there have been an average of about 16 sales per month, very close to the same as last year. Last month there were only seven sales, half of the 14 sales from last September. Next door in Evanston there are 88 active listings and they had 12 sales last month. In Hidden Valley there are 23 active listings and there were four sales in September. In my own community of Hanson Ranch, the last sale was back in August, there are currently eight active listings (although I did see a property inspector at the listing up the road from me today!)

Back in June I sold an apartment styled condo in Country Hills Village, a community comprised completely of multi family buildings. I noticed that the most recent sale in the area was a very similar sized home in the same building as my own sale. Back in June, my listing sold for $244,700, this last sale a couple of weeks back was 5% lower at $233k.

Looking south at Cranston, they have faired better than the Northern Hills. Although there are 100 active listings there today, they did see 25 sales in September, very close to the average of 26 sales per month they have maintained this year. A quick look through the seven sales so far this month brought me to the sale of a two storey home on Cranbrook Crescent that sold on Friday for $635k… this home had been on the market since late April when they originally were asking $698,888. The home was purchased only a year earlier for $670k, so looks like the sellers lost quite a bit of equity. Although this is not the “norm” in the area, it does go to show that there are some of these scenarios where ever we look.

Switching over to Killarney just west of the City Centre, there are 21 active listings. The nine sales there since the beginning of September averaged two months on the market and sold, on average, $47,560 below their original listing price.

Complicating the market further is the potential pending change in the qualification process for ALL mortgages, regardless of how much the seller is putting down. On a conventional mortgage with 20% cash down, that could mean up to a 20% decrease in one’s buying power. We are also heading into a typically slower sales season as we head toward winter. I suspect the average days on the market will increase week by week, creating a more anxious seller. If we continue our path of an ever increasing inventory and slowing sales, we could certainly be in for some challenging times in the coming weeks, months and possibly years.

Every neighbourhood has a different set of circumstances, and as you can see above, some areas of the city are doing better than others. There are still buyers, even though the sales pace has certainly slowed, and there are still good investment opportunities. In a volatile market such as our current situation, it is imperative that one is well-informed to the nuances of the market so that you can make well-researched and educated decisions on how to proceed with your real estate asset whether you are considering selling, or buying. 

Western Gold Real Estate is a premium boutique real estate brokerage dedicated to a client-centric approach to listing and buying real estate. We pride ourselves in offering in-depth analysis and strategic insight into selling, marketing and purchasing your real estate investment. A trusted real estate advisor is a huge asset and a prudent member of your team!

For more insight into the current real estate market, please do not hesitate to contact me at your convenience for a complimentary real estate consultation.

Losing Balance, Regaining Control

Information gathered from a presentation by Todd Hirsch, ATB Financial's Chief Economist - September 9th, 2015

There have been serious imbalances in Alberta's economy over the past five years or so, and Albertans are worried... we have been relying on high oil prices and a stable and expanding energy sector to grow our economy and province. The recent extended period of lower oil prices is certainly a major contributor to the current economic environment we are seeing in Alberta, and across the nation. Make no mistake, low energy prices is a National issue, not just a provincial challenge! Last year at this time the cost of a barrel of oil was around $97, today we are looking at the mid $40's. Aside from the obvious effect that has on exploration and new capital expenditures, it also affects the Federal and Provincial Governments coffers.

To regain an economic balance, four things need to happen...

1) There must be some rebound in the price of oil. Reaching and sustaining around $60 a barrel should stabilize the industry, and contribute to our economic recovery. There is much debate regarding the question of whether or not we are in an economic recession in Alberta. We will not know for sure until April of next year whether or not we did see two consecutive months of economic retraction as that is when those figures are released.

2) There must be a re-balancing of wages. In the past decade the average earnings in Canada increased 29%, for that same period Albertans enjoyed an increase of 48%... here is the real kicker though, the average wage in the oil and gas industry increased 56%!  With many capital projects being put on hold in the energy sector, there should be downward pressure on wages as more contractors compete for less work.

