July marked the first time in 12 months that Calgary real estate prices posted a gain according to Teranet-National Bank’s HPI.
Calgary prices were up 1% from June, but still down 11.1% from July 2008 – the largest YoY decrease among cities tracked by the index.
Excerpt from the report:
Canadian home prices in July were down 5.1% from a year earlier, according to the Teranet-National Bank National Composite House Price Index™. Though it was the eighth consecutive 12-month decline, it was also the first time in 13 months that prices in every region covered by the index were up from the month before. For the composite index it was a third consecutive monthly rise. The trend reversal is consistent with improving market conditions for the country as a whole in recent months – more homes have been selling and fewer have been coming on the market.
The recent monthly gains indicate “the market correction is behind us,” said National Bank senioreconomist Marc Pinsonneallt.
However, University of Calgary economist Frank Atkins isn’t so sure the index’s results for July mean a rebound is at hand. It would take several consecutive months of improvements before he’d draw that conclusion.
“I would hope we’ve turned the corner, because this is consistent with all kinds of other little bits of evidence all over the place, not just housing, but there’s not enough of it gelling together for a long enough period of time that I would say we’ve turned the corner on anything,” Atkins said. (Source)
In comparison, Calgary SFH MLS® average prices were down 2% between June and July, and down 4% YoY. The median price was also down 2% from June, and down 5% from the previous year.
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On Forecasting
It’s not a science, whether for real estate prices or the economy. Here are a few forecasts from as recent as Monday from economists regarding Canada’s GDP:
Michael Gregory, senior economist for BMO Capital Market forecast 0.5% growth for July saying, ”two positive readings (would) follow 10 consecutive declines and provide more evidence that Canada’s economy emerged from recession this summer.” (Source)
Derek Holt, vice-president of economics at Scotia Capital, forecast the Canadian economy grew ”north of one% in July (Source) (The last time the economy grew by at least 1% on a monthly basis was in March of 2004)
TD Securities forecast 0.5% gain saying, “We certainly do not dispute that Canadian GDP appears on track for a second consecutive monthly gain.” (Source) ”The tone of these data is undeniably positive and though there may be some transitory element to the strength in the motor vehicles component, it will still undoubtedly add to July GDP,” said Charmaine Buskas, senior economics strategist at TD Securities.
Douglas Porter, BMO Captial Markets (thought) those numbers (will) look relatively solid and will signal “a little bit more of an official end to the recession than that the meagre 0.1 per cent rise in June.” (Source)
Most economists had expected the economy to grow by between 0.4 and 0.5 per cent in July.
Well, Statistics Canada released GDP numbers this morning showing 0% growth.
“Okay, this is a shocker,” said Douglas Porter, deputy chief economist at BMO Capital Markets. “We’re not talking about a shot across the bow of the optimists, this is more like a torpedo through the hull. It’s not just the consensus that will be surprised by this result — the Bank of Canada has been loudly proclaiming lately that growth would likely surprise to the high side of their July forecast in the second half of the year . . . .” Porter said.
So….now that we see basically every economist in Canada wrongly predicted a second month of GDP growth, are we so sure the worst is over? Until this time that is all I heard in the media – “the recession is over!!”.
Keep in mind that the government is pouring billions of dollars into the econmy, and we still couldn’t avoid a contraction from June to July.
Manufacturing (automotive) is being propped up. Real Estate catastrophe was averted last October when they slammed interest rates down to o%, and the CMHC is rolling out housing development projects that otherwise would not happen to keep people employed. These industries saw marginal increases with all of this support but couldn’t balance the contractions elsewhere. I’m glad to see that the Gov’t is helping keep people employed, but question how far this stimulus can take us.
Mike – I appreciate your objective approach to RE assesment in AB. I have little trust in agents b/c of all the BS spins they put in the news, however you seem different. But let’s get down to brass tacks:
1) Is there a RE bubble in Canada? In AB?
I tend to believe there is due to:
-massive run up from 2005-2008 that outpaced income growth
-speculative purchasing (ppl putting down payments on new homes expecting to flip for a profit when completed)
-Canada has the worst (or one of the worst, depending who you ask and how you look at it) affordability in the world
2) When will the low interest rate phenomenon cease to entice buyers? At some point something else will have to bring buyers to market.
