Calgary Leads Nation In Sales Decline

In an article on reportonbusiness.com, it appears that Calgary leads the nation in new listings (along with Western Canada) and also sales declines.

“By contrast new listings soared to their highest recorded level at 154,217 units in the first quarter, led by Calgary, Edmonton and Vancouver.”

…

“On a year-over-year basis, sales volumes fell in 16 of the 18 major markets for which data was available, led by a 35.9 per cent drop in Calgary and a 29.8 per cent decline in Edmonton.”

Most bullish specuvestors and the real estate “value” chain will pump many reasons for buying. Alberta’s infallible natural resources based economy is the most commonly used ”empty” validation for entering into a lifetime of debt. If Alberta’s economy is hyped to be the most vibrant and strong, then why are sales volumes the worst in Canada?

When will people understand the key principle in a marketplace is affordabibilty. It’s no longer about the economy when house prices have risen past the sustainable threshold. The “invisible hand” of the market is slowly proving this fact.

If you still believe in a balanced marketplace, you’re dreaming in technicolor.

A potential scary/sobering reality is that Calgary may become the epicenter for the real estate crash in Canada.

Updated News Articles:
Canada’s Housing Boom “Officially Over”
Just Bought A House? Don’t Read This
Alberta House Price Boom Dying Down
Calgary Home Sales Plummet
Housing Demand Declines In Calgary
Stretched buyers fuel boom in housing
Engine behind the country’s housing boom has been increasingly leveraged first-time buyers
Alberta mortgage debt reaches $60B
Housing woes hitting home

 

  

Color Red For Condo Sales

There is another condominium project starving for potential buyers.

It’s the Colors project by Battistella located on the corner of 1st Street SW and 13th Avenue SW (right beside Chocolate Condos in the Beltline district). Once again, the location is good considering the project is in the inner city. The project is probably months away from completion and appears to be desperate for buyers. The following is a promotion that Battistella is running to spur sales. Needless to say, the promotion is “meaty.” Are these promotions honest elements of a “balanced” marketplace?

 

 

Even when promotions and marketing are rampant for these developments, buyers are retreating at a more staggering pace. Most sellers were anticipating increased sales numbers during the “spring rush.” But with sales volumes so low, what will be the financial outcome?

Condo April 1 – 15 2008: 294, 588 (projected) 30% decrease
Condo April 2007: 839
Condo April 2006: 922

With many more new condo developments hitting the market soon, there is severe trouble ahead. Inventory levels will be astronomical while sales continue to dwindle. Soon many condo developers will have to cannibalize their competition with heavier promotions and price reductions to attract buyers. The cannibalization will extend to the already heavily saturated inventory of resale condos. It will be a fierce race to the bottom.

If you’re a potential condo buyer out there in the Calgary market; the best thing to do is to wait.

Back To The Basics

This past weekend I was enjoying the nice weather when I received a call on my mobile phone. Not recognizing the phone number, I let it go to voicemail.

I checked my voicemail later on during the day and the last person I would ever think to contact me, did. It was the real estate “professional” that I had been talking to in the spring of 2007 when I was browsing some condo units in the city. It was during that time I was researching the market and planning to either purchase or wait on the market. We had not spoken since because of obvious differing market perceptions. As a consumer, I was trying to educate myself on the market while the “professional” was just interested in earning 6%. Our last communication revolved around the individual’s belief that prices would climb forever and I’d miss my chance in entering the market (“forever”). I knew better.

This “professional” left a message indicating that a property that just “came across their desk” and wondered if I was interested. It was a condo in the NW quadrant of the city and the price had been recently reduced by $20,000 as the seller was motivated. Further details revealed the condo was ~800 sq. ft., and now priced at $300,000. It was a “deal” in the opinion of the “professional” because neighboring similar units were $320,000 and $350,000 respectively. No thanks.

What a stark contrast the year 2008 is compared to the boom years of 2006 and 2007. During those years, houses sold themselves with little effort.

Now, sales are plummeting 30%-40% year-over-year.

April sales are plummeting as it looks like we’ll have another consecutive month of dismal sales.

SFH April 1-13 2008: 569, 1313 (projected)
SFH April 2007: 2086
SFH April 2006: 2040

Condo April 1- 13 2008: 258, 595 (projected)
Condo April 2007: 839
Condo April 2006: 922

There are approximately 5700+ real estate “professionals” in the Calgary area. With commissions being paid only on sales of properties, many of these “professionals” are not making any money.

To generate sales, some of them are forced to go back to the basics. This may include generating sales leads by implementing cold call tactics. In addition, it would be interesting to see the marketing budget for the DDS these days. On some Calgary radio stations, every second advertisement concerns real estate.

Afterall, these are all signs of a “normalizing” marketplace.

Family Doctors Priced Out By High Rents

The following news article ran on the front page news of the Calgary Herald this morning. Family physicians are facing tough times in operating their businesses with the high cost of real estate.

“The Calgary Health Region study found the majority of physicians in the poll — 70 per cent of the 137 doctors who reported leasing office space — will be renegotiating their rental contracts by July 2009.

And 46 per cent of those doctors plan to quit their local family practice, retire or move their offices outside the city.

The report concludes that operating a family doctor’s office in Calgary “is not sustainable as significant overhead increases of 30 per cent or more are being reported” thanks to the city’s overheated real estate and labour markets.

Local doctors’ groups said the study is concerning, despite its small sample size, because it reflects the trend of Calgary physicians closing their offices as their income fails to keep pace with growing overhead expenses.”

It appears now that even medical professionals are now feeling the squeeze of Calgary’s overvalued real estate market.

Do you still think that this market at the current values is sustainable?

The answer is evidently, no.

 

Mortgage Payments Eating Up Disposable Income

The novelty idea that Oil and Gas was the underpinning in driving up real estate prices in the boom years is starting to wear off as the euphoria dissipates. Often, people lose sight of the fact that Alberta has always had oil. Why didn’t the boom happen earlier than 2005? The reality is the local real estate market was more driven by the element of post 9/11 free credit/money. It’s interesting to gauge the psychology of the Albertan consumer during the times when the economy is losing steam. The transition from euphoric irrational exuberance to rational exuberance is often difficult.

The preceding graph shows the recent Alberta Consumer Price Index (CPI). To review, CPI is often used as a measuring stick for inflationary pressures. CPI consists of monitoring price fluctuations of a finite collection of products and services. As you can see in the graph, Alberta’s CPI is at a 16 month low. The full economic update can be read here. So in layman’s terms, products and services are cheaper now as compared to the past year. As a result, a consumer in the “world’s hottest economy,” spending and consumption should be higher.

It’s interesting to note that the exact opposite is happening. Alberta lags behind in retail sales growth.

The disappearance of home buyers is already evident in the marketplace but it appears that alot of consumers are spending less. How is this possible? “We have oil.”

One thing to consider is that alot of frenzied home buyers who were swept up in the hype machine over the last two years are now becoming clearly overextended. Disposable income may no longer be disposable. In Calgary, mortgages for standard two-story homes evaporate 45.5% of household pretax income. In addition, maybe the invisible well of equity has been frequented too many times and is now dry?

Eating ramen off granite countertops does not make it taste better nor improve quality of life. There are definitely some opportunity costs with purchasing a home during the boom.