HOUSING PREDICTIONS FOR NEXT 2-3 YEARS

[Charly]

Rein Members:

What are the predictions over the next 3 years for the Calgary housing market.
My advisor is indicating we may see more than a 30-40% drop in housing price over the next three years.

My advisor sells shares and NOT houses, so I turn to you guys, the experts for your advice.

I might be selling my house so I want to have your advice.
Please provide your predictions for each year.

 

[JDaley]

It is possible we can see a dip or likely sideways (0%) appreciation for housing in the next few years. The things you need to take into consideration are: the local (provincial) government`s handling of the economy (ie., not good Stelmach), the economic situation in the US for the next 3-5yrs (not good), demand for commodities (Oil) from abroad (ok, China) and over supply of housing (many condo units) in Calgary. I think the rental market in Calgary (assuming that`s what you`re referring to) will shrink considerably and rents adjusted downward, as bad landlords and poor rental units are purged from the market - a necessary correction. One other comment, if housing drops significantly, equities will likely do the same (the question is the scale of your loss). I wouldn`t buy a declining assest unless you know a turn around will occur in 3-5 yrs.

 

[housingrental]

I think your advisor`s scenario is unlikely to play out but more likely than people think.

Calgary at 2015 - 20-30% lower than today

Technology and legislation will devalue resources quicker then most people are expecting.

 

[gwasser]

QUOTE (housingrental @ Jan 22 2010, 04:13 PM) I think your advisor`s scenario is unlikely to play out but more likely than people think.

Calgary at 2015 - 20-30% lower than today

Technology and legislation will devalue resources quicker then most people are expecting.


The Calgary Real Estate Board forecasts a moderately rising market for 2010 with most of the uptick in the second half.
Appreciation of single family properties in the order of 6%, Condo market less (4%).

There was a piece on it in the Herald on Thursday or Friday.

 

[housingrental]

Hmm time will tell right

Out of curiosity what has real estate boards accuracy in predicting pricing been historically in different area`s? Are there any stats of this?


QUOTE (gwasser @ Jan 22 2010, 10:25 PM) The Calgary Real Estate Board forecasts a moderately rising market for 2010 with most of the uptick in the second half.
Appreciation of single family properties in the order of 6%, Condo market less (4%).

There was a piece on it in the Herald on Thursday or Friday.

 

[greghead]

QUOTE (Charly @ Jan 22 2010, 03:45 PM) Rein Members:

What are the predictions over the next 3 years for the Calgary housing market.
My advisor is indicating we may see more than a 30-40% drop in housing price over the next three years.

My advisor sells shares and NOT houses, so I turn to you guys, the experts for your advice.

I might be selling my house so I want to have your advice.
Please provide your predictions for each year.

Hi Charly,

Good post, I am sure it will generate some great dialogue from a lot of knowledgeable people on the economic fundamentals that drive real estate values.

I happened to be asking myself a similar question in 2007. The question I was asking myself was “When was the Alberta real estate boom going to end and the Slump start and how much depreciation would the slump bring? “
To help me answer that question I focused on studying the economic fundamentals that REIN provides us with each month. In addition, I consulted with Kieran Trass, the International Best Selling author on real estate cycles who is now a partner of mine in TellMeTheTime, a company that specializes in studying real estate cycles.

To help answer your question, I will share the key findings we found through analysis of the Calgary real estate cycle over the last 30 years and specifically, comparing the key drivers of real estate cycles from the early 1980’s to today.

1. 1984 represented Calgary’s worst real estate market crash, values dropped by 28.29% in one year.
2. Since 1970, there has been only been 5 years of negative value growth in the Calgary market totaling 44.89%, of which 63% of that value loss occurred in 1984 alone.
3. Total appreciation over that same time frame has been over 360%

In 1984, here is what some of the Key Drivers were doing compared to today:

Net Migration:
1983 = -26,246
1984 = - 30,591

2008 = + 40,266
2009 = + 35,800 (est. q4 data not released)

Vacancy Rates:
1983 = 12.3%
1984 = 9.6%

2008 = 2%
2009 = 5.3%

Unemployment Rate:
1983 = 11%
1984 = 11.3%

2008 = 3.6%
2009 = 7.3%
GDP:
1982 = -4.3%
1983 = -4.6%
1984 = 3.6%

2008 = 3.3%
2009 = -2.4% (estimate as of June 2009)


When we compare these Key Drivers of the early 80’s with today we can clearly see a very different ‘landscape’ with the key drivers and they are in far better shape today.
For example the difference in the level of net migration in the year 2008 compared to 1983 is a significant 66,512 people who all need accommodation.

