Both the SFH and condo sector realized year-over-year gains in November, with little change over the previous month.
Single Family Homes
A total of 1095 transactions resulted in an average price of $464,444 and a median of $408,000.
- Year-over-year: (November 2008) 670 sales with an average price of $435,471 and a median of $387,300.
- Month-over-month: (October 2009) 1285 sales with an average of $462,465 and a median of $410,000.
Inventory dropped to 2658, its lowest level since March/April 2007.
Condos
504 properties changes hands in November, selling for an average price of $294,264 and a median of $264,900.
- Year-over-year: (November 2008) 284 sales with an average price of $285,820 and a median of $251,800.
- Month-over-month: (October 2009) 601 sales with an average of $289,155 and a median of $263,500.
Inventory has remained more stable than SFH’s, hovering around the 1400′s since August
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Just an update on the Calgary rental market. The median rental price (per month) for a SFH in Calgary has officially fallen another 3%.
For those that have seen my posts before, I track the median rental price of SFH and 2-bedroom apartments in Calgary using the data from rentfaster.ca
Link to all SFH for rent: http://tinyurl.com/ygt7uj2
Here is the data (month: price)
07: $1650
08: $1600
09: $1600
10: $1600
11: $1600
12: $1550
Looks like the rental decline is happening at about 1% per month.
The current median price for a SFH in Calgary is $408k.
This translates to a current price/rent ratio of 263.
Generally, anything above 200X is considered a terrible investment for renting out.
Over and out,
cM
Do you have data going back further than 6 months CM?
Your data might be subject to seasonality -if more people look for roommates or basement suites in the fall, it will bring your rates down.
I think we’ve also gone over the fact that a median of 408k does not accurately describe your average rental property in Calgary.
That being said, rents have gone down while prices are up this year. The opposite happened in 2008. I’m not sure what that means apart from the fact that interest rates are low.
“Your data might be subject to seasonality -if more people look for roommates or basement suites in the fall, it will bring your rates down.
I think we’ve also gone over the fact that a median of 408k does not accurately describe your average rental property in Calgary.”
Unfortunately I’ve only started tracking the data starting in about April.
I didn’t really keep a good record back then or make sure I was using a ‘standard’ search query in the spring, but I recall it always being $1700 for the median, so in my estimation the median has actually fallen about 9% in 8 months.
I do definitely agree with your point about $408k likely not describing your average rental property.
What I’m curious about is, when I see stats from cities in the USA, how they go about calculating their own ‘price to rent’ ratio. Do they take your point into account as well ?
What do you think would be a good ‘percentage’ to discount ? I was thinking perhaps 15% ? Making your average SFH for rent worth about 350k ? This still gives a price/rent ratio of 225X which would be considered extremely high in even the most elite of cities around the world.
I’ve noticed that a lot of properties in my area have a price/rent ratio well above 300+. That just amazes me. Here are some examples…
http://www.rentfaster.ca/Calgary-Apartments-For-Rent/45700-West-Hillhurst-House
1739 Broadview Road
This house would easily list for 500k+ (for one thing the lot is 580 sq m, double the average in this area). Rent is $1500/month, for a p/r ratio of 333.
http://www.rentfaster.ca/Calgary-Apartments-For-Rent/17018-Capitol-Hill-House
2711 Morley Trail NW
Likely worth $430+, rents for $1400, 312 p/r
These aren’t just extreme examples, there’s tons of them all around the inner city.
I guess maybe the owners of these homes are perhaps more established and carry less of a mortgage, not sure.
The house I’m in right now (also on Broadview road, 2000 sq ft + developed basement) would likely list for a conservative $650k and I’m renting it for $1500. That *is* an extreme example though and I think I got a heckuva deal.
cM
I question the validity of the rental data simply on the basis that an 11% decline in annual rent would be unprecedented in Calgary.
According to rental data from UBC Sauder, the highest annual decline in rent over 141 year over year samples between the years of 1973 to 2009, was -6.3%.
