Housing "out of whack"

[dealguy2]

Real estate bubble pops in Calgary (http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=1288ebf4-846c-4bcc-80d2-a213c950a758). If you own a home and have a huge 40 year mortgage sell it now. It's almost getting too late already.

[movieman]

Come on, house prices always go up, etc.

[pitz]

Just looking at that chart on the bottom, how can prices rise in a significant fashion if new listings exceed sales?

Anyways, booms in almost everything, inevitably lead to lower prices in the longer term as production is stimulated on the supply side.

High oil prices in the 70s = efficiency gains and collapsing prices in the 80s. Expensive car prices = offshore competition from Japan, Korea, and now China. High computer prices brought the tech boom, which brought the development of more efficient chips and factories to build them. Expensive Microsoft products stimulated the development of inexpensive open source software. Expensive tickets from Canadian/Air Canada, and Westjet came onto the scene and cleaned up with their lower prices, bankrupting AC/CP in the process.

Its really no different for housing.

[jmc0]

('Year' 'New-listings' 'Sold' 'Average-sale-price')
'08 3,377 1,363 $474,564
'07 3,100 2,086 $474,250
'06 2,197 2,040 $388,585
'05 2,503 1,986 $284,239
'04 2,548 1,633 $251,052
'03 2,323 1,483 $235,036
'02 2,087 1,716 $219,401
'01 1,989 1,372 $199,372
'00 2,022 1,152 $196,796
'99 1,989 1,387 $182,627

Housing prices in calgary will not go down much (if any); still be $400k+

[pitz]

Housing prices in calgary will not go down much (if any); still be $400k+

The data quoted is not true 'supply and demand' data, but why won't houses in Calgary revert to to a level at, or below their intrinsic cost of construction? That's what usually happens when there's a surplus in any commodity or consumer good, the price drops below that of the cost of production. And builders don't stop building until their cash costs exceed their cash revenues, to wit: until they are insolvent, even if they are taking accounting losses on each unit delivered.

Lumber prices have dropped to levels not seen since 2000. The industry is geared up and able to build houses very efficiently. Prices on all sorts of building supplies are in free-fall. The workers cost a little bit more, and the pickups are more expensive to gas up, but what makes a house in Calgary twice as expensive as one in Houston?

[zoober]

Housing prices in calgary will not go down much (if any); still be $400k+

Prices dropped in Edmonton by over 30k, almost 10%.

What's protecting Calgary?

[rf134a]

What's protecting Calgary is this "aura" of being a nicer city than Edmonton. The job prospects are just as good in either city with no shortage of good jobs in sight.

The days of Calgarians splurging on random stupid things like slipping the bouncer $1000 at Cowboy's to skip the line are over. I hope the new Bentley, Rolls Royce, Maserati & Ferrari dealership doesn't implode before it opens. But I reckon if you can afford those cars, a 10% drop in the price of your house is irrelevant.

[nalababe]

Supply and demand...simple.

As long as people are moving to the city and want to live in a particular area, prices will increase. If desirable enough, weakness will be filled by the next tier who were just outpriced.

Don't know if that applies in Calgary, but here in Leaside, there is no slowing down the juggernaught.....

...sadly the only way to benefit is to move...and we just don't want to (so we are tied to our semi forever).

[nalababe]

Housing prices in calgary will not go down much (if any); still be $400k+

but how many of the house in more recent times are bigger and would justify the increase in price? What is the relationship between sqft and price?

[dealguy2]

Ok let's sumarize here. Sales in Calgary are down. The number of homes for sale is at a record high. This ALWAYS means that prices are going DOWN. Read up on how the US housing market collapsed. It has started here.

[pitz]

Yeah average income in Calgary per family is what, $70k? Take a third of that for various levels of taxes and user fees, $6-7k/year for utilities/property taxes, and another $24k for living expenses, and the actual income available for a Calgary family to service a debt is only around $16k.

That only sustains an average price of $275k at best. Which still gives the builder of a typical Calgary home a decent profit.

Despite what most easterners think, not many Calgarians actually work directly for oil and gas firms, and not many receive stock options or even have substantial investments in oil shares. For every rich accountant, engineer, businessman you hear about from Calgary, there's at least a couple dozen people toiling away in $12/hour dead-end service industry jobs.

