Are we in a seller’s market or buyer’s market?

The most common question that anyone involved in real estate gets asked is “How’s the market?” Every industry has key indicators and one of the best indicators for the current state of the housing market is the Absorption Rate.

Real estate is governed by the law of Supply & Demand. Absorption Rate compares how many homes are for sale at the end of the month (the Supply) to how many homes sold that month (the Demand). We can then determine how many months it would take for every home that is currently listed to sell at the current pace of sales. This is the Absorption Rate. A balanced market has an Absorption Rate of anywhere between 2.0 – 4.0 or (2-4 months of inventory). Anything over 4.0 would favor buyers (more selection) and anything less than 2.0 would favor sellers (less options for the buyers).

So… how’s the current market? Here’s your answer…

It depends on if you are selling or buying. Currently, it is a buyer’s market based on a March 31, 2011 Absorption Rate of 4.3* (it would take more than 4 months to sell all the homes for sale). There were 10,043 homes for sale and 2,347 homes sold. This means that buyer’s will have more options and seller’s need to be more competitive on their pricing in order to sell.

Curious how we currently stack up to boom and bust times? Check out the charts below for the Absorption Rates over two 3 year periods including December 2008 (bust) and April 2006 (boom):

Absorption was 4.3 mths
Active – 10,043
Sold – 2,347


Absorption was 11.0 mths
Active – 8,854
Sold – 806

Absorption was 0.6 mths
Active – 2,120
Sold – 3,569

*All data courtesy of CREB®

The cost of new homes in Calgary could rise by about $8,000

Calgary’s development industry is urging council to accept a new suburban levy deal that adds about $8,000 per new home, but also demands the city commit to reining in the costs of building new communities.

The developers’ main lobby group hopes aldermen don’t tinker with the deal — although at least one admits she’s disappointed by it — but opposes the plan to make undeveloped areas help the city recoup three-quarters of the price tag for the proposed airport tunnel.

City hall’s debt and taxpayers citywide have long shouldered the burden for much of the costs of water systems, fire halls and the new suburban infrastructure.

The new deal doubles the land levies to help close the massive gap, bringing Calgary into the top one-third of Canadian cities’ developer charges, according to Mike Flynn, executive director of the Urban Development Institute-Calgary.

Developers are willing to swallow the added costs as long as council doesn’t intensify them, he said. But they draw the line at city planners’ assumption that the Airport Trail underpass primarily benefits new communities and therefore they should pay for it.

“To put 76 per cent of the tunnel cost on new homebuyers in the northeast communities is ludicrous,” Flynn said Friday, after the five-year agreement was released.

The industry instead wants the city to accept that the tunnel mainly benefits existing developments, which would mean the city would only recoup 17 per cent of the roughly $295-million project from new levies.

Ald. Jim Stevenson, whose ward includes the airport, said that new developments and existing ones should all share in the tunnel’s cost, since it’s a citywide project.

But the idea of getting back most of the millions for the controversial roadway is one Ald. Druh Farrell has been asking for.

“There was significant pressure from the nearby landowners to build the tunnel, so I would suggest that those who benefit, contribute,” the inner-city alderman said.

Farrell has been one of council’s strongest voices for ensuring suburban growth pays for itself. She said tripling the levies would have brought the city closer to keeping the burden where it should be.

“It’s certainly an improvement. However, we’re still digging a hole — we’re just digging it more slowly,” she said.

Mayor Naheed Nenshi has repeatedly warned new Calgary homes have been subsidized because of inadequate developer levies.

He said Friday that this isn’t a revenue grab, but an attempt to rebalance how the general public and new homeowners pay for interchanges, recreation facilities, and sewage pipes for the new homes.

“I want to understand if we’ve gone far enough,” the mayor said Friday.

Flynn suggested that if council wants to adjust the deal, it may as well just ask city managers and developers to start the negotiations all over.

“We can live with it, but it’s got to be near the tipping point to where development is going to move somewhere else,” he said, reiterating a well-used warning from the suburb-building sector.

Don Merlo, UDI’s chairman, noted that the $8,000-per-home increase would be lower in more densely built communities, and on townhouses or condos.

But Merlo also said that as that hike gets passed through home-builders and added into borrowing and profit-margin calculations, it will grow by the time it reaches new home buyers.

He said he’s comfortable with the deal, in part because of the city’s phase-in plan to only charge half the levy increase to much of 2011’s development. He also praised its commitment to study how to shave 10 per cent off the cost of the application process and technical specifications for new developments, such as concrete types and the strategic timing of sidewalk construction.

