This is an opinion article. The views expressed herein are strictly my own and do not express the view of my brokerage or other agents. I am not a financial planner or economist. For a completely unbiased look at the Calgary Real Estate market, visit my website at www.FindCalgary.ca where I update all the news, and MLS stats daily without the commentary.
Please remind me not to read the Homes section again whilst having coffee – it’s difficult to read the article clearly after having choked over it. 
Prices Decline as Sales Drop - January 24, 2009, Calgary Herald
Reasonable headline, it makes sense. It even starts out well, with stats as to how more condos under $200k have sold compared to last year. And then, bam! We get the quotes.
“Prices always follow supply and demand… “ (So far so good) “If the inventory remains lower, prices will start to edge up.” (Well, yes but inventory isn’t low-) We think prices have bottomed out.” (Arrgh. That “we” better have been a nosism because she isn’t speaking for all agents. At least she didn’t end with the common spiel of how it’s a great-) “Meanwhile, it’s a great time to buy.”
Blink. Blink.
Since October to December, “traffic has really picked up all over…People are getting ready to buy.”
Reminds me of that CBC news report last month.
Erm…let’s just flip back to the cover article , “Better for Buyers.”
“This will be a year in which Calgary’s resale housing industry begins a bit of a turnaround. The market will begin to stabilize and be balanced by the end of 2009… The time is now for buyers who have been waiting for the right time to buy.”
There are deals out there – just looking at some sales with an 80% SP/LP ratio means that some people are buying ahead of the curve (assuming of course the property was not 20% overpriced to begin with) But if we’re speaking generalities, now is not the right time for buyers. If they’ve been waiting to buy this long, they can wait it out a bit longer to see how the market unfolds. Inventory is growing daily – we’re approximately at 1 years worth of SFH Inventory (Absorption Rate)
It will be the struggling economies of other regions of Canada that will draw people to Calgary, she says. Because of the woes of the automobile industry, Ontario in particular will become a strong source of newcomers.
New construction jobs have all but disappeared in Calgary. According to CMHC, SFH starts are expected to drop to 3,800 this year – less than half than in 2007 and even less than the almost 4,400 starts last year. On the multi-family side, 1,700 units are expected to be started this year, 4000 less than were started in 2008. In 2007, work had started on 7,051 multi-family units. (Source)
A collapse in energy prices has also resulted in thousands of layoffs across many industries in the province as oil companies cancel or postpone billions of dollars in projects. (Source)
“Most of it has been since the New Year,” said Nair Bailey, a long-time Calgary recruiter who keeps a running tally and says engineers let go over the past two months number at least 2,200. (Source)
What type of job exactly is available in Alberta that will allow those Ontario workers to purchase homes here?
“I can see more people coming from the east, people who have been laid off, who will come here to find work–and they’ll need a place to live.”
They sure do, but with being laid off and all, it will be kind of difficult for the bank to qualify them for a mortgage, no? Which also means they would have to sell their homes in Ontario first - but since everyone is moving away from Ontario because there are no jobs, who will buy them? Maybe they were renting in Ontario…but then why do we expect them to buy when they move to Alberta?
There will be some movement in prices, she says, but it won’t be as dramatic as what happened in 2006 and 2007.
Ooh, sneaky! Reference the boom years of 2006 and 2007 where prices skyrocketed. Put a little fire under the feet of the buyers to get them moving. Let’s completely ignore 2008 where prices kept coming down.
Sales will go up this year for single-family homes,” she says matter-of-factly.
This statement (which is only conjecture) could be to serve a two-fold purpose. First, to tell consumers that the inventory will be chewed up this year and we will return to a balanced market, and in turn a stabilizing of prices.
Second, I think that statement is also directed at the 5,500 agents serving Calgary. Sales are down, and some realtors are leaving the field. Brokerages don’t want to lose anymore agents, especially since many pay hundreds of dollars a month just to be affiliated with the brokerage, regardless if they close any deals. Midway through this month, CREB had approximately 5510 members (5257 Realtors and 253 brokers) This past June that number was around 5755 members. You can be sure that number will continue dropping over the coming months.
