Calgary's real estate future: questions and answers

The Calgary real estate market is in flux.

There have been recent warnings of a market correction, and now word that building permits on single-family and two-family homes fell 37.1 per cent in 2015.

Even with the recent downturn, buying a detached house in Calgary is still expensive. The average price last month was $526,758, according to the Calgary Real Estate Board.

For most in the city, their home is their single biggest investment and the one which matters most.

But whether you own a home or are considering buying or selling a home, recent market fluctuations and trying to figure out what comes next can be confusing.

Don Campbell is the senior analyst with the Real Estate Investment Network, and author of many books on buy and selling property — or as he puts it on his website, outlining "cyclically sensible" actions to take in any market conditions.

We asked Campbell his thoughts about where Calgary's market is headed.

Q: When we see a dramatic drop in single family housing permits like this, what does it tell you about the market? Who wins? Who loses?

Calgary home builders have traditionally responded to market shifts more quickly than in many other major centres in Canada. This has protected the impact of dramatic oversupply that other cities experience when economies, and thus housing demand, slow.

Also within these numbers, it is important to note that a shift towards larger multi-family demand, due to demographic shifts, affordability and access to somewhat convenient transit options has moved demand away from the more sprawling single-family homes.

These numbers also hide a sad fact that is not being discussed much and that is the loss of the many construction-specific jobs, as well as decrease in retail sales that occur when fewer new homes are purchased. The negative ripple is on top of the already high-profile layoffs in the oil and gas industry.

We do not see a quick rebound coming in these single-family home permits in 2016. 

Q: There's recently been a lot of talk of a real estate correction in Calgary. Who who should be most concerned? Condo owners? Detached-house owners?

A: The largest negative shift in both true value and percentage will be initially at the top end of the market, given the major slowdown in the profitability of many of Calgary's major companies. However, there is also a potential for an over-supply situation being generated in the Calgary new condo market.

Sure, most of them were bought before the construction even began, but traditionally in market downturns, new build condos get listed for sale by those speculators who bought on pre-build contracts.

Then basic real estate math begins to set in as it only takes one or two very motivated sellers who sell their properties at a deep discount to drop the "comparables" price in the whole building.

Q: How would we know if we were headed towards another 1982 in Calgary (i.e. a deep, deep correction)?

Today's market conditions are quite different to the 1982 market.

Unlike back then, interest rates are very low, the city is much larger, the economy of the city is more diverse (although not as diverse as other cities in the country) and the in-migration and population growth continued into last year. These have helped to protect the market more than in 1982.

However, we cannot discount the impact of the lack of pipelines to move our major product to our major current and future customers.

We can also not ignore the policies being created by the new provincial and federal governments that negatively impact the Alberta economy at the exact wrong time, which have pushed most major private capital investment to the sidelines, thus increasing the downturn.

Q: Housing corrections are tied to economic conditions, but economic conditions here are unstable at the moment. Can fear of a collapse itself cause a collapse?

The housing market is never as day-to-day volatile as a stock market, where one new item can shave a full percentage point or more off the value of the TSX index.

It is true that the housing market is directly affected by the psychology of the market; however, the market is so large and transactions move so slowly that it is not as strong as a factor until the market begins a strong slide. That is when it can really become self-fulfilling as sellers begin to compete on price and buyers stay on the sidelines.

Q: For people who may own more than one property here, such as revenue property, what advice do you have? Sell? Hold?

True strategic investors never try to time a real estate market, they are all about yield and cash-flow.

Most investors that I know in Calgary are ramping up their marketing budgets with the goal of keeping their customers (renters) happy and not willing to move.

Strategic investors always build buffers into their monthly and annual budgets for vacancies; however, a lot of first time investors who don't treat investment real estate like the business it is will get caught in this slowdown and have the good potential of becoming "motivated sellers" rather than pro-active landlords.

Values will be slipping this year for sure in some segments of the market (as they inevitably do in Calgary) and if an investor doesn't have the stomach for the value volatility they shouldn't be in the market.

Q: If the price of oil continues to remain low, what expectations do you have for the Calgary market in 2016.

If oil stays at these low rates, the housing market will suffer from a lack of buyers willing to pay at or near asking price, thus driving average sale prices down.

There will still be some strength in certain segments of the market (lower range), but with a drop in demand on the high end of the market average will be begin to drop, giving the headline writers a field day, which could then change the psychology of the market to strongly negative in mid-year.

Q: How should Calgarians react to headlines that seem to forecast doom and gloom?

They had better be paying attention to the reality of the situation as they are in the midst of a global supply and geopolitical issue that has been acerbated by new policy and lack of clarity from provincial and federal political leaders.

2016 is slated to be a difficult year on many levels in the city but, like the many previous economic storms that have hit this city in the past, Calgarians have the ingenuity and strength to navigate through it.

Real estate values have increased a very high percentage over the last decade (with a short blip during the recession) and many have built in an equity buffer.

That doesn't mean much if a person must sell their home because of change of job situation, but for those who don't have to sell and plan to stay in the city for many years, they should focus on what they can control and build a financial buffer.

© http://www.cbc.ca/news/canada/calgary/calgary-real-estate-outlook-campbell-1.3450846