So, your number of a 1% decline per month would be almost DOUBLE the highest previous decline.
Also of note is that the highest decline in rents occurred in 1983-1984 period when vacancy rates were between 9.6% to 12.3% As of the first half of 2009, vacancy rates in Calgary were 4.3%
Calgary’s vacancy rate is indicative of a market with stable rents, not rapidly declining rents as you make the case.
I think that riskless rates of return like the Bank of Canada bond yields play an important role in the Canadian housing market.
When mortgage rates were 20% in the early 1980′s is a heck of a lot different financial environment than the current interest rates.
Housing as an asset class also offered much higher rates of return during the same period. Now that interest rates are low, so are yields on housing in Calgary.
If price to rent ratio was so important, then we would have seen house prices start correcting a longgggggg time ago. Nor, would we have seen a resurrection in 2009 of the market that switched from a strong buyers market to a mild sellers market. (And prices have followed accordingly)
If you are serious about investing in real estate then it’s important to do a net present value calculation and understand the internal rate of return, and the costs, revenues and risks involved.
Simply looking at a median rent and comparing it to a median SFH is not detailed enough to get a decent answer. What does a median SFH look like, and is the median SFH rent comparable?
The best data regarding rents I believe is the CMHC report and secondly by reading publicly traded companies like Boardwalk.
I think Mike’s data of SFH inventory compared to condo inventory tells a story of what happened in the construction market. A lot of SFH construction slowed down quite a while ago. And since it slowed down, there is less unabsorbed new housing as well as less in the resale market. In the condo market, some of these condos were bought maybe 4 years ago, so that supply of condos that have been started and are nearing construction completion is still coming online and lagging and pushing into the resale condo market.
I think it will be interesting when in late 2010 we haven’t seen many new condos started this year, so next year, we could see almost all the completions occur, but have no new supply that is digging. Only at this point, do I expect to see condo inventory start to move down in a meaningful way.
The other thing is that CM is looking at inner city, so there is usually a high price to rent ratio. Why? WEll, you can do things like turn the basement into a basement suite and rent it out easier due to it’s location. Or maybe someone could buy it just based on it’s location, and build two infills. A suburb home may be limited by zoning as well as not the demand for rental suites in suburbs.
I have seen investments that I think would beat the stock market in real estate performance, but they are limited to things like buying an older fourplex. In those cases, you don’t have the upside potential, so you actually get a good cashflow metric.
“I question the validity of the rental data simply on the basis that an 11% decline in annual rent would be unprecedented in Calgary.”
We live in unprecedented times
Have you seen this graph ?
http://img85.imageshack.us/img85/4922/calgaryinflationadjustede7.png
Now that’s unprecedented.
I’m willing to bet the increase in rental prices for Calgary was unprecedented as well. I wasn’t a renter during the boom, but I remember the horror stories.
Look, I’m not suggesting that rent is in some sort of crazy freefall with no end in sight, but I have noticed a *lot* of rent reduction and ‘first month free’ in the listings lately. That’s just my observation.
The numbers that I’m quoting come from a standard advanced search query, that use the same variables each time. It’s the exact same query, every single time, which anyone can perform…
Query:
http://tinyurl.com/ygt7uj2
Advanced search parameters for RentFaster:
http://www.rentfaster.ca/advanced_search.php
Selected parameters:
Type of property: house
Monthly rent range: unlimited to unlimited
City section: NW/NE/SW/SE/Inner City
Everything else is deselected.
So, what we get, in theory are SFH, whole house (no roommates or basement suites), only Calgary.
Some have suggested that people might mistakenly/purposely list as a non-shared SFH when it is in fact a suite, be it upper or lower.
This is true, but I took a look at 200 properties (starting at the lower end, because presumably they would be the lowest priced) and found it to be less than 5%, even for the lowest priced properties. I think as I moved up through the price range, the overall percentage of mistaken/purposely misrepresented properties would go down signficantly. As well, one could theorize that this percentage of properties would be present in all queries at any time.