Across Canada, CREA had approximately 100,000 members last year and is expecting 97,000 this year, but is contemplating a contingency plan to handle a decline of 5,000 to 15,000 members. While the full impact has not yet hit, the number of new licensees is starting to decline across the country.
“Particularly, western (real estate) boards that have been really heavily hit with price drops are budgeting in (lower) numbers,” says Beth Crosbie, who heads a Canadian Real Estate Association taskforce. (Source: Business Edge Magazine, January 23 2009)
“A door may be closing, but a window is opening. The window of opportunity couldn’t be better for buyers right now.”
Opportunity will open both front and back doors, all the windows, and perhaps the garage door as well for buyers who are patient. (Sorry, did I carry that analogy too far? 
) I believe there will be much better buying opportunities for buyers later on.
“There is no doubt we are seeing a significant slowdown as Greater Calgary transitions to a more stable and balanced housing market.”
As each month passes, the line on the Absorption Rate chart keeps climbing away from the Balanced Market zone. Extra numbers had to be added on the Y-axis representing months. (Last January, the Y-axis only went up to 6)
Are we heading towards a balanced market, or away?
One bright spot in the market today are mortgage rates. I’ve seen 5 year fixed hovering around 4.5%, and variable rates even lower. That really is awesome.
Just something to consider – what happens to house prices when interest rates go up? You need to figure out your long-term budget and see whether buying a house for more now with a lower interest rate will be better than buying a house for less with a higher interest rate later on. Price out some scenarios and see what works better for you in the price range of home you’re looking for and size of downpayment.
If you need to buy in the Calgary market now, then I will help you get the best deal possible. Otherwise, there is no rush. You might see sales and prices blip upwards in the spring, but I see them slowly continuing to trend downwards after that.
If you’re planning on selling, I will help you list and sell at a realistic price in today’s market. Otherwise, you might end up with the thousands of other homes that languish unsold month after month, reducing by $5k or $10k every 3 months, following the market down instead of jumping ahead of the curve.
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Mike Fotiou, First Place Realty, is a licensed Realtor, Certified Condominium Specialist, Accredited Buyer’s Representative and Commissioner for Oaths in the Province of Alberta.
It seems to me that either the real estate boards have an amazing HR system that filters in only optimists or they are blatantly influencing the market (or attempting to do so) for their own gains. Is that actually legal (I’m asking as I have no idea… might be a good article)?
Compare it to the stock market which is regulated by the SEC. If Realtor associations are actually trying to spin the news to make it sound like a great idea to buy (and influence prices upwards to keep commissions and profits high) it seems funny… especially when an unbiased panel may find strong evidence to the contrary. You have a partisan group representing their own interests, extending their own market influence, for their own gain.
If you had a group of stock brokers actively spreading questionable information to increase sales and commission on a particular stock (especially stocks they owned or represented… ) the SEC would step in and shit would hit the fan. Yet here we are where the Realtor associations are the go to source for market information… in the media which is supposedly unbiased.
This is probably all legal otherwise some lawyer would potentially have seen the money making opportunity of a class action suit on behalf of potential home buyer. Although it seems realistic enough that some lawyer must have tried it somewhere. Its curious that they can do what they do without any controversy or opposition.
Cheers.
Spence
Mike says: Thanks for your comments, you’ve raised interesting points. I’ll see if I can find some answers.
Nice post Mike, you made me lough, indeed this is a tragicomic situation and statements like these do nothing but hurt the consumer as well as you guys.
I honestly don’t understand why there is such an urge to try to attract buyers by all means, instead of trying to convince sellers to let go of 2006-2007 and join the 2009 reality.
Statements such as “we’ve reached the bottom”, “%2 price down, %10 sales up”, “now is a good time to buy” …. will do nothing but build seller confidence that they don’t have to lower the listing price in order to sell and sell quick as sales are going to be up %10 this year.
I’m not saying, go to the other extreme and paint a doom and gloom scenario either, however we are entering a recession and this is the worst time to buy anything not just a house, with that in mind I would expect public statements to be directed mostly to sellers, as things still sell if priced right.