3) Is there pending doom for “first time home buyers” that took advantage of “the best affordability in years” who were scared of another RE price run up because “prices won’t get any lower” who bought extremely overpriced homes, whose banks gave them $400k – 500k mortages with absolutely no risk (CHMC insured) that are now at or near their economic limit with mortgage payments? There is only one direction for future interest rates. When these buyers 3% interest expires in 2-5 years, and rates are up to 5-10% (who knows?) and their monthly payments increase from 20-40%, where do they end up? I’m scared the answer is likely “on the streets”.
I’m not trying to be a supreme pessimist here, but this is the reality of the CHMC’s recent insurace policy changes (taking on higher risk) and the fact that despite what everyone thought, we might not be growing 3% GDP by the end of the year…
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Mike Fotiou says: Please forgive the brevity of my responses to each of your points, but here goes: 1) I believe there is one in Calgary, but it seems everything is being done to try & sustain it (ie. extending amorts, low rates, government incentives & rebates) As Jimmy pointed out in a previous comment, legitimate forces like supply/demand have also had their part. 2) I think low interest rates will continue enticing buyers unless prices rise to counteract whatever affordability was gained by the low rates – provided that Canada really is climbing out of recession and consumer confidence remains high 3) Hopefully todays buyers are prudently budgeting for an increase in rates, or they will have had time to pay down the principal enough before their rate changes to keep their payments from ballooning. We might see programs like were started in the USA to modify loans or receive other assistance if widespread trouble begins.
Mike F,
What happened to the MEI (Month End Inventory) 50 houses sold on the final day but ~140 disappeared from the market. Were there no new listings on the last day of the month? I guess the first week or so of October will show what happened when active listings shoots up by a couple hundred.
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Mike Fotiou says: A lot of listings expire on the last day of the month, with many being relisted within the first week.
Mike, thanks for your response.
Certainly agree on point #1. The government seems hell-bent on keeping things up in RE. I can see the benefit of this, but it is a bit of a double-edged knife I suppose because they create a situation where it is difficult to be “prudent” as you have suggested.
Let me break it down like this – my own prudent approach to purchasing real estate. I am 25 years old, engaged, and working in the O & G industry, grossing $90k/year. Because children are on the near horizon, I need to make sure we can continue to afford our home payments if and when my fiance doesn’t work (stay at home mom), so I am going to ignore her teaching salary, it is just short term butter that we can use to pay down the mortgage a bit in the first couple years. Luckily, my salary alone is higher than the average household income in AB (~$70k). We have saved ~$40k for a down-payment.
To keep things “prudent” I am going to calculate based on 7% interest (seems to be around the average offered on 10-yr fixed) but I’ll take out the variable rate and cash in on some savings in the first couple years if interest stays down.
I am also an “old school” kind-of-guy. I have no other monthly debt payments but I like to “pay myself first”, one of the cornerstones of a prudent economic plan, so I’m eliminating $900 (~15%) of my disposable income from the equation, because I’m putting this into an investments savings account – you gotta pay yourself first!!
Where does this leave me? Well after taxes (~$2000/yr), utilities ($500/mth), and paying myself first ($900/mth). I am told by online calculators that I can afford a max mortgage of $226k, or basically a $266k house.
Mike, if you can find me a respectable house for two young professionals that they can be proud of and grow into (baby coming soon!) for $260k in Calgary please let me know and you are hired! PS, I don’t want to live or raise kids in Dover or Forest Lawn, but thanks anyways.
I don’t think most people are being this prudent. It is extremely hard to when houses are so inflated in price. Plus, I think the definition of “prudent home buying” about 10-15 years ago would have been having 25% downpayment which makes you exempt from CHMC insurance and saves you about $200 a month in mortgage payments. Unfortunately it is damn near impossible to come up with this downpayment on your first home these days, especially for a 25-yr old couple…I think we’ve done well saving $40k.
So I’m a little worried about this “stabilization in prices” driven by the first time home buyer, who are people in my demographic, making similar money, with similar life milestones (baby) on the horizon.
And the banks don’t care because the CHMC (AKA Government of Canada) creates a completely risk free scenario for them. Banks are about the bottom line…so who’s out there helping people make these prudent decisions? I might just have to go in for pre-approval to make a point – I’m guessing based on my single salary they would give me as much as $360k, enough for a $400k home (at 3% interest mind you, and I can’t pay myself first).
Am I the only one struggling with the sustainability of this situation? What is the breaking point? Who’s gonna get hurt?
TT, I commented on you comment under Mike’s newer Blog posting