Are Calgary Prices Back At Peak Levels?

Are Calgary house prices back at peak levels? Headlines such as the following have Calgarians wondering:

Below are a couple comments – one from a potential seller and the other from a would-be buyer – both equally confused as to current market conditions.

“Hi Mike. I am an avid follower of your blog as I rent out a house in Calgary as I am working away. I see reports we are “flirting” with record boom prices but I don’t see that when I do a mls search. I have a 1431sq ft house 3 bed, 2.5 detatched, double garage in citadel forest close purchased in 2005 for $265K. The peak city of calgary valuation was $425K in 2007. The 2012 valuation was $379,500. When I look at mls listings for citadel that kind of sq footage comes nowhere close to record prices or am I missing something? If it is close to record prices the lease is up in April and I will be only too happy to flog it.”

A buyer had this to say:

“On another side, (and maybe a bit of a rant) I’ve been a bit unsettled by the real estate search this week- There have been a few indications that the market is getting more hot (though I have a hard time understanding the drivers).

Also, I looked at your 10Year historical Calgary pricing and graphed it for ease of looking at it.  May 2012 had nearly the same peak as July 2007, our yearly average may exceed 2007, there hasn’t been a post-spring fall off like there usually is and no October in history has had this high of an average price… bah!

I understand median pricing would be better to look at, but the trends still hold.  I guess I’m just looking to see if you have any thoughts on the markets this fall… I thought we would be having a drop this fall due to the 25 year mortgage amortization reduction, and I guess I’m worried that we’re on our way back to the bubble peak with all that entails.  Maybe Calgary/Alberta is the one safe haven left for people to find work, so people will continue to flock and house prices will stay strong.  This is frustrating.”

The first thing I would advise is to disregard the average price which only provides a very vague and general overview of the Calgary market.   Average prices are especially skewed upwards this year because of the record amount of luxury homes that have sold for over a million dollars, and with still 2 months remaining no less.

Yes, May 2012 had nearly the same average price peak as July 2007, but May also set the record for the most luxury homes sold in a month.

(click to enlarge image)

Although much more preferable than the average price, the median too can be skewed by a dramatic change in the sales price mix.So where does this leave us?

MLS® Home Price Index.  Aka: “Frankenumber”

It’s understandable when figures can’t be fully reproduced by either the public, (or by individual agents for that matter)  it’s greeted with skepticism and distrust.

However, the “frankenumber” (as some anti-RE industry skeptics call it) gives us a much better insight into the Calgary market than the average price does.   In fact, in times of increased luxury sales, the MLS® Home Price Index can be a housing bear’s best friend.

Back to our buyer’s comment: “May 2012 had nearly the same peak as July 2007.”

It’s true.  July 2007’s average price for single family homes was $506,671.  In May 2012, it was $501,684.  The median price for May 2012 was actually higher than July 2007’s.

But let’s take a look at the Benchmark Price & HPI for those two months in question.

July 2007
Benchmark Price: $451,300
Index: 192

May 2012
Benchmark Price: $427,500
Index:  181

The benchmark price still shows Calgary single family home prices in May were still -5% below our peak level. As of last month, it was still -4% below July 2007’s peak.

Teranet – National Bank House Price Index ™

If you’re still not a fan of the MLS® Home Price Index, take a look at Teranet’s offering. The Teranet – National Bank House Price Index™  considers properties that have been sold at least twice in the calculation of the index; this is known as the repeat sales methodology.

According to Teranet, Calgary house prices peaked in September 2007 when the index reached 174.    Teranet’s measurements are based on the property sales records of public land registries which accounts for the two month difference in peaks.  (Sales on MLS® are recorded when conditions are waived and the sale is firm; Teranet’s figures are based on when title is actually transfered, aka possession date)

Since their index has a base value of 100 in June 2005, that means house prices in September 2007 had increased 74% since then.

Calgary’s most current index level, as of September 2012, was 162.22 or 62.22% higher than prices were in June 2005.

(click to enlarge image)

In short, Calgary home prices in general have not yet reattained peak levels.  We’re still a little ways off despite what the average price is indicating.

Even CREB acknowledges this in October’s month-end report:

“Despite the higher than anticipated sales growth this year our market is not overheating, simply returning to levels consistent with long term trends and prices still have not fully recovered after the last recession”

I must caution that just because Calgary prices are rising/falling, that doesn’t mean that it applies equally to all properties across the city. Communities have their own price trends and supply/demand factors. It’s quite common to see prices and sales rise in one community while another community is experiencing the opposite.

To potential sellers out there (including the landlord with the property in Citadel), while Calgary statistics can give you a basic overview of the health of the real estate market in general, it doesn’t necessarily mean you’ll be seeing the same conditions in your neighborhood specifically.  It’s important to research recent comparable sales in your area to determine your home’s market value.

The short-term outlook for the Calgary real estate market looks quite positive.  Alberta is still churning out high-paying jobs which is also fueling strong in-migration levels.  Inventory remains below year ago levels while sales have been posting gains.  But as for peak prices?  We’re not quite back at those levels…yet.

What are some factors you think will influence the Calgary market to either, a) surpass prices seen in 2007, or  b) pull back like other Canadian real estate markets?

3 responses to “Are Calgary Prices Back At Peak Levels?

  1. A heads up: if anyone compares spring/summer sales & prices to fall/winter sales & prices to try to convince you the market is either plummeting or skyrocketing, they either have no concept of seasonality and/or are deliberately spinning the stats.

    They are also being disingenuous if they cherry pick another month out of the year to compare stats against instead of looking at the year-over-year comparison.

    And if anyone tries to tell you that the autumn market is a traditionally hot period for real estate, just take a peek at the 10-year historical stats PDF in the left column of this blog and see for yourself whether there’s any truth to that.

  2. I’m not alone in my thinking. Ben must have read the same blogpost

  3. I would agree with Mike , just reading the news and some headwinds are blowing from west and east sides of the province . Van and Toronto could be the start of slowdown in Calgary.

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