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.

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