June 1 – 14, 2011 Calgary Real Estate Market Update

June continues to be a much more brisk month for sales compared to last year.  SFH sales are up 32% with 680 properties changing hands in the first two weeks of June compared to 515 during the same time period last year. Condo sales are up 18% with a total of 265 units selling.

Was my criticism of CREB’s aggressive sales forecast unfounded?  Will I be eating humble pie at the end of the year?  I suppose I could always take the cue from another blogger and delete the offending posts, claim hackers took down my site, and then change my forecast and pretend I was right all along :P  Nah, it’s alright.  I like pie.

(click to enlarge)

SFH Pending (click to enlarge)

Condo pending (click to enlarge)

The luxury segment continues to be active with 26 properties having been sold for a million dollars or more so far this month.   It’s on pace to match May’s total of 52.

International luxury realty brand Sotheby’s has opened an office in Calgary — its first in Alberta — to take advantage of the growing demand for high-end homes (read more in the Calgary Herald)

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Urban Futures, a BC-based consulting firm recently held a presentation on Alberta’s demographics and housing.  You can read David Baxter’s (Urban Future’s economist)  take on Edmonton’s market here.

I didn’t attend Calgary’s presentation, but reading through their BC housing reports it seems that they base a lot of their findings around 2006 census data which obviously isn’t the best source for measuring today’s housing affordability.  The Urban Futures’ BC report concludes:

As such, in considering both the current housing affordability context for BC and Canada, and the factors that could impact affordability-related issues in the coming months and years—including trends in mortgage lending rates, mortgage financing arrangements, and down payments—the exising data do not reveal the existence (or emergence) of a US-style aff ordability crisis in the this (sic) province.

Given this body of evidence, there is no empirical basis on which to say that BC currently suffers from widespread owner-occupied housing affordability problems, nor are there signs of impending doom on the horizon.

Only time will tell. But it’s odd that Urban Futures doesn’t see any problem with the nation’s most expensive and unaffordable city.

According to Coldwell Banker Real Estate Home Listing Report also released today, Vancouver topped the nation at $1.546 million for the average listing price of a four-bedroom, two-bathroom home.  By comparison, Calgary ranked 9th  with $534,912

Regarding Vancouver, banks such as RBC have already sounded the alarm.

We fear that the Vancouver market is becoming increasingly disconnected from local demand conditions and vulnerable to a painful correction, especially once interest rates resume their ascent.

The downside of sharp property appreciation, however, has been a worsening of affordability in the province. The RBC Affordability Measures for British Columbia, in fact, rose the most in the first
quarter (between 0.8 and 1.8 percentage points) among all the provinces. We believe that deteriorating affordability will weigh increasingly on housing demand by B.C. households and raise the risk that they may be forced to the sidelines in substantial numbers, potentially causing painful market disruptions.

No worries though. According to one Edmonton agent that attended the Urban Futures conference, when speaking of affordability, he (David Baxter) “discussed the studies that financial institutions put together don’t actually reflect reality.”

Just like that, entire studies with pesky findings are dismissed.  I suppose my first clue regarding their objectivity in the BC report I linked should have been that Bob Rennie & CMHC helped provide data for it :P

Onto some other news that came out yesterday (but apparently doesn’t reflect reality) the federal government and the Bank of Canada are once again sounding alarm as household debt continues to rise:

Two new reports suggest the problem is worsening in the face of a weakening economy. (Read the CGA report here)

Finance Minister Jim Flaherty tabled a budget implementation bill Tuesday he says will formalize his powers to intervene in Canada’s hot housing market to restrain borrowing.

And on Wednesday, Bank of Canada governor Mark Carney is expected to warn Canadians against taking on too heavy a debt burden that they won’t be able to afford once interest rates start rising.

“We have very low interest rates in Canada,” Flaherty said. “We need to remind Canadians that historically low interest rates will not be there forever, that interest rates really only have one way to go and that’s up,” Flaherty said.

“So Canadians in terms of their most important — their largest debts, residential mortgages, need to be aware that their monthly payments are going to go up when interest rates go up over time.”

Flaherty has tightened mortgage requirements three times since 2008, but did not say whether he was considering another turn of the screw.