Is it perfect? Nope. It just is what it is, and if somebody has a better way of quickly calculating the ‘live’ price of median rent in Calgary I’m all for it.
This could all just be seasonal fluctuation as Jimmy suggests.
All I can say is, I know for a fact that last spring the exact same database query, with the same variables was pulling up a median rent of $1700 and this winter it’s 9% lower.
I think Mike was planning to perhaps get some data from RentFaster so maybe they could give us a better idea.
I actually created that graph your referred to when I had more questions then answers.
I was reading through Boardwalk financial statements which is a larger player in the rental market in Calgary and I also noticed the following information:
In September 2009, occupied rent was $1183, this compares against $1211 occupied rent in September 2008. This is a decline in occupied rents of 2.4%. However, for asking or market rent they were asking $1301, in September 2008 compared to $1130 in September in 2009.
This is a more serious decline in asking price of 13.1%. The numbers I was likely looking at reflect occupied rent instead of your view where you are looking at asking rent.
This is comparable to what you have shift in asking prices on rentfaster.ca My guess is that you are going to see much more variability in asking prices as compared to occupied rent.
As shown by the Boardwalk data, asking prices can swing from $100 above what occupied rent was in 2008, and swing to $100 below occupied rent as in 2009. It’s hard to read too much into asking prices simply by this example where in September 2008, asking prices were above occupied, but by September 2008, it had swung so that asking prices were less than occupied rent, AND occupied rent had dropped.
I think nearterm that the rental rates will trend as per the availability rate which actually is both vacant units and units which have been notified of move out and no new tenant signed up. I believe that some work that I have looked at indicates it takes about a 7% vacancy rate to see a decline in occupied rent.
The availability rate, which may be a better leading indicator in first half 2009 was 6.2% for a 2 bedroom, so I think that may have been a sign that rents were close to or nearing a drop in occupied rents.
Also, multifamily housing starts are down in 2009 a whopping 82% year to date as of October 2009. My guess, is that over time if this continues will lead to tighter markets both in the rental market and resale market.
I’m not saying that price to rent ratio isn’t something important to consider. But, there is a lot more going on in the market that I think are better indicators of value including comparisons between capitalization rates to bond yields.
The other thing is it may take 5 years before we get to a situation where we can say that the market is likely to perform above historical averages.
Ideally, noone wants to get into the market when it is overvalued, but it’s not like I think people are expecting to rent and invest the difference for a quicker return. Boardwalk for example is buying back it’s own shares instead of buying up new rental properties. It should also say something about the rental industry in that they are not selling properties either.
Good analysis Radley, thanks!
Kevin did a similar analysis of the Boardwalk numbers a few weeks ago:
http://edmontonhousingbust.blogspot.com/2009/11/rental-market-update.html
Boardwalk Calgary, Vacancy vs Rent
http://dynamic-evolution.com/ehb/091116-3.jpg
“According to their little graph it seems those in Edmonton and Calgary can await a move toward increased incentives, and then rent decreases. Having tracked some of their building rates on their website, it appears consistent, as over the summer rents have been fairly stable, but the advertising of incentives have been much more prominent.
They have sporadically included incentive figures in their reports up until ’06, but I hadn’t seen it since then, until their most recent report. For what it’s worth, in 2Q of ’06 they were offering about $15 per unit in incentives… in 3Q of ’09 it was now at $145 per unit.
Quite the increase, but it should be noted that in 2Q ’06 that was right in the midst of the big run up in rents (at least here in Alberta, which makes up over half of their portfolio)… conversely now we’re in a period of higher vacancies and thus they’re trying to lure people in, whereas in ’06 they were practically beating them off with a stick (get your head out of the gutter!).”
Remember that Radley77 purchased a bridgeland condo at the peek of the market 2 years ago, since then, his stats have been baised pro-realestate when before they were semi-bearish.
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Everyone has an angle.
Mike Fotiou says: Didn’t you sell a little while back and become bearish since then?