I actually have a question for you. I read on Bob’s blog he made an offer on behalf of one of his clients and the seller’s agent said they’ve considered it to be insulting.
Now I see the average SP is about %95 of the LP, also every day there are houses sold up to %20 below the LP. So, what would be considered a decent offer? but not insulting? I see %5 below is the average sold, would a %10 or %15 be too much and if yes how do you figure that out, after all is just an offer, can be negociated.
Thanks Mike and keep up the good work
Mike says: Regarding offers, every situation is different. How long has it been on the market? Is it vacant? Is the asking price close to what other similar properties have sold for? How much was the property last sold for? Did they recently refinace? Perhaps they owe more than you offered. What is their motivation? Are they moving because of work? Are they moving into a new house that is almost finished being built and are worried about carrying two mortgages? Getting divorced? Having a baby and need more space?
There are many factors that may influence a seller to either accept a lower offer, or not. Seller’s shouldn’t be offended by any written offers. It should at least be used as a jumping point to start negotiations. If you are a seller and you feel the offer is too low, counter it. Take a look at other parts of the offer – is there a healthy initial deposit? Any unreasonable terms or conditions? What is the condition date? Is the possession date to your liking?
Good article Mike.
I think the most relevant part of buying in any market is common sense. Does it make sense that there are really that many people remaining out there capable of carrying such a large mortgage? The thing that most realtors seem to forget when promoting the “re-locaters from Ontario” factor is that these people aren’t used to paying $400,000 for what would cost them $250,000 back home (not to mention the fact they probably see this move as a 5 years at most endeavour, not a lifetime committment).
Even moreso, I believe a great distortion has occurred in the market, where the large increase in property prices allowed people to “trade up” and speculators to buy in. Now that the glow is off the market, the speculators are much less aggressive. This means it’s up to the average first time buyer to come in and make entry level purchases to sustain the market. It is these purchases that allow other homeowners to move up the property ladder, and the system to bubble up, sustaining high prices at the top. The problem Calgary is facing now is that the entry level price is so distorted that it’s simply too much for the average young couple to make a purchase (if they are planning of having children and living off of one income for at least a year). The current entry level prices simply don’t allow this. We are now at the point in Calgary that the system has become top heavy, almost like a real estate “Jenga”. The wobble is there, it’s just a matter of who pulls out that bad piece…
Great blog. Appreciate your no-nonsense approach. If we do decide to buy in Calgary (we might just save for a couple years and then go buy somewhere else that’s more reasonably priced) we will get in touch.
Thanks,
Matthew
Mike says: Matthew, I really appreciate this post. I think you clearly described what is happening in Calgary today. Thanks for mentioning the price difference for houses in Ontario compared to Alberta – I forgot to include that in the reasons why those from Ontario are unlikely to be home buyers.
For example, here’s the most current month-end stat package for Toronto: click here. Notice the median prices for the different types of dwellings, and contrast them to Calgary prices today.
The following letter was in the Calgary Herald today, written by a former realtor. I expect some realtors today are just as frustrated.
Re: “Incoming real estate chief expects return to stability,” Jan. 21.
Bonnie Wegerich, the new president of the Calgary Real Estate Board, in reviewing 2008 activity, commented that “we maintained our average sale price and median sale price. They stayed fairly steady.” A$37,900 drop in the average price in the single-family market, a $30,000 drop in the median price in the single-family market, a $36,200 drop in the average condo price, and a $36,000 drop in the median condo price–more or less an eight to nine per cent drop in prices. And realtors wonder why consumers are confused?
As a former realtor for many years, I had to tolerate the nonsense coming from CREB, particularly the last year and a half–the “say anything in the public domain” policy to entice buyers back into the market. (The same message, unfortunately, was heard by sellers at large.) Never mind the so-called economists and inept forecasters at CMHC who could not seem to find the pulse of the market until it bit them in the butt.”
Mike,
are you not a realtor? how do you sell with such negative blogs? Don’t get me wrong all of what you say is correct but your blogs are counterproductive.
