Spring is finally upon us and with 11 days to go before the end of March 2008, it seems that this year’s highly anticipated “spring rush” will be different. Sales are decimated, new listings and overall inventory are ballooning out of control.
From a historical trend, the start of spring has been associated with an increase (frantic, for boom years) in real estate market activity, resulting in skyrocketing prices. Since the snow has melted, the real estate market can carry on (we never got that much snow in Calgary so I don’t know what we can blame the dismal sales on)! Interesting to note, the month of March represented the annual peak in sales activity. So if you’re a seller, you’re highest probability of selling your property is this month. In March 2007, there were 2272 SFH sales and 1026 condo sales. In March 2006, there were 2049 SFH sales and 995 condo sales. The month of March is important as it sets up the market for the next 2-3 months when market activity is the highest during the year.
To get a better idea as to what direction the market will be heading in the near future we can employ simplistic supply-demand economics.
Demand
Sales activity in the Calgary real estate market has been eroding since last year. Sales are down 30%-40%. If demand in March is low, the precedent will be set for the rest of the year.
SFH March 2008 Sales (MTD): 886 / 1601 (projected)
SFH March 2007 Sales: 2272
SFH March 2006 Sales: 2049
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Condo March 2008 Sales (MTD): 350 / 625 (projected)
Condo March 2007 Sales: 1026
Condo March 2006 Sales: 995
In addition, the following news stories which ran in MSM illustrates just how unaffordable Alberta housing is. The super-perma optimistic public sentiment is definitely turning. The once persistent pursuit (hype) of owning a house has been rescinded, as reality sets in. Simply put, buyers are realising that housing is too expensive and not sustainable by current income(s).
- Albertans Less Eager to Buy Homes
- Affordability for housing has dropped to 18 year low,
- Housing Affordability is an Oxymoron
- Resource Boom Can’t Last Forever
- Canada begins tracking U.S. into slump
- Update: Calgary’s Resale Market Suffers Deepest Decline
Supply
Supply levels for both SFH and Condos itself evident. Inventory is at all time record highs so early in the year. It’s scary to anticipate how much inventory will be on the market by the end of 2008. The following statistics do not include other supply sources such as welist.com or comfree, etc.
SFH March 2008 Inventory (MTD): 5691 / 6351 (projected)
SFH March 2007 Inventory: 2340
SFH March 2006 Inventory: 1166
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Condo March 2008 Inventory (MTD): 2685 / 2960 (projected)
Condo March 2007 Inventory: 726
Condo March 2006 Inventory: 1,028
(source: findcalgary.ca)
Price
Prices have remained stagnant since last month. Analyzing prices in these current market conditions would not allow someone to truly understand the market. As mentioned already on other real estate blogs, one reason why SFH prices have stayed stagnant over the past months is due to the tapering of variance in sales mix. The sales mix is evident if we analyze the communities with highest sales activity in Calgary:
Zone A/B Feb 12-Mar 6 Top 5 Communities in Sales:
1. Coventry Hills
2. Tuscany
3. Taradale
4. Martindale
5. Panorama Hills
Zone C/D Feb 12-Mar 6 Top 5 Communities in Sales:
1. Bridlewood
2. Evergreen
3. Cranston
4. McKenzie Lake/McKenzie Town
5. Cranston
(source: creb)
What do all these 10 communities have in common? They are all new communities in Calgary. All these new communities have similar property product line, with mid to upper tier housing units. This confirms that presently, majority of buyers in the Calgary market are moving up, into bigger houses (in newer communities) which cost more money on an overvalued basis. This will keep average and median within a stagnant range.
Economics 101, with lower demand and higher inventory, prices will have to retract to achieve market equilibrium.
With March sales being dismal compared to other years, this sets the stage for the next remaining months of the highly anticipated “spring rush” in Calgary. Every seller in this city has been waiting for this “phenomenon.” If March is any indication as to what is to come then this year’s ”spring rush” will be weak at best. Interesting to note is that demand has returned to almost pre-boom levels. Yet inventory is at all time record highs and asking prices are still way too high. The ball is now in the sellers court. Buyers aren’t buying anymore. The have nothing to lose. With each passing day, their savings accounts grow. On the other hand, the carrying costs for sellers holding multiple mortgages will be a continuing financial burden.
Will this instalment of the “spring rush” prove disappointing for sellers? Where do we go from here? Or will this spring actually be the catalyst for a major price correction in Calgary?
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Calgary is definitely in trouble. I was just driving around Calgary this weekend and was shocked and amazed at how many for sale signs and open houses there were. Just way too many, it doesn’t feel normal.
Prices are stagnant across the board now. Both in Calgary and Edmonton. Its pretty much over now. Sales are down. Spring hype this year is nothing. Bulls will eat crow buffet this year. Everyone got their popcorn?
I have seen this coming for two years, everyone… well almost everyone said the prices will continue to rise because Alberta will be the magnet that will draw workers from all over the world.
Tell me how a person who makes $40/hour will afford a $500,000 house if the interest rates go up like they did in the 80’s? Especially if he can only get 1200 hours a year work like in the 80’s.
Why are they asking so much for a new house when construction material is the cheapest it’s been in 5 years [ other than concrete and copper wire ]
Prices are out of whack by at least 30% if not more. Shell Canada at the Scotford Refinery project is talking about cancelling phase 2 of the upgrader they are currently working on and just pump the bitumen down south. They can’t attract workers to phase 1 because housing costs are just too high.
I have heard that there is a lot of speculators who hold property. Does anyone know any percentages? I have heard 20% but I find that hard to believe.
Dave, I believe the numbers are actually upwards of 30-40%. If you go to findcalgary.ca. you can see the stats for vacant properties – that should give you an idea.
Nice post the numbers look ugly.
By my count that means there would be a 24 month supply (9000 under construction and 3000 for sale) if you use the march sales rate for multi-family. Of course there are far more for sale privately and on comfree, welist, etc.
on the other hand much of the construction supply is presold – isn’t it? any data on that.
Also what are the condo sale #’s by month – is march really that hot?
Just around the corner from my apartment, the lawns up and down the street are covered with new ‘for sale’ signs. So many, that they’re starting to fight for visibility the way postings do on public bulletin boards at any university or at the supermarket.
Those are all condo conversions, probably half of them were bought by speculators. This is going to get really interesting, when the owners realize that they will only be able to partially cover carrying costs for a few years by renting them out. If they can’t ditch them now, they’re guaranteed to bleed slowly for years.
This is such a strong sense of ‘deja vu’, having seen it before in San Francisco 7 years ago. Nouveau Dot-com crash anyone?
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