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!