The balance of the key drivers exhibit similar positive differences, for example the vacancy rate is significantly lower than what it was in 1984, unemployment is lower too. The combination of key drivers at present imply the current cycle will not see values plummet in the next few years.

Therefore based on our initial analysis, so far, it is not looking likely that the Calgary real estate market would suffer a 30 - 40% range fall.

Please keep in mind, these are just a few of the Key Drivers we must consider when following the cycle. In late 2010, we will be launching the TellMeTheTime service for Calgary and will make available all the Key Drivers and an updated overall assessment of where Calgary is in the real estate cycle and where prices are likely to go in the next few years.

And speaking of Calgary, what a great REIN all day workshop today! It was loaded with great speakers all day long. So a big thanks to Don and the entire REIN team for putting on another informative event!

Best Regards,

Greg.

 

[Thomas Beyer]

QUOTE (Charly @ Jan 22 2010, 03:45 PM)
Rein Members:



What are the predictions over the next 3 years for the Calgary housing market.

My advisor is indicating we may see more than a 30-40% drop in housing price over the next three years.



My advisor sells shares and NOT houses, so I turn to you guys, the experts for your advice.



I might be selling my house so I want to have your advice.

Please provide your predictions for each year.


2010 5 to 10% higher than 2009

2011 0-5% higher than 2010

2012 5 to 10% higher than 2011

2013: up 5-10% from 2012



WHY:



a) in-migration

b) low interest rates in 2010 .. then rising thus values flattening out late 2010 into 2011

c) oil will go lower to about $60 in 2010 .. then start rising sharply in late 2011 into 2012 with demand increase and supply constraints .. thus driving house prices, jobs, employment rates and in-migration up sharply in 2011 to 2012



Ask your advisor why he sees real estate going down and shares up ? They are related ..



Of course, a 2-3 year view on real estate IS WAY TOO SHORT. If you must exit in 2 years: do not buy real estate !! Your view should be 5+ years .. taking into account typical mortgages, time to buy, fees to sell i.e. switching costs. In a stock it costs $9.95 to trade .. in real estate it is ten's of thousands of dollars .. thus a 5 to 10 year view is recommended !!!



50 Year house price view: http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html

 

[gwasser]

QUOTE (housingrental @ Jan 23 2010, 12:31 PM) Hmm time will tell right

Out of curiosity what has real estate boards accuracy in predicting pricing been historically in different area`s? Are there any stats of this?


No idea, although I would suspect it is a bit optimistic. Having said that the board`s presentation, which was quite an anual event (I was there), there was a panel of independant economits (incl. Scotiabank and Alberta Treasury - don`t quote me) present that kind of agreed (as far as economists can agree on each other`s forecasts).

 

[gwasser]

QUOTE (ThomasBeyer @ Jan 23 2010, 10:31 PM) c) oil will go lower to about $60 in 2010 .. then start rising sharply in late 2011 into 2012 with demand

Do you care to share why you think oil will fall as low as $60? Just curious.

 

[housingrental]

Thanks - Hmm - Anyone - Are these stats available for any province / nation wide ?
QUOTE (gwasser @ Jan 24 2010, 12:37 AM) No idea, although I would suspect it is a bit optimistic. Having said that the board`s presentation, which was quite an anual event (I was there), there was a panel of independant economits (incl. Scotiabank and Alberta Treasury - don`t quote me) present that kind of agreed (as far as economists can agree on each other`s forecasts).

 

[Yev]

QUOTE (gwasser @ Jan 23 2010, 09:44 PM) Do you care to share why you think oil will fall as low as $60? Just curious.

...because it still looks like bubble territory.

http://www.wtrg.com/oil_graphs/oilprice1947.gif

 

[RedlineBrett]

QUOTE (Charly @ Jan 22 2010, 03:45 PM) Rein Members:

What are the predictions over the next 3 years for the Calgary housing market.
My advisor is indicating we may see more than a 30-40% drop in housing price over the next three years.

My advisor sells shares and NOT houses, so I turn to you guys, the experts for your advice.