As I have said before, sure buyers can sit and wait for more price drops but morgtgage rates will definitely climb eventually (hsould have by now) the lower rates will be short lived. So what is better, saving a few thousand more on capital cost or spending many many thousands more on interest costs?
BW knows nothing of what she spews as is obvious by her comments.
Cory, I appreciate your comments, but since when is being honest a negative trait?
Sure, I may be delaying making money in the short term. But I know I am gaining the trust of my clients (and perhaps some readers) since they see that their best interests comes ahead of my paycheque.
And true, mortgage rates will climb eventually. But as long as inflation stays in check, and the BoC and the government is doing everything possible to thaw the credit freeze and stimulate the economy, interest rates will stay low.
Lack of affordability is a major issue in Calgary real estate. If/when interest rates do rise, what do you think that will do to house prices? It’s not just that some buyers don’t want to pay the prices today – it’s that they aren’t able to afford them. Check out the 5th Annual Demographia International Housing Survey 2009 that was just released and see where Calgary is ranked with regards to affordability based on prices vs income.
Hi Mike
On the topic of interest rates, do you think a 1% increase in rates may return a 1% decrease in the median house price or is the ratio not so fixed as we have seen declining rates and house prices lately? My thinking is the best time for me to buy is when rates eventually increase to the point that reflects the poor state of the government budget and the amount of distortion due to bailouts and stimulus wear off.
thanks
Mike says: Hi Rusty – no I don’t see a fixed ratio between prices and interest rates. Like you said, recently prices have been dropping along with interest rates.
Nothing wrong with being honest at all but maybe let your clients decide what is good for them rather than just speaking negative as it will push people away no matter how good your intentions. Show people houses, if they like that house and can finance it then so be it. If they are happy with what they pay then it doesn’t matter what the market does as they have something they are happy with and have a place to live. A house a person lives in is worth zero $ anyway if they are living in it. Think about that one.
I am well aware of how money works and what higher interest rates will do to an already tight credit market and house prices. But it will end eventually, when nobody knows. I am not saying things will skyrocket again, not at all, but a level will be found eventually and money will start to flow, that is inevitable just as the price of oil will rise again is inevitable it’s also just a matter of when. It’s a commodities based economy here and cyclical in nature yet people never learn what goes up eventually comes back down. It is how you prepare for it. If people can;t handle the cyclical nature of our economy and panic everytime oil drops then they should not be here.
good luck.
Mike says: I’m not sure where you got the impression that I try to persuade my clients against purchasing by being negative…that would be silly. These “Read Between The Lines” posts are to show a different viewpoint on these often one-sided stories. It’s not being negative, but I’ll try to change the tone so it doesn’t appear as such in the future. I appreciate your suggestion.
….just because she is prez doesn’t mean she knows what she is doing or talking about, as is obvious. She should go back to Airdrie. What is that old saying “a good player does not a good coach make” or something like that….
Mike says: She wouldn’t be a successful broker for all these years if she didn’t know what she was doing. But if we could focus more on perhaps the forecasts, news, or stats themselves rather than the person, that would be preferable, thanks!
“If you need to buy in the Calgary market now, then I will help you get the best deal possible. Otherwise, there is no rush.
If you’re planning on selling, I will help you list and sell at a realistic price in today’s market.”
That Mike, it very refreshing to hear from a Realtor, I applaud you on your honesty for your clients. Not sure if you’ll benefit in the pocketbook at first, but you’ll be a winner in the end if you can keep up the honest reporting.
Mike
I’d just like to say that Mike Fotiou is in fact my realtor. While I appreciate his website/blog and his opinion on the current real estate market, the final decision “to buy or not to buy” is mine and mine alone. That decision is influenced by Mike’s advice, but when I find something I like and what I think is a good price, I’ll go for it. In fact, I made an offer on a house last week that I don’t think Mike really “approved” of deep down inside….but he put it together for me because that’s his job. If anyone out there is condering buying or selling a home, I strongly suggest you speak to Mike personally and consider using his services. Unlike the many other realtors I’ve dealt with in the past, I truly feel as though my interests take priority over his commission.