For now, many analysts believe what Flaherty and Carney are doing — issuing warnings — is likely the best approach, since action might be too strong medicine. Tightening mortgage rules further, or raising rates or both, could result in an overshoot and send the housing market crashing.

On the other side of the issue, however, is that many Canadians could be financially hurt if they proceed on the assumption interest rates and carrying costs, will remain at current levels for years.

However, as the TD report I referenced yesterday states, the Bank of Canada is not expected to raise rates anytime soon.

When I was looking up news articles referencing Urban Futures, I stumbled across this abstract from an article from the Toronto Star back in 1997.  In light of it now being 2011, it highlights how long the baby-boom-bust housing crash scenario has been milked and regurgitated by some:

No price meltdown seen in housing market
Two economic studies refute theories of baby-bust slump

But those who decide to sell their homes in a panic may be doing so needlessly, according to two recent economic studies. The authors suggest the future is bright for real estate values wherever communities and incomes are growing, and that it’s not as bleak as [Garth] Turner and [David] Foot would claim.

Derek Holt, an economist at the Royal Bank of Canada, and David Baxter, executive director of the Urban Futures Institute in Vancouver, concluded separately that we should not experience a sharp drop in demand for houses due to shifting demographics.

On housing, the two concluded that demand will not inevitably drop in the first decade of the next century just because the baby-bust generation is 45 per cent smaller than the older baby-boom cohort.

I sure hope no one sold their home 14 years ago fearing that prices were about to plummet.    It looks like Urban Futures & RBC were right back then.   But with them now taking a different position on the BC market today, who will continue to have the most accurate prognostication?

8 responses to “June 1 – 14, 2011 Calgary Real Estate Market Update

  1. Calgary brokers tested by longer preapproval conversions
    Mortgage Broker News, June 2011

    It’s perhaps the most telling and, indeed, frustrating indication of Calgary’s slowing mortgage market: The extended time needed to convert a pre-approval into a funded deal.

    All puns aside, mortgage professionals in Alberta’s largest city are now grappling with average wait times for approval conversions of anywhere from 30 to 60 days, more than double the regular two-week wait of even a year ago.

    “They’re just sort of sitting there,” Gerry Orr, owner of Alberta Mortgages, told MortgageBrokerNews.ca. “Across the board, preapprovals are just taking longer to convert, generally, because it seems as though there is a lack of confidence in the market: prices haven’t decreased significantly in Calgary and other areas, and buyers aren’t feeling the sense of urgency that they once did.”

    The trend is testing the patience of brokers across the Calgary market, as they wait for clients to move on those green lights. Preapprovals are viewed as a sort of feedback mechanism for buyers, allowing them to hold rates for 90 to 120 days, but, more fundamentally, to determine their credit fitness. That reassurance in hand, said Orr, many are now thinking they can afford to wait for condo and, even, single-family home prices to fall. They point to the relative glut of properties on the market and increasing pressure on sellers to lower their asking prices.

    The waiting game has stymied hopes for a busy spring season and cemented expectations for a slow summer.

    Read the rest of the article and Mortgage Broker News

  2. Quotables of the day

    On Calgary:

    “-The million-dollar plus market is doing volume because of the revived optimism and positive outlook many share for Calgary’s future. The city is home to a diverse array of positive economic forces at work including Canadian leading housing affordability, forecasted provincial migration, GDP growth and job growth while even the Calgary downtown office market has been surprising many and has been robust.

    “Good listings are selling quickly right now and I have been involved in several multiple offer situations recently. All of these variables are a sign that barring an act of God the market is going to at least stay on firm footing where it is and likely have leading positive price growth over the long term. The fundamentals simply do not lie.”

    Read more: http://www.calgaryherald.com/Calgary+house+prices+slightly/4949994/story.html#ixzz1PMEClB7i

    On Vancouver:

    “Even so, the frantic activity for high-end houses may itself be a signal of an overheated market. This latest spike in prices suggests that Bank of Canada Governor [Mark] Carney’s speech later today on housing and in Vancouver could be almost as dramatic as Game 7 later on…almost.”