“That would go a big way to mitigating the impact to the . . . consumer,” said Merlo, senior vice-president of Brookfield Residential, Calgary’s largest suburban developer.

While the key negotiators are happy, Flynn admitted some developers “are going to go ballistic — but this is the best we could do.”

Meanwhile, the association for commercial property developers blasted the deal, releasing to members late Friday a letter that demands council not sign this deal without further study and consultations.

“Calgary has been known for years as a good place to do business. Such a reputation is hard to earn,” group president John Marotta, who wasn’t part of the negotiations, wrote in a letter to Nenshi before the deal’s release.

“The massive proposed increases in the commercial development cost structure are poised to ruin that reputation.”

The city is also agreeing to establish a fairer system of recouping growth costs for new projects that add density to existing parts of Calgary.

© Copyright (c) The Calgary Herald

Bank of Canada holds rate steady

The Bank of Canada kept its benchmark lending rate unchanged at one per cent in its latest decision on Tuesday.

The Bank of Canada has opted to leave the country’s key lending rate unchanged at one per cent. (Adrian Wyld/The Canadian Press)Since raising its overnight lending rate to one per cent in September, the bank has held steady for five consecutive policy decisions.

Economists had expected the central bank to hold rates steady, citing the fact that inflation still appears to be under control in Canada.

“We judge that the BoC will want to monitor core CPI for signs of ‘consistency’ for at least a couple months more,” Michael Gregory, senior economist at BMO Capital Markets Economics, said in a report a week ago.

For its part, the Bank of Canada said economic growth in the United States appears to be picking up steam, while emerging markets continue to expand at a robust pace.

But the recent Japanese earthquake will cause supply disruptions, the monetary authority said.

In addition, while Canada’s gross domestic product growth is better than anticipated, the expansion is not setting off inflationary alarm bells, the bank said.

Summer tightening

Still, analysts believe that the Bank of Canada should be ready to pull the interest rate trigger as the year progresses.

“Although this stronger growth is not expected to result in an immediate hike in interest rates, the acknowledgement of such will solidify financial market expectations for the return to tightening later this summer,” wrote Paul Ferley, assistant chief economist at RBC Economics.

RBC predicts that the Bank’s overnight rate will rise from the current level of one per cent to three per cent by 2012.

Canada steady, Europe not so

The bank’s decision comes in the face of an interest rate hike in Europe. Earlier in April, the European Central Bank raised its trend-setting rate by one-quarter of one percentage point to 1.25 per cent.

Historically, European monetary authorities have been much quicker to clamp down on economic growth to ease inflationary pressures than either Canada or the United States.

Most central banks have begun worrying that soaring commodity prices, including for foodstuffs, and gathering strength among the world’s major economies could reignite a general round of price hikes in industrialized countries.

But, as of yet, the U.S. Federal Reserve is still taking a “wait-and-see” approach before hiking U.S. rates.

“Most Fed members have made it clear that rising commodity prices are not [the] result of U.S. monetary policy nor does it require a policy response,” noted Camilla Sutton, chief currency strategist at Scotia Capital in a Tuesday note.

Calgary could flirt with record levels within the next two years

Average house prices in Calgary could flirt with record levels within the next two years due to a commodity boom in the province, says a real estate industry analyst.

Don Campbell, president of the Real Estate Investment Network, said house prices could increase five to seven per cent this year and another five to seven per cent in 2012.

“And then after that, we’re going to be back in a bit of a frenzy,” said Campbell. “A frenzy as in a seller’s market. Now I hope it’s not as hot as it was in 2007 and 2006 but I’m telling you by looking at the job market and the population growth expectations I wouldn’t be surprised if it was in the double digits in two years.”

Campbell said people who try to guess what the real estate market is doing by looking at housing statistics are “doing the equivalent of driving across the city staring at their rear-view mirror.”

He said there is an increase in demand for the key four things that Alberta has: food, fuel, fertilizer and forestry.

“Every single one of those is starting to enter into a bit of a super cycle where demand is going to start outstripping supply over the next little while,” said Campbell. “All four of those create jobs and all four of those create in-migration and in-migration is what’s going to drive the real estate market in 24 months.”

According to the Calgary Real Estate Board, in the first quarter of this year, there have been 3,309 single-family home sales in the metro market, up 3.73 per cent from the same three-month period in 2010. The average MLS sale price this year is also up by .08 per cent to $460,315.

In the condominium market, sales in the first quarter have dropped by 11.31 per cent to 1,349 transactions. The average sale price this year is also down by 0.88 per cent to $285,799 compared with the same period a year ago.