I might be selling my house so I want to have your advice.
Please provide your predictions for each year.

Read this report. It is the best compilation of Calgary Housing Market data available for 2010 and beyond.

http://www.crebforecast.com/2010/pdf/CREB-...-Report-WEB.pdf

But it is important to remember that the value of YOUR house will be dependent on YOUR local market when you choose to list. 10 people on your block pick the same time as you to sell? You will take less for your home. No one on your block on the market? You will have less competition and will do better. Local market effects can cause your value to swing by as much as 10% in any given month depending on the supply offered to buyers.

You will also find that if you have three appraisals of your property you will get three different answers... and these values will be within 5% - 7% of each other... or a year`s worth of market performance one way or the other. This is part of the reason Thomas says that 2-3 years is way too short a time frame for real estate and is why I agree with him.

The sharp drop in 2008 was due to overbuilding and many people holding two or three properties. Most of this oversupply has been absorbed now and we will be returning to the ~5%/yr increases in pricing of a healthy market.

One thing is certain however - if you are planning on selling in Calgary wherever you are moving to will be worse off... at least according to REIN. They ranked Calgary as the top investment market in Alberta for 2010. If you`re just trading up the market effect will be a lateral move and will play a much smaller role in your decision than you think!

 

[Charly]

Thank you everyone for your insight.

I should have been more specific. I am aware my time frame should be five years or longer. I purchased my home in 2004. My game plan has always been to move out of Calgary eventually and I am coming closer to that time frame now (2-3 years out).
My house is a single family dwelling - 2 beds, 2 baths, single garage, located Inner City, excellent access to public transporation, several blocks from the newly proposed West LRT (I am in Killarney area)

The house was completely renovated years ago. It was professionally landscaped as well.
My options are to

1) rent it and purchase my new home (BC Coast- North Van Island)
2) take the money from the home and purchase my new home on North Van Island

Renting is not really something I have ever done. Truthfully , I would rather just sell and take the capital.

As for the advisor, he believe stocks and real estate will plunge and that NOW is the time to sell all and buy bonds. (not too keen on this, nor his advise!)

Comments!

 

[Rickson9]

QUOTE (Charly @ Jan 22 2010, 05:45 PM) My advisor is indicating we may see more than a 30-40% drop in housing price over the next three years.

If this happened it would be amazing for amassing wealth! I personally hope that housing prices drop that dramatically.

 

[Thomas Beyer]

QUOTE (gwasser @ Jan 23 2010, 10:44 PM) Do you care to share why you think oil will fall as low as $60? Just curious.
glut of oil supply right now .. OECD demand dropping faster than rise in Asia .. strategic oil reserves in US are full .. US $ strengthening for a few month going forward

I expect it to hover between $60 and $90 until late 2011 .. then go well above $100 by 2012 and over $200 by 2014/2015 !!

 

[gwasser]

QUOTE (ThomasBeyer @ Jan 24 2010, 05:31 PM)
glut of oil supply right now .. OECD demand dropping faster than rise in Asia .. strategic oil reserves in US are full .. US $ strengthening for a few month going forward



I expect it to hover between $60 and $90 until late 2011 .. then go well above $100 by 2012 and over $200 by 2014/2015 !!






Thanks

 

[MONEY]

QUOTE (ThomasBeyer @ Jan 24 2010, 05:31 PM)
glut of oil supply right now .. OECD demand dropping faster than rise in Asia .. strategic oil reserves in US are full .. US $ strengthening for a few month going forward



I expect it to hover between $60 and $90 until late 2011 .. then go well above $100 by 2012 and over $200 by 2014/2015 !!


Would $100 oil ignite a new orgy of `consumer` spending and another round of investment in commercial real estate?

We have already experienced what happens to an economy with $100+ Oil. It is the danger zone where it can crush industrial economies.



With prices at $200 we will be plunging headlong into what could easily be the most vicious and unpredictable financial cycle of the past 150 years!

This would raise gas at the pump to unimaginable heights... plus huge lines at the pump... or even "gas riots," worse than anything we've ever seen before!

This could also result with the rising Cold War on the shores of the Caspian... new terrorism and oil killings in Saudi Arabia... a coming military conflict over offshore oil under the South China Sea... or more.



When cheap oil disappears... we're talking catastrophe. It's nearly unthinkable.

