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!

Where is the Calgary Market going in 2012?

The good news is we are off to a good start this year!

It does look like we are in for an interesting year in Calgary this coming year. In the first quarter of 2012 we are seeing decent sales, and our inventory is growing slowly. We do need to keep an eye on the inventory levels as we may very well see a dramatic increase in the next few weeks. Last year many homes that were listed did not sell - many of those listings have been terminated or have expired. As a matter of fact, in analyzing communities across the city I have seen that rate as high as 50% - that means HALF of the homes that were listed last year DID NOT SELL! I suspect a good portion of those expired listings will be coming back on the market for the spring rush. I would also suggest that many of these Sellers are going to be more aggressive in their pricing, how they approach marketing their homes and how they deal with offers. This could set the pace for values right across the board.

There is also a huge inventory of properties that has been on the market for many months and many listings have been on for YEARS! I found one listing recently in Mount Pleasant that has been on for 1,170 consecutive days! How long can a Seller hold onto a property without sustaining considerable losses, both financially and otherwise? One of the best examples of this is a beautiful property out in Bearspaw that was purchased back in 2007 for $6.35 million, a real gem! Two and a half years later it came back on the market, listed for $5.35 million. It has been on the market ever since (849 days) and the listing price has been in steady decline. You can pick up this home today for $3.85 million!

Have prices dropped 40% since our peak in 2007? Absolutely not, this is an extreme case of a declining value and there are a select few buyers with a budget over $2 million... however, this is a reality jolt, and a true fact. It does go to show that we do need to be very cognizant of the current market... and where it is headed!

I would be cautious of how sustainable this new activity these first few weeks into 2012 is on a long term basis. In Calgary and the surrounding area we should be selling around 2,000 properties per month, a little higher late spring, and a bit less in the cold months. We have been below this plateau since August of last year. Perhaps that pent up demand will carry us through a couple of months in the spring, again we need to be very aware of why we see the higher sales, and how long we can sustain those numbers. The next three months will be paramount in seeing any kind of gain in values in the area. Typically we look at the official opening of the Stampede as the "hump" in the market… school is out, the summer is officially here and many Calgarians head to cottage country and to summer vacations.

Having said that, I would suggest that if you are considering selling this year, there is a narrow window of opportunity in the next couple of months to ride the wave of the buyers who have been sitting on the fence for the past six months or so. Once that pool of buyers dries up, we will probably see much of what we experienced through the past year, a lethargic pace at best.

If you are not considering selling your house in the next year or so, I would suggest we will do well in the next three to five years. Once things start to work themselves out with the global economy... our superior economic and political position and the location of Calgary will certainly make itself more and more apparent, and we should see a steady pace of future growth.

If you are considering buying in this market I would suggest this may very well be the best time in many years for a purchase. With interest rates at historical lows - and the opportunity to lock into these rates for long-term periods - there may not be a better time to move into a new home. The inventory of available homes typically is at its maximum in the next two or three months giving you LOTS of choice. That in combination with the softening attitudes of sellers in general will lead to a competitive and healthy marketplace.

I would be happy to discuss your posibilities with you, and to put together a strategy with you to help you achieve your goals. Please do visit my web pages to find out more about the market, and what we can do for you.

http://www.thenashgroup.ca/home.asp

Investing in Real Estate in the Current Market

I recently looked through the "BMO Bad List", the list of over 200 defendants to the bank's accusation of mortgage fraud. It will be interesting to see how this all irons out. Rest assured if they see any amount of success, we will see many other financial institutions following suit. Over the past few years there was a ton of money lost and gained in the industry… when it is the "Big Banks" that are in the losing position, you can bet their pockets are deep to remediate their position!

With the real estate market in such a volatile position today, it would seem that many potential sellers will be trying a variety of things to entice a buyer. Rent to own, seller financing, "guaranteed" pricing and such. The bottom line is that we will have to be very careful as many of these schemes rare their heads. I'm not saying they will all be shady - some may be clever and well thought out - but we will certainly need to do our homework… and utilize a knowledgeable real estate lawyer in putting together any type of new or strange situation.

I believe three things are of prime importance in selling a home. The first is the property itself - how is it presented? There are many homes that are online that certainly are not at their finest. Many are full of clutter, messy, dirty and certainly not staged in the best light. A home really should look its finest when presented to a potential buyer, which leads me to the second criteria, marketing. The first line of offense is, of course, the MLS. Are you utilizing all of the tools available to you? Are all 20 photos looking their finest? Other support marketing should also pique a potential buyers curiosity, making them ask questions, and leading to a viewing of the home.

Taking these two important aspects of the listing into account, the third - and most important - aspect of the listing is the price. If the property is at its finest, and the marketing shows off the property in a fine light, one can ask a premium price for the property. Coming to this "premium" price takes into account recent sales, where the market is heading, property assessments and such. Pricing is a very pragmatic process, there is no magic involved. If the property requires updating, if it does not show well, if it is located on a busy street, if it is messy, needs paint etc etc the pricing needs to be adjusted to reflect these insufficiencies. And if the home looks bad online, or the marketing is inefficient, again, the price has to be adjusted to reflect these deficiencies.

If you are interested in a bargain in purchasing a home, they will certainly present themselves over the next few weeks and months. I would suggest we will see a variety of "handyman" specials, foreclosures, and desperate sellers that may list their homes for below the current market value. I can also ensure you that if homes come up that are truly below current market value, there will be a great many bargain hunters, investors and such also looking at those homes. Homes that are of exceptional value will sell quickly.

Having said all of that, to be sure you are in a position to pull the trigger when a home comes up that appeals to you, we should have all of our ducks in a row, starting with the financing. Chatting with a Mortgage Broker can present you with a variety of purchase and financing options.

I am certainly a huge believer in real estate as a viable investment and wealth building tool. Real Estate, however, is a long term investment. Many have been extremely fortunate in "flipping" homes over the past few years. Making a lot of money in an inclining market, or buying "fixer uppers" and renovating for profit. In the current market, however, there seems to be very little profit margin for the handyman. As a matter of fact, if we lose value in general over the time one buys, fixes up and then relists, one may actually lose money. Even worse, many have tried to invest short term and have lost their shirts. I suggest we will not see any significant equity gains over the next year, maybe two or three. That does not mean that real estate is not a good investment, one still can make a profit in the rental market. And if you are anticipating moving into a specific property in a decade and buying a "holding property", chances are pretty good that the values will be significantly higher in the long run.