The average price of a single-family home in Calgary peaked at $505,920 in July 2007 while the average price of a condo hit a record level of $332,237 in May 2007.

When it released its latest MLS data recently, CREB said Calgary’s labour market has shown some recent improvements but it is still in the early stages of recovery as job growth remains below the five-year average.

“Improvements in the energy sector are anticipated to show stronger job growth in the second half of the year, providing the foundation for continued recovery in the housing market,” said CREB.

Campbell said job growth and in-migration will decrease rental vacancies initially which will eventually increase rents. Then people will start looking at purchasing residential real estate property.

“That’s when the frenzy will be hitting in about 24 months,” he said.


© Copyright (c) The Calgary Herald

Six straight quarters of declining vacancy

Positive momentum in the Calgary industrial real estate market continued into the first quarter of this year from a strong finish in 2010, says a report by Colliers International.

Vacancy declined from 5.57 per cent to 5.23 per cent — the sixth straight quarter of decreasing vacancy, excluding the Haworth manufacturing facility and the Enerflex fabrication facility, both over 300,000 square feet which became vacant in the fourth quarter of last year.

Those two buildings increased vacancy by 0.9 per cent on their own.

Joe Binfet, managing director of Colliers International in Calgary, said there are less options available for tenants in general and particularly in the big bay sector of anything over 50,000 square feet.

“We are seeing speculative development in the market. Three large distribution facilities are slated for the northeast,” said Binfet.

“Vacancy is decreasing. It’s a very positive market right now. We’re seeing retail driving some of the distribution expansion. Calgary is under-retailed and there is a strong demand for retail in town. We’re seeing distribution facilities pop up to support that demand.

“There’s continued optimism with the oilsands and oil over $100. We’re seeing companies poise themselves for growth. And the oil services sector continues to be strong in the industrial market.”

The Colliers report says continued stable demand is forecast for the remainder of 2011.

In the first quarter, there was positive absorption of 802,739 square feet in the industrial real estate market.

Sean Bradley, of the Advent Commercial Real Estate Group, said Calgary’s economy seems to have stabilized despite some pressing world concerns such as unrest in Libya and the aftermath of the earthquake and tsunami in Japan.

A Canadian dollar above par with the United States and $100 per barrel oil prices have contributed to positive momentum in the local real estate market, he said.

“Since the recession began two and a half years ago we have been slowly absorbing leftover vacancies from the boom times,” said Bradley. “The market now feels it’s time to ramp up the building development cycle.

“Contractors are busy quoting jobs that have a strong chance of going forward.”

According to commercial real estate firm CB Richard Ellis Ltd., the average net rent for industrial real estate in Calgary was $7.84 per square feet in the first quarter of this year, up from $7.71 in the previous quarter, and $7.35 a year ago.

© Copyright (c) The Calgary Herald

First-time Calgary homebuyers back in the market

CALGARY — First-time buyers have re-entered the Calgary resale housing market with “a renewed sense of confidence,” says a report released Tuesday by real estate firm Re/Max.

In the first two months of this year, 32 per cent of all sales occurred under $300,000 in Calgary, said the report.

Average price in the metro area was about $410,000, it said.

“The strength of the entry-level segment is good news for the spring market as sales of starter homes are expected to have a domino effect, prompting greater move-up activity in the weeks and months ahead,” said the report.

In the overall market, the number of homes sold in Greater Calgary is slightly below 2010 levels, with 3,199 properties changing hands as of February 28 versus the 3,297 sales reported during the same period last year.

“Rising consumer confidence levels, buyer’s market conditions, ample inventory and low interest rates continue to be the primary impetus among buyers, especially now that prices have resumed upward growth,” said the report. “Those who held off in late 2010 have finally jumped back into the fold.

“Overall, the majority of entry-level buyers are in their 20s and 30s. A growing number are singles, opting to get into the market earlier in life and build equity. With consumer confidence finally gaining momentum, an improving oil and gas sector and a brightening economy, demand for housing is set to rise this spring, while average price makes modest gains.”

© Copyright (c) The Calgary Herald

Sales fall in residential real estate markets outside Calgary

CALGARY — Residential MLS sales in areas outside of Calgary fell in March compared with a year ago.

According to the latest Calgary Real Estate Board statistics, sales for the towns outside the city market fell by 22.93 per cent from 423 in March 2010 to 326 last month. Also, the average MLS sale price fell by 1.81 per cent to $354,262 from $360,805 a year ago.

