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!"