3) We must see strong performances in other sectors of the economy. Agriculture, forestry and tourism should benefit from the lower Canadian dollar and lower gas prices. The US economy is also on an upswing, including new housing development contributing to the demand of products from our forest sector.

4) The value of the Canadian dollar needs to remain where it is. The lower value of the Canadian dollar is giving a bit of a cushion to lower oil prices, contributes to tourism from other countries and adds value to other exports such as forestry products.

The energy sector will need to adjust to these lower oil prices, and diversifying into other resources and alternate energy will be prudent going forward. I am sure we will find that we indeed have been in a recession this year, the question is to the extent of this retraction. Albertans are a resilient bunch and will persevere through this economic crunch. This should be a modest recession and we will most likely see a below average growth rate in the coming year. Generally people will be cautious in their investment and spending habits in the next few months, however, this should be a softer downturn than we saw in 2009-2010.

The new norm will be lower growth rates, right across the world. The rebalancing of income will start in the petroleum sector and move into other sectors of the economy leading to softer commodity prices, including real estate. Price corrections are most likely inevitable, however, should not be severe.

Real Estate Photography

Visual content in an important tool as a medium for customer retention and good real estate sales. It is of prime importance to have high quality photography to stand out from the competition. Great images not only determine the success of property sales, but also the website on which the properties are listed. Online content with compelling imagery quite simply attracts more viewings.

 

 

Homes that show well online with superior photos are also more likely to sell faster than homes with low quality photography and little or unimaginative staging. Quality is not the only factor though, it is also important to offer a variety of interesting and outstanding photos to keep a potential clients interest piqued. Without a doubt, most buyers today will research a property online prior to booking an appointment to view, or stopping by an open house. Keeping a buyer engaged through interesting and a wide variety of great photos is so important in bringing potential buyers to the table.

When buying a home, or any investment real estate property for that matter, a good portion of our decision is influenced by emotional factors such as our first impressions. We often are most likely to buy a property based on the feelings it gives us rather than the actual value it provides. Developing a consistent and obvious style with high-quality photography and staging will engage more buyers and help ensure the success of the seller regardless of their price category.

Alberta Economic Outlook 2015

I had the opportunity to sit in at an ATB presentation by their chief economist, Todd Hirsch, last week for some of his insights into how he see's our economy faring this coming year. Some great information that I will implement with my own thoughts here. To paraphrase Todd, the secret to good "economic forecasting" is to revise it frequently!

First and foremost on our minds is the question of how the orange tide and their political philosophy will influence the Alberta economy. Our political structure over the past four decades has been so entrenched in conservative thought and procedure, it will take some major work to completely change the path we have been travelling. The "machine" that runs each political portfolio within the system has a myriad of components and positions that have been filled by the previous conservative regimes. Making changes within this structure will be a long process ensuring that any major change in philosophical direction will take a fair bit of time and effort. Premier Notley has given us no indication that she sees any major policy changes in our immediate future.

The Alberta Economy has been slowing rapidly with the decline of the price of oil, a major component of our provincial economy. Our GDP growth rate is the lowest it has been in five years, certainly raising the level of anxiety amongst Albertans. We may have not seen the bottom of the market yet, although we have seen the price of crude increase over the past couple of weeks. Investors are still skittish and this nervousness will contribute to the volatility in the market over the next few weeks, leading into the summer. Prices should improve by the end of the year, however, the price will most likely still be lower than the actual cost per barrel of many Alberta projects. There will need to be some major re-adjustments and cost-cutting within the industry and this will be an uncomfortable and painful process possibly leading to more layoffs and lowering of contractor costs.
We will also see a discouraging job environment in all sectors of the economy. The labour market for new graduates will decrease as all industries adjust to the economic slowing process. The rate of "in-migration" to Alberta should also slow significantly as we see a decrease in employment opportunities.

