Where is the real estate market going in 2015?

Every day there seems to be more doom and gloom reported for the economy and the real estate market in Calgary and beyond. What can we expect over the next year, will we boom or bust?

There are many factors that will contribute to the impending market in 2015. The first, of course, is how long oil prices will stay low and how that will affect the resource industry in our province. Without a doubt, oil and gas are important factors in how we fare in Calgary and Alberta. Many oil and gas giants have already decided to pull back the reins on spending and have cut costs and budgets. Aside from impending layoffs, what I find even more troublesome is the fact that many projects and future expansion have been put on the backburner in anticipation of the oil price recovery. This will mean a decline in "employment growth" within this sector.

One of the major contributing factors in real estate growth is a steady influx of "in migration" from other parts of Canada, and the rest of the world. If employment growth is hindered, will that slow the population growth in Calgary and the rest of the province? It could very well mean we will have less folks moving to our neck of the woods. It can take quite some time for a slumping market to affect the new home industry, I would suggest we will start to see some of that affect happening over the next few months with a slowing in the new build aspect of the market.

Over the past year we have seen outstanding growth in our luxury home market (see previous Blog) that was a major contributor to our average and median price growth. I suspect that this portion of the market has a finite pool of potential buyers, and I would suggest that many that may potentially be in this pool this year may very well decide to hold off on purchasing a home and take a "wait and see" stance moving forward due to the uncertainty of the economy. If we see a significant decrease in this sector of the market, it will adversely affect the average and median prices right across the board.

This week saw a drop in the Bank of Canada lending rate. "This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada." (Bank of Canada) This drop in lending rates, in combination with a lower Canadian dollar and lower costs of gas at the pump may very well trigger economic growth in the manufacturing sectors, mostly based out of Ontario. Will that further pull people from our province to Central Canada is search of employment?

Perhaps the most concerning news over the past while for the real estate market is the fact that sales are significantly lower for the first three weeks of the year, as a matter of fact, the second worst in 15 years! (Check out my Tweet earlier today!) That, in combination with a large increase in new listings may be a harbinger for the months to come. Customarily, the first two months of the year are seasonally slower than the rest of the year, however, it would seem that many potential sellers are trying to get in front of the curve with the turbulent media reporting's of the economy and where we are headed. I would further suggest that many that would typically wait until spring to list their property may be listing early.

We will need to keep a close eye on the inventory to sales ratios in the weeks and the months to come. If potential sellers see a glut of inventory, many may very well decide not to list. Others may find themselves in a position where they have to sell their homes, whether it be due to finance, layoffs, relocation or perhaps they have been building a new home over the past few months.  We also need to pay special attention to buyer confidence over the next few weeks. As I mentioned above, many may decide to wait to see how things work themselves out in anticipation of "getting a better deal" if the market retreats. What is important is to retain a certain sense of urgency so that we don't have a huge amount of "fence sitters" as we did in late 2008 and 2009.

This year it will be more important than ever to be sure a house is priced aggressively. Overpriced homes will sit on the market longer, and may very well become stigmatized the longer they sit around. Due to many economic factors, there will most probably be a "price correction" early in the year, so we must be very aware of previous sales and competitive listings. If a home is priced correctly right off the bat, they will be less likely to have to catch up with a potential falling market.

A listing will also have to set itself apart from other similar listings. Aside from appropriate pricing, staging, presentation and marketing will be paramount when competing for a buyer. A buyer will expect more for their investment.

If you would like to discuss the market further, I would be happy to sit with you to go over your specific needs. It will be an interesting year ahead!

Calgary Housing Market - 2014 in Review - part one of two!

What a crazy run we have had in the Calgary housing market over the past year. Inventories in some sectors of the market were extremely low, and the average price of homes in the City increased 7% from the previous year. It is interesting to note that sales of homes over a million dollars increased by 21% and sales of all homes over $600k increased by over a third! Sales of homes under the $600k plateau, which includes entry level homes affordable to first time home buyers, increased by only 2%. As a matter of fact, homes under $400k saw a dramatic drop in sales by over 25%!

 

I believe there were a few contributing factors to all of these facts and figures…

Although the upper echelon of sales seems to have taken off this past year, looking at a good number of these sales actually show dramatic decreases in the originally anticipated value of the properties. In most of the communities I was involved with this past year, I saw some amazing price reductions. In Hanson Ranch in the NW there were two homes that were reduced over $100k with similar stories in West Springs, Mount Pleasant and Bridgeland. Although there were some high sales, many saw reductions from their original pricing by well over the $100k mark, some reductions were over 25%. Assuming the original listing prices were accurate when the homes first went to market, that is a dramatic reduction in market values. So even though we saw many high sale prices, keep in mind a good portion of these were well below their original anticipated values.

A second point to ponder would be the fact that the higher priced sales was a major factor contributing to the “average” and “median” price gains. The question remains, did we see an actual increase of value of 7% in across the board, or have the sales of high-end homes skewed the numbers?

Looking at the entry level home, - let’s say under $400k - we can actually see a decrease in sales by over a quarter year over year. Does this mean that prices are moving out of this category throughout the City? A couple of thoughts here… the first is the fact there have been some policy changes both from the federal government and the major banks. For example, it is now much tougher to purchase a second home as an income stream. Many banks require a 30% deposit by the purchaser. This has reduced the pool of first time and “Ma and Pa” investors to the market. This sector of the market is typically in that lower price category.

It is also tougher to qualify for a new mortgage, so many potential “move up” buyers from the lower priced homes may have decided to stay put for the time being, until they build a little more equity into their investment either by an increased value, reducing their mortgage, or both. A couple of months ago I was dealing with three competing offers for a lower priced home. It is interesting to note that, even though all of the bidding buyers knew there were other offers on the table, all three offers were within $5,000 of one another, even after negotiating for the final sale. Buyers (and Banks) are not like they were in 2006 where bids were many thousands above asking price… Buyers are well informed and are willing to pay only what they feel the value of the property is, perhaps a small percentage above that. They are much more patient than they were eight years ago and are more willing to wait for the next property.

Having said that, buyers have also been very quick to react to a property they feel is priced appropriately over the past year… although they don’t want to abundantly overpay, they have been willing to pull the trigger very quickly.

Another type of buyer has been formed over the past little while, that would be the middle to larger builder. Many of the major builders in the city have formed companies that are redeveloping within the city, most specifically in the city core. With the municipal policy of reducing much of the “urban sprawl” we have seen in past – largely due to the capacity of our waterworks system – builders are looking to a different income stream in redevelopment. This sector of the market is looking strictly to land value within a specific area, and whether that value sustains a new development within a community. This buyer is different than a buyer looking for their own home as there are a completely different set of perimeters. Often this past year we saw competing offers in “prime communities” specifically for this type of land.

 

Many factors have contributed to our success this year in the Calgary housing market, including my thoughts above. What are we in of in the coming year? Will we be able to sustain our growth? Will oil prices and a dampening economy change our direction? Stay tuned for my next segment, "what to expect in the coming year!"