A Comparison of Calgary House Prices to the US Real Estate Market February 27, 2008
Posted by radley77 in Calgary real estate, US real estate.Tags: Calgary real estate market, US real estate market
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A couple of conclusions can be reached by examining Calgary real estate prices to the US real estate market:
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The Calgary real estate boom occurred 1 to 2 years after the US boom
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Calgary house prices have increased by more than most American cities
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The precipitous drop in Calgary real estate in late 2007 is comparable to some of the most overheated markets in the US
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American cities that had ’sharp’ appreciation are now experiencing ’sharp’ depreciation
A graph of Calgary and American real estate prices is below:
It’s a pretty graph, but a little lacking in something to back it up. The drop in Calgary real estate in late 2007 also lines up with a chart for the tides in Vancouver, but that doesn’t mean they’re related.
The prices in Calgary had experienced a change for a very different set of reasons than major American cities, and experience very different fundamentals. There is lots of data to support that.
I’m not saying you’re wrong to suggest that the US housing market’s drop is influencing Calgary house prices. I am saying that dropping a graph out there with no other information is a little useless and/or misleading.
Radley, interesting graph.
Chris, I don’t read the graph as showing a relationship between cities, but rather showing how cities that have exponential price growth tend to correct.
All US cities appreciated for different local economic reasons, however, some factors are the same: easy money chasing real estate, easy loans, speculative excitement. Idea that “RE only goes up” and “They’re not making any more land”.
Alberta has the oil boom, California had the google/apple boom, Boston had the bio-tech boom ect… All had easy money and speculative excess pouring into the RE markets.
If anything, Calgary has fundamentals in place to be an affordable city, relative to much higher density cities like San Diego and Miami. Hence, I expect the new builders to lead the prices down, as they will continue to build (adding supply) as long as the margins are there. Just like those other cities.
I agree with Chris, there isn’t much to back up this graph, and in fact the Calgary prices have dropped for very different reasons.
having been a realtor for more than 25 years , i always find it interesting when we come out of a hot sellers market. the doomers appear!
nothing goes up forever but canada is well positioned economically for the future. the press mostly missed the incredible budget change that Harper brought out last fall, dropping corporate rates to 15% going forward …basically following the Irish model. this will create a huge number of jobs for canadians, as companikes from around the world will open in canada. people go where the jobs are. overall the western canadian economy is sound and has a bright future.
vancouver prices topped in 1993, dropped about 30% and sat flat til 2002. they have now doubled and CMHC is projecting an increase of 5% this year. we saw a 12% last year. i believe this is healthy for the market.
Maggie,
Why has inter-provincial migration gone negative in Alberta, which still has the best economy and greatest labour shortage in Canada?
I believe the reason is housing costs (affordability). I am slowly coming to the opinion that Calgary has priced itself out of migration to fill the labour gap. So there will continue to be many jobs here, it’s just that they won’t be filled. Look at how many small business are suffering in Alberta due to lack of labour.
Calgary is one of the most expensive cities to live in now, and most potential migrants would argue that moving here is not worth the trade off. Meanwhile supply continues to expand as new communities and new condos are built. We face a classic inflection point in the market, where the likely result is a long period of slowly declining prices to a point where it makes sense once again to move here.
This is why you see increasing inventories and slow sales vs the same period in 2006 and 2007.
When it takes an income of $150,000 per year to afford a basic, sub-par, low quality home in Calgary, you can bet that many will continue to stay away.
Interest rates cause house prices to rise and fall on a macro level. The Bank of Canada and Federal Reserve have interest rates that track each other for the most part.
Secondly, 89% of our international exports, and oil and gas accounts for a majority of it, go to the United States. Therefore, are economies are linked to each other. Maybe, moreso than Miami and Los Angeles.
CMHC has introduced starting in 2006, a pilot 30 year mortgage product, which then grew to the 35 and 40 year mortgage products. Then they introduced interest only mortgages, and 0% downpayment, and then extended it to ‘investors.’
Subprime content in Canada is 5% vs. 20% in the United States.
The point of the graph was not to say that we have the same fate as the United States as some seem to have inferred. There are a lot of heterogeneities between all the markets (hence the title they are ALL unique in some sense) in the United States and Canada.
For all those American cities that experienced massive runups, the key factors were large amounts of new demand, strong economies, strong migration and low mortgage rates combined with ‘financial innovation.’
I was hoping that people would point out the differences between some of the markets rather than simply saying we are not the same.
Just by looking at the house prices, it seems irrational that a lot of these places house prices more than doubled. Obviously the economy, rent, and household income did not increase to the same extent, not dissimilar to what happened in Alberta. And it comes as no suprise that house prices are now falling to a valuation that is more rational.
I agree with Chris, there isn’t much to back up this graph, and in fact the Calgary prices have dropped for very different reasons.
Baloney. The prices are dropping in all the cities for the very same reason – price/rent and price/income greatly exceeding historic equilibrium values. Everything else is just details.
BTW radley, are the Calgary data points converted to USD for the comparison or just normalized against the 2000 CAD price (i.e. was the CAD price at the peak 2.6 times the CAD price in 2000, or was the USD price at the peak 2.6 times the USD price in 2000)? Great graph.
Having just moved here from the UK, perhaps I should give my perspective, especially since prices in the UK have been rising since the early 90s. Based on my experience in the UK I believe that there is still opportunity for positive growth in prices here. The UK property market is only just starting to max out and when you consider that wages are lower in the suburbs of London compared to Calgary prices could continue to rise here. Cost of living is lower and people have more disposable income. Mortgage to income ratios in the UK often hit 6x, I dont believe that this is the case in Calgary….yet. So, there is still room for growth, as long as the Banks keep lending.
