Calgary real estate

What will happen to Calgary Real Estate in 2008?

"Do You know the 5 Most

Dangerous Issues in Calgary, When Buying

or Selling Your Next Home?"

If you're looking to buy or sell your Calgary home in 2008, you need to be aware of certain issues facing the Calgary Economy.

When you are armed with education and information, you can be confident in knowing how much to ask for your house (if selling) or how much you should be paying (if buying). I am going to focus my attention on 2 factors that affect Real Estate- Supply and Demand.

#1 Low Gas Prices are forcing many small and junior oil & gas companies to lay off employees.   (Demand factor)

In past 45 days, I've already seen 3 small gas companies lay off between 25-40 employees each (right before Christmas).

FACTS

Drilling activity in Alberta, according to the September 2007 Alberta Energy and Utilities Board (EUB) were:

Capable Wells (in September 2007)

Total Oil- 65,184

(Crude, light, medium, heavy, bitumen)

Total Gas- 130,266

(Gas, Coalbed Methane)

Service Wells- 10,690

(Water Disposal, Water Injection, Gas Injection)

Total Gas wells out number oil wells almost 2:1. Oil is at an all time high, but Gas prices have come off significantly and this is a driving factor for layoffs.

One other statistic that should be noted, in January 2007 there where 1,115 successful gas wells, and in September 2007 only 737 (a 33.9% drop).

These stats are not here to scare you, but keep you informed as to what the demand in 2008 will be in Calgary.

My thoughts: Unless the US has a very cold winter or unusually hot summer, I would not expect gas prices to rebound for at least a year. So there may be more lay offs and thus less demand for Calgary Real Estate

#2   Calgary real estate investors or Speculators have flooded the market with houses they can't afford. (Supply)

If you've read the papers or listened to the news lately- seems like everyone os taking about the median or average house price falling by 5%, 8% or even 12%. What are the facts?

FACTS:

According to the Calgary Real Estate Board October 2007 MLS Statistics:

Month End Inventory- 11,188

New Lisitngs Added-    4,913

Sales (houses sold)-   2,042

Average Sale Price-    $430,828

Median Price-             $380,500

In July of 2007 (the Peak of Calgary's Market)

Month End Inventory- 8,972

Sales-                        2,677

Average Sale Price-    $447,271

Median Price-             $392,000

From the data it is evident that more supply on the market is driving prices down (the median is off -2.99% and the average is off -3.70%).

My Thoughts: In reality, this could be viewed a slight check and balance in the market. Every year at this time, there is an increase in listings as a result in a decrease demand to buy in the winter months.

Yet, it should be noted, that with a supply of over 11,000 listings there is in excess of 5 months supply on the market. This means, with current buying activity, and no new houses added to the inventory, Calgary has more than 5 months stock (a healthy market is 2-3.5 months supply). Calgary has not been in as unbalanced a market since before 2002.

I believe 25-35%* of this over supply is due to speculators who jumped into the Calgary market to late. Many built new homes or condos, with no intention to live in them- just to flip, for a quick $40,000.

*I came up with the 25-35% based on the number of vacant houses on the market as of October statistics in 2007.

#3   How high can Calgary prices move and still be affordable? (Demand)

Prices have moved up over 45% in the past 2 years.  Look at only the fundamentals of real estate, and ask yourself if the average salary has moved up 45% in the past 2 years? The answer is no.

To accommodate these huge jumps in the market, the government along with CMHC has allowed for 40 and 50 year amortizations, 0 down mortgages, HELOC's (home equity lines of credit) to encourage further consumer spending and speculating.

My Thoughts: I'm not all doom and gloom on the way prices have moved up, but I will say that if we are not careful, Calgarians will be in a similar situation as our neighbors to the south. Careless spending and buying homes that we have to amortize over 50 years, with no down payments- it's a recipe for foreclosures and a bubble market.

#4   How will the high Canadian $ affect Calgary (and Canada as a whole)? (Demand)

Canadian $= USA $ Good for Canadians or bad?

I won't get into a whole economic debate as to whether a high Canadian dollar is good or bad (be it short term or long term). I will only comment on what I see and what is a current concern for Calgarians.

i)  The US imports roughly 50% of our oil and gas. This means that with a weakened dollar, they have a much higher cost to import our resources. This could lower the demand from the US on our oil and gas.

ii) Assuming that demand stays the same, with our Canadian $ so high, companies located in Alberta like a low dollar- oil and gas are priced in US dollars. So if a Can$ is worth .85 of a US$, and the world pays $90.00/barrel, then Canadians get $105.88/barrel in Canadian $.

My Thoughts: As long as the US economy is under water, then our dollar will remain high. This will force our economy to become more effective and efficient at manufacturing, distribution, production etc.

The one positive for Albertans- with manufacturing layoffs in Ontario, we could expect to see an in migration into Alberta with Ontario folks looking for employment. Possible increase in demand- so long as there are jobs.

