Confidence Dropping, Luxury Sales Rising?

I was on News Talk 770 this morning speaking briefly with Bruce Kenyon  about the luxury home market in Calgary.

Some of what we covered is found in the Q1 Luxury Home Market report from last week. Below are other points we spoke about:

  • Last July, the latest mortgage rule changes implemented meant that buyers of $1M+ homes  have to put a minimum of 20% down.  That means these luxury buyers in Calgary have a down payment of at least $200,000. They have some “skin in the game” and reflects their long-term confidence in Alberta.
  • Short-term confidence is less optimistic.  Yesterday, PwC released the Business & Consumer Confidence Index which showed that confidence in Alberta’s economy is at the lowest level in years.   Albertans are concerned with oil prices & projects and provincial government budget deficits.  March figures showed a rise in the unemployment rate.
  • Is the rest of the market performing as well as the high-end segment?  Not in terms of sales.  Affordability is stretched and many are turning towards the condo market – prices haven’t recovered there like the SFH segment.  Low inventory levels are also dampening sales.  It’s more difficult for buyers to find their dream home and at the same time helping sellers keep prices elevated.
  • Mr. Kenyon referred to the BMO report about first-time homebuyers.  Where are these first-time buyers getting  an average down payment amount of $48,000? (16 per cent)    Some save to avoid paying CMHC insurance premiums or are gifted money from their parents.

What do you think about the disconnect between low confidence in Alberta’s economy and steadily rising (and record breaking) luxury sales?

5 responses to “Confidence Dropping, Luxury Sales Rising?

  1. I think the strength of the luxury housing market is based on three primary factors: low interest rates (expected to remain low), limited supply, and increasing demand.

    Interest rates are low making it easier to qualify for larger amounts if you have 20% to put down or are willing to take a second mortgage to make up the difference.

    Supply is severely constrained in the inner city where the majority of luxury homes are located. There is potential for intensification (townhomes, high-end condos) but mostly the supply is fixed.

    Demand is increasing because the population is growing. One would think this would affect all segments of the market equally but perhaps a larger share of the demand is being met by new construction rather than resale outside of the luxury segment, leading to the impression of higher relative demand for luxury homes. In other words, maybe it’s just higher demand for resale luxury homes as opposed to resale standard homes, due to supply constraints on new luxury home construction.

  2. Demand in the inner city SF segment is increasing because the population in Calgary is growing rapidly and the commute from the suburbs is becoming more unattractive by the day. Let me tell you; I work downtown…

    Once downtown folks still want a decent size house, and those cost $1M +.
    Calgary is an oiltown and there’s money here so I think it’s just that many people can simply afford it.

  3. And here’s another group that will be looking for luxury homes:
    “Engineering giant Siemens to make Calgary its Canadian energy research headquarters”

    from the article in the Calgary Herald:
    “Hardt would not speculate on how many new jobs would be added in Alberta as a result of the decision, but said the company will be moving some of its managers to Calgary as early as this summer.”

  4. You can’t find a good home for under $350k in Calgary right now. All the homes priced under this point are either extremely small 3 bedroom huts, laced with aluminum and asbestos or 900sqft with three bathrooms crammed in. Some even have hostile tenants.

    A home I looked at yesterday had 10 birds living in it! Brand new kitchen, destroyed by Cockatoos. How the real estate agent hid that in the photos is an incredible feat of photography.

    All in all I’m quite discouraged.

  5. I think US real estate recovering, central bank pumping $$, Calgary real estate price still below 2007 high, stock market recovery, Asia economy better than many people in North American know are all the reasons behind the strong lux real estate in Calgary. Not sure all those over$1m inner city houses whose owners signed direct contracts with builders are counted in CREB calculation. If not, which I think they are not, demands for lux houses are higher than CREB published. Furthermore, if pipeline to US is to be built, this is a huge positive to Calgary, as energy stocks would be higher (earning higher) and employees in those energy firms will/can sell stocks ( many can exercise their options) to upgrade their living standards. We had several flat year ( 2010-2012) real estate market in Calgary, this built a good base for several years of moderate growth (5%) which I believe. Plus we have a tight rental market. Media sells the news that are yesterday news. Just look at CNBC, until last year it still published doom real estate news in the States, but smart money got in in 2011-2012. Now it’s articles turned 180 degrees.

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