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Dichotomous Marketplaces – Calgary Trends in Construction for SFH diverge from Resale Market January 8, 2009

Posted by DustinRJay in Calgary real estate, supply and demand, Uncategorized.
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The new home construction market has shifted in comparison to the resale market.  The new house price index for Calgary continued to rise into 2008 as compared to the resale market which peaked in 2007.  The new house price index for Calgary has only recently had a year over year decline and as of October 2008 had declined by 1.6%.  Against this price backdrop, single family home starts dropped 44% against a 29% drop in sales.  Also, there was a large shift towards higher end houses in Calgary and the top end of the market experienced large sales growth.  SFH units under construction have retreated to 2001 levels.

It is possible that participants from both marketplaces may find opportunity in new places for 2009.  Builder’s may find less demand for high-end houses due to the slump in stock prices greatly affecting the wealthier class.  The resale market may experience less new listings due to less people buying new at the top of the real estate pyramid.  People looking to buy at below $350,000 may find that the best source of supply is in the resale market.

Below is a table of changes in the new SFH market that occurred over the last year:

dichotomous_marketplaces

CMHC housing information available here.

Calgary’s Official Bird the Tower Crane Returns – Highly Cyclical Migration Pattern March 10, 2008

Posted by DustinRJay in Calgary real estate.
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The amount of commercial real estate being developed in Calgary has not been witnessed since the 70’s and early 80’s.  There are currently several mega-projects being built including the Bow (236.0 m), Eighth Avenue Place I (213.2 m), Centennial Place I (176.0 m), Jamieson Place (170.0 m), and Centennial Place II (110.0 m).  These commercial buildings will greatly increase the amount of square footage of commercial real estate available downtown.

The Bow, at a staggering 1.7 million square feet, will consolidate EnCana’s staff from three buildings into one.  Eighth Avenue Place (Penny Lane) currently has no anchor tenant and is being built on speculation.  Commercial real estate lease agents are currently having a hard time getting anyone to sign a 1+ year contract due to the volumes of commercial real estate being developed. 

It is possible that there is going to be an oversupply of commercial real estate in Calgary, and after this wave of commercial real estate is finished, there will likely be an extended lull in construction.

The following graph compares aggregate height of commercial buildings constructed over 100 metres by completion year against residential real estate prices:

Calgary’s Official Bird the Tower Crane Returns

 A timeline of images of Calgary skylines shows that there is little change in commercial development from 1985 to 2004.

Some of the conclusions I came up with after doing this analysis are fairly intuitive, but help to provide insight into timing.  These are:

  • Residential prices boom during periods of commercial construction booms.
  • Current commercial construction levels have not been this high since the 70’s and early 80’s.
  • The residential real estate bust in Calgary occurred during a time when there was record levels of large scale commercial real estate construction being completed.
  • When the 1980’s commercial construction boom ended, house values fell dramatically.
  • Overdevelopment of commercial real estate in the 80’s left little constructed for the following 20 years.
  • Commercial real estate construction is incredibly cyclical.
  • For this construction boom, there is a much greater share of construction projects over 100 metres that are residential vs. commercial.

As an aside, I encourage anyone who is looking at the Canadian real estate market to look past the sound bites.   Due to their vested interest, it is difficult to find a banker, real estate agent, CMHC analyst, developer, newspaper, or radio program which has the chance to be frank and analytical.