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Calgary Misery Index – A Reason For Optimism in The Housing Market September 23, 2008

Posted by DustinRJay in Calgary real estate, inflation.
Tags: , , ,

The misery index is a commonly used as a metric for stagflation.  Stagflation is a combination of high unemployment and high inflation.  High inflation and low unemployment rates created sharply rising house prices in the Calgary real estate market during the period from 1973 – 1983.  In 1983, rapidly rising  unemployment caused inflation levels to cool significantly, and house prices to fall. Again in 1990, upward trending unemployment rates caused house prices to stay flat for roughly 8 years.

In general, the following conditions are supportive of real estate growth:

  • Low unemployment
  • High Inflation

Today, we have near record low levels of unemployment (3.6%) and relatively high inflation (4.3%) and therefore provides two reasons for conservative optimism in the Calgary real estate market.

The following graph illustrates the relationship between inflation and unemployment to house prices:

Data Sources: CREB, Bob Truman – First Place Realty, Statistics Canada – Calgary Inflation, Alberta Unemployment Rate


1. Brad Bender - September 23, 2008

The conclusion I take from this graph is that housing more-or-less correlated with *inflation* for the last 30 years. When *inflation* went up, so too did houses. Likewise, when *inflation* goes down, houses followed shortly thereafter.

There’s a disconnect in about 2003 where inflation declined, but housing continued up. Then in 2006 inflation went up /slightly/ and houses shoot up in a *massive* spike. Barring a period of imminent hyper-inflation, I don’t see how houses can justify their current value.

Lets do some extremely rough calculations with the notable spikes+troughs in 1989 and 2005:

1989 House: $110,000
1989 Inflation: ~3%

1990 House: $140,000
1990 Inflation: ~7%

So a 4% increase in inflation translated to a 27% increase in house valuations (fair enough).

2005 House: $225,000
2005 Inflation: 2%

2007 House: $400,000
2007 Inflation: 5%

So a 3% increase of inflation translated to 78% increase in house valuations. Huh!?

Being conservative, a 3% increase in inflation should mean a 20% increase in 2005 home valuations (give or take). So that means houses should be about $270,000 which is pretty much bang on what the median income can afford (go figure).

Anyway, sorry for the brutally generalist calculations above. I’m a firm believer that incomes and inflation alone determine house prices. No data I’ve seen supports the 2006 super-spike, and all I can find is the “it’s different this time” explanation.

2. RJT - September 24, 2008


I understand how you are trying to justify current (high) housing costs in Calgary. But seriously, do you not look at that graph and not see the parabolic rise in prices from 2005?

It is clear that the 20 years prior to 2005 was steady, robust growth, reflective of a healthy economy, low unemployment, and wage growth.

Since 2005, it was clearly a bubble, driven by easy money, panic buying, slowness of the construction industry to ramp up, and heavy speculation.

Current economic conditions reflect 2002, but prices remain at 2007 levels. Basically, this is why you have a glut of homes for sales. Prices are too high given incremental demand. I you can’t see the bubble in that price chart since 2005, I don’t know what to tell you.

3. section31 - September 24, 2008

http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b092458A <– Merryl Lynch thinks our housing market is boned!

The Calgary economy is slowing, some business and trades are and have moved to Saskatchewan, The Bureaucrats are raising taxes, the crime rate is stupendous. The Industrial sector is down a good 10% since last year (will be reflected in Qtr 4). The only people that have anything good to say about the home market now are recently purchased homeowners, Real Estate Agents and Canadian Banks. Not exactly a unbiased source to be sure.

To top it off there is now pressure on the oil sands from oil companies to scale back production. If Dion ever gets in its game over.

Also, The American economy is in the tank so that directly effects us since American operations will have to scale back costs both domestic and foreign, that means say good buy to fat bonuses and wage increases; also eventual job losses (mainly in Ontario I admit). Albertans will feel the squeeze a bit (oil sands are a good buffer). This dampens the market since now there are less growth, and less money (inflation adjusted). I don’t think the average Calgarian will even catch inlfation this year (not to mention a surge in upside down mortgages).

Resale Condo I marked in March 2008 was $300,000 , now the same unit is $225,000. Thats a drop of 25%.
New Developer House I marked in March 2008 was $590,000, now its $525,000. Thats a drop of 11%.

Funny thing how new home developers are not adjusting down there prices relative to the resale market. Some have not moved a single dollar.

All and all, I tend to agree with the articles posted here in April, May, before they took on a more pro homebuyer tone.

I think I will wait until next summer and re-evaluate.

4. Brad Bender - September 24, 2008

You know, if I could go short on Calgary housing, I probably would.

5. ceeartea - September 26, 2008

interesting to see this as compared to the U.S model.

Good post but I do not buy a recovery in real estate for many years to come.

6. randy carlson - October 1, 2008

There was a report that showed Calgary house prices were on average 100k to 150k above normal. We took this report to heart and over the last 6 months watched listings closely before buying. Sure enough we were able to see groups of homes listed and reduced on average to 124k over this time period. They were the ones that sold. Those that ignored the adjustment or reduced by 10k are still for sale. The home we purchased was reduced 140k from the origanal asking price. The Calgary and area home prices started going down in Oct 07. I know because I sold in Nov 07 and you could see the difference very easily. Sold the house myself, lots of people were shopping around, taking thier time. Its not so much a good deal vrs what prices should be I believe. The kicker for us will remain with interest rates, they need to go down a bit and I hope Canadians are not counting on home equity too much !! Not for the next 5 years anyway.

7. tony - November 3, 2008

Why aren’t the new home builders lowering their prices viz-a-viz the resale homes? Most of them are offering rebates (e.g. $30K – $50K free upgrades) – there are still a plethora of new $1M+ homes in Estate communities. Shane homes president was quoted in the Herald today that they have to remain competitive, but their (the builders) actions are not matched by his words.
Any thoughts?

8. Nikki - November 4, 2008

We are a group of realtors in Edmonton. I’d like to thank you and all te commentors for their useful information.

Best wishes for you


9. section 31 - January 2, 2009

Well its confirmed, oil sands expansion is haulted, oil prices are in the tank. Say goodbye to Alberta’s surging economy and hopefully a slow down in drug trafficing too :o)

10. Richard (permabear) - January 18, 2009

Yep, put out the welcome mat.. its 1982 X 2 this time. its going to get really ugly come this spring market as im sure many who wanted to sell in November decided to wait until spring and now they will realise what a mistake that is. This is why we sold in November to avoid the masses. Everywhere in Canada will get hit hard and so they should. Another issue: cost of building. look at a 10 year lumber chart (below link) or copper chart. Very inviting for deflation in materials over the next 6 months. Plus, Calgary lost more jobs than any city in Canada last report. what goes up the fastest comes down the fastest. When you say that… you have to think Calgary, Vancouver, Victoria and Kelowna. Oil is at or near the bottom. At the top you heard $200 $200 $200 and now at the bottom you are starting to hear $20 $20 $20. we have to be at the bottom or near it.

11. JatStraikarFan - December 7, 2009

Many of folks blog about this topic but you wrote down really true words!!

12. Canadian Real Estate Wealth - September 18, 2014

Canadian Real Estate Wealth

Calgary Misery Index – A Reason For Optimism in The Housing Market | Calgary Real Estate Market Blog

13. veallshare.com - October 1, 2014

Following the scanning, the OCR software converts the particular images directly into intelligible character types and words.
Then, the recognized text is voiced using a synthesizer.

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