[rf134a]

Well pitz, you are correct. The only reason the prices have jumped so much is because of Easterners selling their $500k houses and then paying cash for what was a $300k house in AB. They have now bid up the prices up to higher than GTA prices. The price will collapse will happen when the Easterners go home in droves. It's a small migration but nothing significant.

[pitz]

yeah rf134a, one of my former employers in Calgary decided, on a whim, to pack up and ship its operations and its key employees to Atlanta, Georgia (the rest were laid off). Far less expensive to do business, and the employees could live like kings on the same salary compared to the paycheck-to-paycheck living in Calgary.

Intuit (makers of the QuickTax software package) also did the same thing out of Edmonton. Packed the whole operation up, and sent it to Mississauga. The list of companies doing this is growing.

[Justin]

yeah rf134a, one of my former employers in Calgary decided, on a whim, to pack up and ship its operations and its key employees to Atlanta, Georgia (the rest were laid off). Far less expensive to do business, and the employees could live like kings on the same salary compared to the paycheck-to-paycheck living in Calgary.

Intuit (makers of the QuickTax software package) also did the same thing out of Edmonton. Packed the whole operation up, and sent it to Mississauga. The list of companies doing this is growing.

You can add Dell to that list. Dell closed up their large office in Edmonton due to that higher costs compared to other locations.

[hagbard]

Hopefully this will put the brakes on Albertans coming to Victoria pushing the market up here. But then, I'm leaving anyway (to Ontario).

[Grassgreen]

Well pitz, you are correct. The only reason the prices have jumped so much is because of Easterners selling their $500k houses and then paying cash for what was a $300k house in AB. They have now bid up the prices up to higher than GTA prices. The price will collapse will happen when the Easterners go home in droves. It's a small migration but nothing significant.

This is exactly what drove Saskatchewan housing prices last few years too...

[zoober]

Speculation drove the boom in the prairies. Drive by any condo complex or new suburb and you'll see that at least 10% of all new homes are empty and trying to be dumped right now. If not for all the flippers, prices would have probably peaked in 2006.

[dealguy2]

Hopefully this will put the brakes on Albertans coming to Victoria pushing the market up here. But then, I'm leaving anyway (to Ontario).

I would say Victoria and Vancouver are both in for a rough ride. Victoria's way beyond the fundamentals. Barely anyone can afford to buy even the most delapidated home here. Add to the lack of affordability (code word for lack of buyers) the fact that the forest industry is basically done in BC and you've got an even more "perfect storm".

[jmc0]

Yeah average income in Calgary per family is what, $70k? Take a third of that for various levels of taxes and user fees, $6-7k/year for utilities/property taxes, and another $24k for living expenses, and the actual income available for a Calgary family to service a debt is only around $16k.

That only sustains an average price of $275k at best. Which still gives the builder of a typical Calgary home a decent profit.

Despite what most easterners think, not many Calgarians actually work directly for oil and gas firms, and not many receive stock options or even have substantial investments in oil shares. For every rich accountant, engineer, businessman you hear about from Calgary, there's at least a couple dozen people toiling away in $12/hour dead-end service industry jobs.
The number quoted was from the OP's link. And according to CBC http://www.cbc.ca/money/story/2008/05/05/incomefamily.html
"Alberta families had the highest median after-tax income in Canada in 2006 at $70,500, marking the third straight year that the province led the country, Statistics Canada said ..." (whatever after-tax income means).

To get from $475k back down to $400k requires more than 15% drop ($75k). Also, I can't see it going back to 2005 level [$284k]. That's just my personal take on it; I think most of the seller are not willing to sell for cheap, otherwise there would already be a big price drop...

[pitz]

To get from $475k back down to $400k requires more than 15% drop ($75k). Also, I can't see it going back to 2005 level [$284k]. That's just my personal take on it; I think most of the seller are not willing to sell for cheap, otherwise there would already be a big price drop...


The 'sellers' don't have to sell. The builders just need to keep building (and construction prices are falling, lumber, for instance, is back to 2000 levels). Eventually they'll flood the market. Maybe the excess income of Calgarians will allow them to take more trips and enjoy the finer things in life, but there's no stopping price declines once they take hold in an area that is structrually overbuilt relative to the demand.

$1k per person per month for living expenses, IMHO, is quite on the low side. Lots of people put half of that into a car payment alone. So yes, my analysis is flawed and not 100% accurate, but $2k/month per person is a much more representative figure of what it costs the average person to live in Calgary. And a 'household' is, on average, somewhere between 2 and 3 people.