Another concern we should be aware of is the record level of Canadian personal debt, last week at 163.3% of earnings. The good news is that we seem to have reached a plateau with that level.
NOW SOME GOOD NEWS...

The Loonie has decreased in value over the past year, however, this is more of an American Dollar story than a decrease in our own value. Where we are set today is actually good news as it contributes to our value as an exporter, especially to the United States. Costs of goods shipped to the US are lower for them when our dollar is lower. Our economy would be in a far worse position if we were closer to par. The Canadian dollar is in a "monetary easing" position whereas the US is moving into a tightening position.

Our dollar position should also increase tourism from our neighbours to the south. That in combination with lower gas prices at the pump will be appealing for many vacationers, especially folks with travel trailers and motor homes.

Other secondary industries in our province, such as forestry, will have the opportunity to find top notch employees due to the slowing of the oil industry. It is difficult for secondary industries to compete for manpower when oil prices are high. Other industries will also benefit from the low cost of fuel... imagine the increase in the bottom line for the trucking industry.

Although we are in the midst of a slowing economy, Albertans should not be overly worried. That is not to say we should ignore what is going on around us. It is not "business as usual", we should be making prudent, educated life decisions. The biggest threat to the economy is fear... fear leads to irrational decision making. This year will be a flat year for growth as we adjust to the new economic realities, however, we should return to normal levels of growth by 2017.

"My life has been full of terrible misfortunes, most of which never happened" Michel de Montaigne 

 

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www.atb.com/economics

Inventory Climbs in Calgary's Housing Market

Reposted from the Calgary Real Estate Board February Statistics Package

Calgary, March 2, 2015 - Year-over-year new listings growth eased from 37 per cent last month to nine per cent in February. However, as sales activity remained below long term averages for the month, Calgary inventory levels rose to 5,474 units in February.

"While housing supply levels continue to be higher than we have seen in this market for some time, they remain below February 2008 record highs of nearly 7,000 units" said CREB® chief economist Ann-Marie Lurie. "If the pace of growth in new listings continues to ease, this could place some downward pressure on the supply growth in the resale market."

After the first two months of the year, there have been 6,236 new listings come onto the Calgary market. However, the new listings gains have varied depending on price range and segment. Detached homes have continued to see a decline in new listings in the under $400,000 segment, while both the apartment and the attached product have recorded listing growth in the over $300,000 price range.

"It’s really important for consumers to consider what segment of the market they are buying or selling in when they make any real estate decisions," said CREB® president Corinne Lyall. "The inventory, demand and price movement will vary based on the community, price range and product type."

City of Calgary sales totaled 1,217 in February, a 34 per cent decline over the previous year’s activity. While sales fell across all product types, the rate of decline was higher in the apartment and attached sectors of the city.

"Everyone has different reasons for making a move and so it’s difficult to predict how buyers will react to this market," said Lyall "Buyers who have been waiting for more inventory to come on the market may find what they are looking for today. If they are in a position to make a buying decision they certainly can take advantage of the lower interest rates."

Months of inventory remain elevated at 4.5 months due to supply gains relative to slower sales in February. This placed downward pressure on pricing over the past month.

Unadjusted detached benchmark prices totaled 516,000 in February, a year-over-year increase of six per cent, but a 0.5 per cent fall over January figures.

Meanwhile, attached and apartment benchmark prices totaled 354,600 and 296,000 respectively. Both represented a decline over previous month’s levels.

The variation in price is more extreme when considering the average price. In February the average price rose by 0.3 percent relative to January, but fell by 4.2 per cent compared to last year. This does not come as a surprise given how the composition of the sales influences the change. Benchmark prices provided changes over time on similar properties, providing a clearer indication of pricing trends.

"Expectations vary significantly when talking about the impact that lower oil prices will have on the housing market," said Lurie. "This wide range in forecasts is often related to assumptions about how long the cycle will last and the resulting impact to employment and net migration."

"These differences in expectations will likely persist until there is some firm data to support assumptions about Calgary’s employment levels," said Lurie.