#5   How will the Royalty Review affect the Oil and Gas Industry in Alberta? (Demand)

Here is a very con traversal topic.  I will tell you what I have learned from speaking with different CEO's of some of the major oil companies in Calgary, along with different Commercial Realtor's and Investors who are tuned into the Calgary economy.

There is an overwhelming sentiment that the Royalty Review will affect the amount of marginal work done here in Alberta. If a company has the choice to invest its resources in Saskatchewan or British Columbia or worldwide vs Alberta- they may pass on Alberta investments that where once marginal at best. When you consider the low gas prices, and the increased Royalties, the combination is looking grim for Alberta in the short term.

What all this Information means…

Short Term- If you are looking to Buy, then you should be prepared to i) hold the property for a long period of time or ii) make sure you find a motivated seller to get the best possible price.

I am predicting that the spring will have a large spike in proprieties again. In the past 2 months (November and December '07) we've seen a significant decrease in listings (a decrease of almost 4,000). This is due to less houses being listed and many expired listings taken off the market.

In talking with numerous sellers who have taken their house off the market, they believe that the spring will a good time to relist. If too many people all have the same idea, you can bet a spike in listings, coupled with a decrease in demand for homes will put downward pressure on prices (good for buyers).

Long Term- If you are buying with the intention of staying here a long time, then I suggest finding a house you really like and want to live in. Your primary residence should not be viewed as an investment (although it is for many people). You need a place to live and so I recommend looking for a home in a great community that you will happy living in for years to come.

If You're thinking of Selling- here are my 2-bits:

i)   Why are you selling? Is to release equity to buy anther place in Calgary

ii)  What are your options? Could you rent it out and break even right know (maybe hold on to it for a few years and wait fro the market to appreciate 5-8%.

iii)  How will you sell it? Are you confident that you can sell it yourself, or are you going to enlist the help of a Realtor.

If you would like any more information or would like to comment on my site- please email me at shane@strategic-home-buying.com or call me at 214-1884.

Some of the facts that I used here can be interpreted numerous ways, depending on what side of the fence you are on. My inferences on what will happen in Calgary are only that- educated guesses. If anyone knew for sure what would happen, I'd love to talk to them (if there is anyone, I'd suspect they also made millions in real estate in the past 2 years).

If you're a buyer or seller who wants to work exclusively with 1 agent, (1 on 1), where you will not get pawned off on an assistant, call me at 214-1884 or email at shane@strategic-home-buying.com. I only work with 2 clients at a time. That's it- 2.

Representing you in a real estate transaction is something I take very seriously and having too many clients at one time reduces the attention I am able to provide to you.

You benefit by having access to me Exclusively, knowing that will be negotiating for you, researching communities, contacting the top Realtors in each area on your behalf (if you are buying or selling, I have lists of the top 3-4 selling and buying Realtors in every community in Calgary).

You might ask why would I limit myself to 2 clients? When I represent only 2 clients, and sell there houses or find a house for a buyer in 25-42 days (on average) I am doing 2 deals every month. The average house is say $400,000 in Calgary and at 3.5% on the first 100,000 and 1.5% on the balance (which is the typical commission structure for most Realtors)- I make $8,000 each transaction X 2/month= $16,000/month.

My costs of doing business are around 25% per deal (advertising, brokerage fees, hiring an Interior designer @ $200/hr, marketing material and so on). So after all that I stand to take home $12,000 by doing 2 deals a month with 2 clients.

In reality I may not do 2 deals every month, but even 1 deal still provides me with a great living.

Why am I telling you this? So see why I can focus on selling or buying for you far above what you might have experienced with Realtors in the past- who have teams of rookies or 30 listings. My goal is to make sure that you are given the utmost attention and service possible- because know my livelihood depends on it.

If I do not perform- you have every right to fire me and move on. I am so confident that you will be overwhelmed by my service that I allow all of my clients the choice to terminate any agreements with me, for whatever reason. You will never be tricked into signing something you are not comfortable with or forced to work with me for a minute longer than you want to. I give you the pre-signed termination agreement.

Okay, enough about my services, I hope you found the information useful and helpful for your unique situation. Please feel free to call me, even if only to ask questions about real estate in Calgary. I really do love talking real estate, and if you've got a question, I'll do my best to help you.

Meanwhile, please take full advantage of the advice posted on this site.

Shane Melanson

Direct Line (403) 214-1884

Email @ shane@strategic-home-buying.com

First Place Realty

918-16 Ave NW

Calgary, Alberta T2M 0K3

P.S. If you're looking for additional information on how to buy or sell, and you can't find it on this site, give me a shout. The number above is my direct office phone, and can be called 24 hours a day, 7 days a week (I return calls between 8:00am and 6:00pm within 3 business hours M-F and the within the same day on weekends).

P.S.S Be sure to send for your free, no-obligation reports (located on my Reports webpage) : if you are looking to sell, ask for my list of real estate sellers mistakes and/or if you are looking to invest ask for my List of 12 Common Buying mistakes.

What will happen to Calgary Real Estate in 2008?

Calgary Statistics