    Read more: http://www.theglobeandmail.com/report-on-business/economy/housing/vancouver-housing-pulls-prices-higher/article2061554/

  3. Bank Of Canada’s Mark Carney’s speech presented to Vancouver’s Board of Trade can be read here

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    Alberta broker raises alarm about conservative appraisals
    Mortgage Broker News, June 15, 2011

    A seasoned Alberta broker is concerned appraisers for default insurers have gotten ahead of themselves and any correction in the housing market, alleging increasingly “low valuations” since the new mortgage rules were ushered in.

    “We had one recent case where an Airdrie property was listed for $920,000, and it took us having to get appraisals from each of the three default insurers in order to get an appraisal of $885,000, which was still $35,000 below,” MaryAnn Guizzo, a broker and general manager for The Only Mortgage Company Inc., based in Calgary, told MortgageBrokerNew.ca. “What was really stunning is that the lowest appraisal was actually $650,000. How do you get that far out in left field? I absolutely do I think the insurers are telling their appraisers to get even more conservative since the mortgage rule changes.”

    CMHC,for one, denies making any changes to its appraisal guidelines,

    Still, an apparent gap between their appraisals and those of their clients’ is a perennial concern for brokers, but Guizzo and others charge that the gap has widened this spring. While they’re hard-pressed to explain the larger differential – as much as 33 per cent in some cases – they are concerned it reflects a premature move on the part of insurers concerned about a possible market correction. The province hasn’t yet recovered from the last one in 2007/8. That latest price drop hasn’t yet happened.

    The trend has left Guizzo scratching her head to explain the growing number of her cases where appraisals have dramatically missed the mark. Some brokers suggest the gap may have something to do with increased caution on the part of lenders and insurers concerned about Alberta’s relatively high default rates, which have fallen only modestly from the 2008 correction. That could be exacerbated if Canadians find it hard to keep up with mortgage payments after the Central Bank moves to raise its key interest rate and the government limited refinancing options.

    “But we’re not going to see a significant increase in rates until 2013,” said Guizzo, a mortgage broker for 14 years, “so tell me why they’re worried about the appraisals now.”

    Read the rest of the article at Mortgage Broker News

  4. Or maybe ….just maybe….no type of housing located in Airdrie is worth even close to $920k. Catch yourselves on….

  5. Would have to agree with Bast on that one! But like I said before I am totally surprise on the prices still hanging in there. I was expecting some type of correction or should I say wishing. However I think the government is voicing its concerns and getting us ready for interest rate hikes . Hang on its going to get interesting on how people are going to manage the debt!

  6. CanuckDownUnder

    If we step back and look at the year to date stats from the May report median prices are down across the board compared to last year (SFH down 1.7%, condos down 3%).

    Even in a environment of rock bottom mortgage rates and a supposedly booming again Alberta prices are still drifting down.

    Will this pickup in sales eventually pull the market into positive territory compared to 2010? A lot is riding on Carney keeping rates low and the growing European debt crisis not turning into GFC2.

  7. Howdy Mike…

    I was curious to know from you whether March 18 cut-off and 90 days preapprovals play any role on recent spike in sales…

    Keep up the great job…

    Cheers…

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    Mike Fotiou says: No, the deal had to approved before March 18th to get a 35-year amort (if CMHC insured)
    Thanks for your comments!

  8. From today’s Globe & Mail…

    Mr. Flaherty suggested that he is now more comfortable with the health of Canadian housing, saying categorically that he is not considering taking any further actions to cool the mortgage market here because there has been some moderation in the housing market. While there are some hot spots, such as the condominium market in Vancouver, those are not enough to prompt another change in mortgage rules, Mr. Flaherty said.

    (read more…)

    Meanwhile in Toronto…

    The Greater Toronto Area condo market set a sales record for the second month in a row, with May sales up 37 per cent compared to a year ago.

    Realnet Canada Inc. said there were 4,289 new homes and condos sold in May in the Greater Toronto Area, with sales of low-rise housing up 25 per cent and high-rise condos up a “whopping” 50 per cent.

    (read more…)

    In Calgary so far this month, SFH sales are up 21% from last year while condo sales are up 18.5%

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