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“For a Mature Audience Only” – Benjamin Tal on the U.S. and Canadian Housing Market August 30, 2008

Posted by DustinRJay in Calgary real estate.
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9 comments

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Real Estate Economics and Budgeting August 28, 2008

Posted by DustinRJay in Calgary real estate, valuation models.
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4 comments

I think having a budget that you are comfortable with is critical to any investment strategy.  By laying out the cash flows, and expected asset values you can get a feel for various economic parameters such as:

  • Net present value comparison of various strategies
  • Rate of return
  • Sensitivity to various economic parameters such as interest rates and inflation
  • Affordability or liquidity risks

I put together a budget of various shelter scenarios:

  • Renting
  • Renting and Investing the Difference
  • Buying
  • Investing

I hope you find this budget useful as I believe having a well laid out plan is extremely important.  Having a solid budget in place will create long term value for investors and create a successful financial environment for your family.

I strongly encourage people to come up with their own budgets, and perform due diligence before making any investment decision.

The budget excel spreadsheets that I came up with are here:

( Budget – Office 2000 version \ Budget -Office 2007 version )

The Long View August 25, 2008

Posted by DustinRJay in Uncategorized.
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13 comments

The following graph shows the average house prices from 1973 to current.  For most of the graphs on this blog it has shown Calgary real estate from an inflation adjusted perspective.  If one was to consider inflation however, it can be seen that buying real estate can be helpful as a hedge against inflation.

There are better times to buy than others, however I believe that for the average person that bought at the peak in 1983 or 1990 with a 25 year horizon that they are still probably very happy with their decision.

What do you think?

Data Source: CREB, Bob Truman – First Place Realty

A Tale of Two Markets August 23, 2008

Posted by DustinRJay in Calgary real estate, supply and demand.
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3 comments

A split has occurred in regards to the single family home and multi family home construction environment.  The following article address the differences in supply-side characteristics for each market.

Calgary single family home market:

  • Correction in starts largely historical, capacity to overbuild looks minimal, last couple data points may point to a bottom approaching as housing construction returns to historical rates, orderly unwinding likely

Calgary multi family home market:

  • Construction has continued unabated, capacity to overbuild in place, projects such as Gateway Midtown being suspended point to major trouble signs ahead, long way to drop for construction starts to return to historical rates, disorderly unwinding possible

Ye Olde Real Estate Vintage August 19, 2008

Posted by DustinRJay in Calgary real estate.
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2 comments

Bob Truman, at First Place Realty, is one of the sole providers of real estate information and statistics in Calgary besides the CREB.  I use a lot of Bob’s data in my graphs, so he deserves a big shout-out for making this information available to the public!

He recently posted the Truman Index for same sales pairs in Calgary.  This is similar to the Case-Shiller Index which uses the repeat sales technique to evaluate the housing market.

The following is a graph comparison of the change in:

  • Truman Index
  • Average Price of SFH in Calgary
  • Median Price of SFH in Calgary

Some of the primary points this graph makes are:

  • Lots of spread in market value can create opportunities and risk as properties may be bought and resold for a gain or loss of +/- $80,000
  • Value of a good REALTOR can add $40,000 of value per transaction, alternatively a poor REALTOR can cost you $40,000 of value per transaction
  • Some flippers still appear to be making good money even in a market with high inventory
  • Truman index seems to fit well with older vintage SFH average and median data but poorly with more recent sales.  This may be due to changes in real estate market mix, recent profitable flippers skewing the trend or loss aversion.
  • The majority of sales in 2006 and 2007 are still “in the black” as a total of 67% were resold at or greater than the previous sale price.
  • A good deal on a purchase and sale may be worth the same value as perfectly timing the market
  • Pulling the title and using a vintaging methodology can be another tool for assessing value

Note:

  1. Same sales pair data was from sales during the period August 1 – 14, 2008
  2. I apologize in advance for the “busy” graph.

Greenomics and the Value of Living Close to Work August 17, 2008

Posted by DustinRJay in Calgary real estate, commute.
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11 comments

I perceive a lot of value in living in downtown Calgary.  I love the quick access to Flames games at the Saddledome, downtown nightlife, shopping on 17th Avenue, and jogging along the river pathways.  Since recently moving, I have found myself walking to work and my vehicle has sat parked, except for weekend hikes.

My commute time is much shorter and my transportation costs have dropped dramatically.  For those that are considering living in the inner city vs. the suburbs I came up with an estimate of the value placed on living in close proximity to your workplace.

I considered various factors that would change if one eliminated the use of one vehicle in their household as a result of living downtown.  These include:

  • Fuel costs
  • Vehicle replacement costs
  • Insurance costs
  • Maintenance costs
  • Parking costs
  • Value one places on a shorter commute time
  • Carbon footprint

The value I place simply on living close to work over the course of 25 years is about $250,000 at a discount rate of 7%.  Also, it would result in having an extra 163 days of life not stuck in traffic over 25 years.  Furthermore, over the span of 25 years, my carbon footprint would be reduced by 76,700 kgs. ¡Qué bueno!

By doing this exercise I also found that fuel costs are relatively small in comparison to the other costs associated with owning a vehicle.  I believe that fuel costs are still much too small to encourage large fuel-efficiency improvements.

You can access the spreadsheet here and tailor it to your unique situation:

Spreadsheet Office 97-2003 version

Spreadsheet Office 2007 version

Things that go BOOM! August 9, 2008

Posted by DustinRJay in Calgary real estate, stock market.
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8 comments

The S&P/TSX Capped Energy Index is formed primarily of companies that have headquarters in Calgary.  Since 2001, the index has quadrupled creating wealth on a massive scale.  The boom in commodity prices has resulted in energy companies making more money, spending more money and allowing vested shareholders to cash out.

Excess liquidity brought about by the strong financial performance of Calgary energy companies was likely a major contributor to the Calgary house price boom.

The following graph shows that:

  • S&P/TSX Capped Energy Index outperformed Calgary real estate as an investment
  • Performance of the S&P/TSX Capped Energy Index was likely a leading indicator of the real estate boom