Calgary home prices fall 8%

Alberta slump leads decline across nation

Mario Toneguzzi, Calgary Herald

Published: Friday, August 15, 2008

Falling prices in Calgary and Edmonton are dragging down Canada's housing market, according to a report released Thursday by the Canadian Real Estate Association.

Led by declines of eight per cent in Calgary and five per cent in Edmonton, average house prices in Canada dropped 3.6 per cent overall in July compared with a year ago, according to the report.

The average national MLS residential sale price last month was $327,020, while in Calgary it was $402,788. In Edmonton, it was $335,100, said the report.

MLS sales dropped 10.9 per cent in Canada in July.

In Calgary, sales were down 13.1 per cent compared with July 2007, according to the CREA report.

"Canada's housing market is running into some seriously foul weather amid the weakest affordability in nearly two decades," wrote Douglas Porter, deputy chief economist with BMO Capital Markets Economics in a commentary on the CREA numbers.

"While we still doubt that Canada will stage an instant replay of the trauma in U.S. markets, even a mild version would be bad news."

"Mounting consumer caution" prompted the national decline in existing home sales and the "steady drum-beat of double-digit sales declines" this year is beginning to "weigh more heavily on prices," Porter wrote in his analysis.

"We opined a month ago that 'given the steep run-up in new listings, double-digit sales declines and the sharp drop in consumer sentiment, price declines may become a more common feature across the country in the months ahead.' These latest figures simply pound home that point."

Statistics by the Calgary Real Estate Board for July showed the average sale price of a single-family home in the city dropped 9.79 per cent compared to July 2007, to $456,380, while the average price of a condo decreased 6.98 per cent, to $296,338.

It is also taking longer for homes to sell. In July, the average number of days on the market for single-family homes was 52, compared with 35 a year ago. For condos, it was also 52 -- up from 33 days.

Laurie Hicks has had her home for sale in the northeast Mayland Heights neighbourhood for nearly three weeks on the WeList.com system for sale by owner. The completely renovated home, listed at $489,000, will go on the MLS market on Monday through the Re/Max real estate firm.

Considering the current market conditions, she is still confident the house will sell.

"For us, we honestly believe there are enough young professionals that want to be within five, 10 minutes of downtown. I believe the right buyer is going to walk in there and say, 'You know what, nothing has to be done to this house for 10 or 15 years,' " said Hicks, who has owned the house for more than a year.

"So, we are optimistic, but having said that, we need to have the right buyer," she said.

"We know what we could have got last year but we were a little bit unfamiliar with what happened with the housing prices until just now."

The inventory of homes for sale in Calgary has declined for two consecutive months, which is a good sign in the real estate market, but it is still "extremely high," said Ted Greenhough, with Re/Max Realty Professionals in Calgary.

"We still have a lot of inventory to work through before we're going to approach what would be called a balanced market," he said. "So, in my opinion there's still downward pressure on prices. This high inventory problem is not something we're going to work through in a month or two. I think it's a long-term problem. At the least, the market conditions will remain the same for the next several months."

Year-to-date until the end of July, existing home sales in the country are down 13 per cent from the same period a year ago. Calgary leads the country with a 30.1 per cent decrease in sales followed by Greater Vancouver at 24 per cent and Edmonton at 23 per cent.

Nationally, the average sale price is up 2.2 per cent year-to-date to $338,586.

In Calgary, the year-to-date average sale price is down by 0.1 per cent to $414,213. "The combination of a larger inventory of homes for sale and fewer home sales means less upward pressure on home prices in many markets," said Calvin Lindberg, CREA president. "The challenge for many sellers is determining the right price for today's market conditions. There is no doubt the Canadian real estate market is pulling back from the record sales and price increase levels of 2007."

Porter said, "pricing power is in full-scale retreat across many major markets."

July's year-over-year decline on a national level followed a small dip (0.4 per cent) in June, the first drop in almost a decade, said Porter.

"We downplayed June's price decline, since it was so narrowly based," he said. "However, the drop in July spread to a number of cities, including even the previously untouchable Vancouver market."

mtoneguzzi@theherald.canwest.com

Prepare for home prices to drop

Vancouver houses overvalued by 11 per cent, according to a UBC study of real estate

Derrick Penner, Vancouver Sun

Published: Tuesday, September 09, 2008

With Metro Vancouver past the peak of its current real-estate market cycle, more discussion is emerging about what the cycle's downside will look like.

The latest discussion points lean towards a price correction in the double digits, with one study showing current Vancouver house prices overvalued by 11 per cent on a particular measure and an economist observing that prices are falling at a rate of 10 per cent or more this year.

University of B.C. real-estate economist Tsur Somerville was lead author of a study that evaluated the cost to rent a detached, mid-market home in nine Canadian cities, versus the cost to own, to find a balanced price.

The study's conclusion was that in the second quarter of this year, Metro Vancouver's average house price, $754,500, was 11 per cent higher than the balance point.

However, Regina, Winnipeg, Ottawa and Montreal are 25 per cent out of equilibrium, considering prices and rents in those markets. Halifax house prices are 20 per cent out of balance.

Titled Are Canadian Housing Markets Overpriced? the study observes that housing affordability is a severe problem in some Canadian cities, limiting the ability of markets to continue to rise.

Calgary prices showed as being seven-per-cent higher than balance.

Only Toronto showed prices in balance with rents, and Edmonton, which has already seen price declines, would need to see prices climb again by eight per cent to be in balance.

"I was surprised the Vancouver number is as low as it was," Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at UBC, said in an interview.

He added that the rent-versus-own measure is a narrow observation that treats homes like a financial asset and does not take other measures of affordability or valuation into account.

And what eventually happens in the Vancouver market, Somerville said, will depend on a host of variables ranging from changes in mortgage rates to changes in the long-term average appreciation of housing prices and economic conditions.

"What you can identify is where the pressures are," Somerville added. "How the market plays out is very different."

Prices do not have to fall for the market to correct, Somerville said. Prices can simply stagnate over a period of time, like Vancouver experienced through the mid-1990s until 2001.

However, Somerville added that Vancouver has built new homes at a much higher rate than household formation in the city during the up-cycle, and the inventory of unsold homes in the market has ballooned rapidly, which make Vancouver more susceptible to price declines.

"Those are two big warning signs," he said.

Somerville said another unknown in the declining market is what the buyers of pre-sale condominiums that are now under construction will do once the units are complete.

If a significant number of investor-buyers of those condominiums decide to sell them right away, that would put more downward pressure on prices.

However, at this point there is little evidence of "calamity in the housing market," said Helmut Pastrick, chief economist for Central 1 Credit Union, formerly known as Credit Union Central B.C.