In the country residential (acreage) market, sales dropped by 7.58 per cent to 61 in March from 66 in March 2010. The average sale price declined by 12.30 per cent to $850,930 from $970,295 a year ago.

And in the rural land market, there were only 13 sales in March compared to 23 in March 2010, a 43.48 per cent drop.

The average sale price, though, rose by 1.94 per cent to $462,712 from $453,926 last year.

The residential real estate market outside the city mirrored the trend in Calgary.

Single-family home sales dropped by 2.94 per cent in March compared with a year ago falling to 1,355 sales while the average sale price was down 1.77 per cent to $462,947.

Calgary’s condo market saw year-over-year sales drop by 4.6 per cent to 581 transactions while the average sale price also dropped by 5.35 per cent to $280,781.

When combining the entire MLS market in Calgary and area, total sales of 2,347 were down 7.42 per cent from a year ago, but Todd Hirsch, senior economist at ATB Financial in Calgary, said it was the highest monthly total in nearly a year. Plus sales in both the Calgary single-family home market and the city’s condo market were up in March from February levels.

“However, spring is typically a strong period for sales. So while the recent spike in sales is not surprising, it does suggest the market is in good shape,” said Hirsch.

“Rising inventory of homes for sale suggests the market remains in the buyers’ favour.”

© Copyright (c) The Calgary Herald

March Real Estate Stats

CALGARY’S HOUSING MARKET RECOVERY DRIVEN BY SINGLE FAMILY HOME SALES Calgary’s NW sector boasted the largest gains in single family homes sales in the first quarter
Calgary, April 1, 2011 –According to figures released today by CREB®, Calgary Metro sales remained at levels similar to the first quarter of 2010. Improved sales in the single family market have largely been offset by declining sales in the condominium market, indicating that the gradual recovery will continue to be driven by the single family market for the better portion of the year.
Single family home sales in the first quarter of 2011 were 3,309, a 4 per cent increase over the first quarter of 2010. The combination of stable home prices, low interest rates and year-over-year improvements in employment are the primary factors fueling the growth.
March 2011 single family home sales totaled 1,355, a 3 per cent decrease over March 2010 figures. The decline in sales was accompanied by a 19 per cent year-over-year decline in new listings. As a result, inventory remained at three months, which indicates a balanced single family market.
The NW sector boasted the largest gains in single family home sales in the first quarter of 2011 with 1,198 sales, a 13 per cent increase over the first quarter of 2010. Sales in the SE posted quarterly gains of 5 per cent, while the SW remained relatively unchanged and NE sales declined by 9 per cent.
“Improved affordability levels in single family homes have offered some individuals the opportunity to purchase homes in areas of the city that were once unattainable,” says Sano Stante, president of CREB®.
The SW sector recorded the highest single family average home price in the first quarter of 2011 at $570,748, while average home prices in the NW and SE were $464,990 and $422,821 respectively. The NE sector continues to remain the most affordable, with average prices hovering around $282,713.
“Average single family home prices remain relatively stable compared to the first quarter of last year, as people continue to purchase more homes at the lower end of the price spectrum,” says Stante. “The rise in sales has been primarily offset by a corresponding increase in listings, resulting in stable average prices.”
Calgary Metro average price of single family homes in March 2011 was $462,947, a 2 per cent decline from March 2010, and virtually unchanged from the previous month. Meanwhile, the median price declined by 5 per cent compared to March 2010.
Quarterly condominium sales continue to fall over levels recorded in the previous year, down by 11 per cent compared to the first quarter of 2010, while quarterly average prices are down by 1 per cent. It is important to note the quarterly average price of condominiums is skewed upwards for 2011 due to the sale of a $4.1 million condominium. If we remove this sale, quarterly average price would have declined by over 2 per cent.
The average price of condominiums in March 2011 was $280,781, while the median price was $256,000, a respected 5 per cent drop and 7 per cent, respectively, from levels recorded in March 2010.
Improved selection of affordable single family homes and higher inventory levels of new condominiums have reduced the demand for resale of condominiums. It is anticipated that demand should gradually recover in the latter half of the
year, as Calgary’s economic recovery continues to take hold. “This provides a window of opportunity for condo buyers early in the year to discover a large selection of available product at affordable prices,” says Stante.
Calgary’s labour market has shown some recent improvements, however, it is still in the early stages of recovery as job growth remains below the 5-year average. Improvements in the energy sector are anticipated to show stronger job growth in the second half of the year, providing the foundation for continued recovery in the housing market.

Information provided by CREB®