Just one problem with your argument – there is probably more land available for development in Calgary right now (never mind in the future) than in the entire UK.
Supply matters just as much as demand.
This is a great graph. IMO it is wrong to believe that the factors affecting Calgary’s housing boom were different then Vancouver or Victoria or the US. The housing boom was all over the world; it was in Spain, Italy, Ireland, the US, England… and it occured at the same time everywhere. This isn’t coincidence.
What ties each of these very different economies together is the access they had to the global pool of credit. The housing boom coincided with the creation of new credit instruments that brought new buyers into the market who previously would not have been able to get approved for a mortgage. This resulted in a mismatch of supply and demand. In housing, supply is inelastic in the short-term, so when demand outstrips supply prices must increase. And they did.
Was this exacerbated by the boom in the oil-patch? Sure. Just as it was exacerbated in Vancouver by the mining and forestry boom. Or in Victoria by the movement of retirees. Or now saskatchewan by the boom in farming and oil. But those are catalysts, not the cause.
I’m glad a couple people agree with me; some good discussion. C, I spent some time living in the UK, and there’s a lot Canada can learn from other countries. Internationally speaking, we’re still very affordable and have a great deal fo potential in relative terms.
Look;
Affordabilility expressed in outright comparisons to other over populated, and overpriced markets is a falsehood.
Afforability as an expression of people paying what they are forced to pay in an over evaluated hoarded market is a flawed value statement.
Affordability to me is the ability of a working person to secure an fundamentally necessary item at a reasonble cost as measured by the percentage of take home income.
I believe that at least for first time buyers with little or no equity we have lost affordability in Calgary.
Afforability as an expression of people paying what they are forced to pay
Not “forced to pay”, but choose to pay. Nobody has to buy a house.
Which is exactly why prices have to come down if they are unaffordable.
patriotz;
Of course you are right; no one is forced in so far as having a gun put to their head.
They can rent, move to another location, find a comfortable box to live in …
All of the above are options but sometimes not good options. The point is that to some degree speculation has driven prices up in this market. That in no way makes for an affordable market. There will always be people that hold their nose and pay what they need to to get into a home. That doesn’t mean it’s affordable. When the ability of people to seek other options is lower than the ability of title holders to keep inflated priced property on the market, prices may not come down as much as they should.
Hopefully this market hasn’t fully corrected yet, I suspect the entry level market will have to cut prices deeply before we return to any kind of affordability.
Just my opinion of course.
Why did C move to Calgary?
If it is for affordability reasons, then the argument that we have room to grow just lost all air.
I didnt move to Calgary for affordability reasons. For a better way of life, to sample a new country and culture, to get away from an over crowded island and because you only live once. If house prices in calgary go up good, if prices go down – oh well never mind…..
I would agree the cities in US that had significant booms are those with trouble now. Hardest hit areas are the upper level luxury homes in California, Arizonia, SW Florida and economic hit Detroit.
If I were starting out again and had to pay these stupid prices I simply would not. Todays prices are a joke, if you factor in what you ACTUALLY pay for a house by the time the mortgage is done it is simply insane.
The hype about RE always apreciating is a bold faced lie. And the arguement about high building costs is more bull. Lumber mills are closing because the price has dropped drasticaly.
Someone should start a class action lawsuit against these RE shills and their endless spin
Here’s my perspective. Everybody I talk to that owns a home in Calgary believes house prices are going to stay about the same and if they do drop…they won’t drop much because of the oil economy. Everybody I talk to that doesn’t own a home believes that the house prices are going to crash back down to “normal” prices….I think these same people are just pissed off that they didn’t jump into the market sooner. I came in October 2005 and people were telling me I was nuts to buy a home….since then house prices still went up another 50%. These same people are now pissed off that they were wrong and now the market is so high they can’t afford to buy in. If you look at the housing affordibility index in Calgary and compare it to other cities, Calgary RE is not that high. The fact of the matter is that incomes are high in Calgary and the price of Oil is over $100…house prices aren’t going anywhere. House prices in the States are going down for another reason. If house prices go down they will do so in the East first due to the economy….and then people in the east will move to Calgary to get jobs which will keep pressure on the housing market to stay high. When the Oil economy starts to suffer and those overpaid big wigs start to lose their jobs, then I will start to worry. Until then, if you want a cheap home…move to Newfoundland.
Calgary housing market is a bigger bubble that the US and is much
more dangerous.
These next few months are going to determine which way the market will swing. If the pick up of the summer months are not what are expected(which I am partial to believe) then its safe to say the seller will have to drop there prices to sell their home thereby forcing the new home prices to drop as the used market puts pressure on the new. In the end of the day it comes to down to supply and demand. Just because we live in rather rich province it does not mean we all have the means to afford homes. Look at the average income per family and the average selling price for a home. Basically the market has out priced itself from what an average family can afford. In addition, its a self fulfilling prophecy. People are now anxiously waiting for the market to fall, so those who have caught the buzz are waiting to buy in or move up. Relative to the UK the calgary market is still more affordable but that does not matter, its the masses view of affordability that matters. From a macro view with the weakness in the usa’s market we have seen weakness in the manufacturing sector in Ontario which will also create weakness in Alberta’s economy..just the same as if the lumber market for any reason gets hit in BC, it has a rippling affect that will hurt our provincial economy in turn. Once that ripple affect is felt provincial wide, much of the catalyst for the boom “the mighty oil and gas” will be hit, layoffs, companies pulling their investment out. The economics will show to what extent. Probably not huge, however, enough for the market to lose steam. In the end its not a matter of whether the market is heading for downturn or not, its a matter of waiting to see how hard we are going to be hit.