Think of everything we use, that in some way uses oil.

 

[RedlineBrett]

QUOTE (Charly @ Jan 24 2010, 04:20 PM)
Thank you everyone for your insight.



I should have been more specific. I am aware my time frame should be five years or longer. I purchased my home in 2004. My game plan has always been to move out of Calgary eventually and I am coming closer to that time frame now (2-3 years out).

My house is a single family dwelling - 2 beds, 2 baths, single garage, located Inner City, excellent access to public transporation, several blocks from the newly proposed West LRT (I am in Killarney area)



The house was completely renovated years ago. It was professionally landscaped as well.

My options are to



1) rent it and purchase my new home (BC Coast- North Van Island)

2) take the money from the home and purchase my new home on North Van Island



Renting is not really something I have ever done. Truthfully , I would rather just sell and take the capital.



As for the advisor, he believe stocks and real estate will plunge and that NOW is the time to sell all and buy bonds. (not too keen on this, nor his advise!)



Comments!




You should ask your advisor if he has sold his house and liquidated his stocks in order to buy bonds. If you really want to know what he believes check out his own portfolio rather than the products his managers are pushing him to sell. He knows all about your portfolio after all!



With respect to the transition you are planning you have three questions you should answer before deciding on a course of action



1. What does your north van place look like price wise and how often do properties that suit your taste come available? This is where your money is ultimately going and therefore this is the market research that should take precedence.



2. How important to you is your lifestyle right now (or for the next 2-3 years) when compared with your envisioned north van lifestyle? If you sold today and rented a place for the same monthly cost is it worth $1 extra to you in Vancouver? $10,000? $50,000? Putting a number to this is the hardest thing about trading up but is really what it all boils down to.



3. Do you have a good grasp of the variables in your own 'transition equation'. Things like what your place would sell for now, how much you could rent it for now, do you have a payout penalty on your mortgage? Can you port your mortgage and if so what are the timelines you have to work within for bridge financing, fixed vs. variable and 1yr vs 3yr vs 5 year terms, how much are realtor fees, what is rent like in north van, do you need to budget for renovations on the selling and buying end and ultimately what will your new monthly housing cost be when you are in vancouver sitting in your recliner with a drink in hand?



The first two you can figure out for yourself. The last one you need to put some experts to work for you. Get a good realtor in Calgary (hint hint

) and also in north van and get talking with your current lender to put some fixed numbers to some of the variables. You will find this will simplify things for you immensely and you will be able to see the potential impact of any market shifts on your own personal situation much more clearly.

 

[gwasser]

QUOTE (Charly @ Jan 24 2010, 04:20 PM)
1) rent it and purchase my new home (BC Coast- North Van Island)

2) take the money from the home and purchase my new home on North Van Island



Renting is not really something I have ever done. Truthfully , I would rather just sell and take the capital.



As for the advisor, he believe stocks and real estate will plunge and that NOW is the time to sell all and buy bonds. (not too keen on this, nor his advise!)



Comments!




Aside from Thomas' remarks, I would first ask myself, whether your Calgary place is rentable.



Killarny is an innercity area and there are many quite expensive infills and other properties. Typically, rental properties are in the $$200-$400K range. If more expensive, renters can cause major damage or you can just not achieve positive cashflow because to do so you must ask a must higher rent than most renters can afford or are willing to pay. There are always exceptions,



Do you have to manage the place yourself? You could use a rental property manager. In fact, when you live in North Vancouver that would probably be the way to go.

 

[Thomas Beyer]

QUOTE (MONEY @ Jan 24 2010, 10:56 PM)
...

When cheap oil disappears... we're talking catastrophe. It's nearly unthinkable.

Think of everything we use, that in some way uses oil.


oil WILL BE $200 .. the question is when .. likely around 2015 .. maybe a bit earlier .. maybe a bit later ..



gasoline @ $2.50 .. no problem .. look to Europe .. in fact look to Europe for everything sustainable or how US or Canada will look like in 20 years: smaller house sizes, bigger role for public transportation, higher taxes, bigger government, much much higher energy prices (electricity for example today is triple to quadrule what we pay in W-Canada), more "green" initiatives, everything more expensive than here !



(I guess that's why I moved to Canada !!)



did you read the book by Jeff Rubin "Why your world is about to get a whole lot smaller" ?