While the Toronto and Vancouver housing markets continue their record-setting pace, Calgary home prices are dropping. Don Campbell, Senior Analyst, Real Estate Investment Network and author of “Real Estate Investing in Canada,” weighs in on where housing prices in these markets are headed.
Print Transcript
Since the summer of 2014, oil prices have collapsed from $107 all the way down to $30 a barrel, which is where it's hovering right about now.
And that has taken a tremendous toll on not only Alberta's economy, but also its housing market.
For a look at where we go from here, we are joined by Don Campbell.
He is senior analyst at the Real Estate Investment Network in Vancouver.
He is also the author of many books on real estate investing in Canada.
Don, always great to have you with us.
Nice to be back.
Thank you, Kim.
Let me ask-- and not to age you, but you've seen a few housing cycles over the past few years.
I think you've been involved in what, three decades, I think?
Three decades.
Three decades, yeah.
And you started when you were 10, so it's all good.
[LAUGHTER] Tell me, having been through this, where are we with Alberta?
Let's start there, or Calgary, in terms of the housing cycle.
How much of an impact have we seen so far?
What's interesting is it reminds me-- you look across the country and it reminds me of Charles Dickens-- "It was the best of times, it the worst of times, it was the times of wisdom and the times of foolishness." And that's what we're seeing across the country.
And right now, Calgary is enjoying now the not worst of times because more is to come, but we're starting to see that downward pressure in Calgary.
And there's not a lot of foundation behind it at the moment, which is quite interesting to watch.
So if I was looking at some stats, and we've pulled some out here, I think the average sale price in 2015 for Calgary down about 2.6% according to the Calgary Real Estate Board.
What should we be looking at in terms of what's coming?
The magic month, of course, is the 18th month.
The 18 months after the GDP starts to slow down, i.e.
the oil started to come down, is when it really starts to hit the housing market and the resale housing market.
We're forecasting this first quarter to be pretty darn tough in Calgary as far as average sale price drops.
We saw a little positive blip in the luxuries side, which will help the math equation, of course, when you're doing average sale price, a positive blip.
But we're entering a time now when we forecast that the sellers are really going to have to start adjusting their prices, and that's going to drive the average sale price down.
And explain to those of us who don't live in Alberta nonrecourse mortgages.
How does that play out?
What are they?
How does it work, and what impact does that have on the market, as well?
The nonrecourse mortgages in Alberta, it's under the property law.
And you can, in essence, mail your keys in when you finally go, I don't want to pay this anymore.
Of course, there's a lot of repercussions for doing, and it's not a recommended strategy.
But that's really what drove the US market, because all mortgages in the US were nonrecourse.
So you're starting to see a little bit of that out in the smaller outlying areas or the more one-industry towns.
But it's not a big, big, big impact.
Of course, if oil stays at $20 or $30 for the next two years, then it's going to be a much higher impact.
But right, now we're just seeing actual, true market dynamics come in, where properties that were listed before that people were fairly unrealistic on their value of their properties, they refused to dropped their price-- those listings have expired.
They're now being relisted with a little bit higher motivation, and therefore the prices are going to start coming down.
And the buyers are still sitting on the sidelines trying to figure out what that provincial government and what the federal government are going to do, if anything, to help prop up that economy.
Well, yes.
And that is-- and I don't want to be someone who's pointing and say, OK, what's going to happen next, how bad does it look?
Where it is there opportunity in this for people, again, who have a very long-term horizon?
I guess a lot depends on where you think oil prices are going.
Does it depend in terms of what the province and the federal government does?
What kinds of things should you focus on if there is an opportunity in this, or is there?
There is opportunity, and there are a number of us who are looking at the multifamily world right now because the yield, the Canadian bond yield, is so low that our mortgages that we're able to get on multifamily, like apartment buildings, et cetera, are very, very low.
And, of course, the demand for people who are selling their properties is to move, unfortunately, into a rental accommodation.
So the demand for rentals is going to go up.
But we have to understand that the in-migration last year and the year before into Alberta was quite spectacular.
And that's protected the buffer, actually buffered, the housing market.
And the opportunities now are lying in those of us who have 5, 10, and 15-year windows for holding property.
This next year, maybe two years, is going to be bumpy and you're going to have to be very proactive in your management.
You just can't buy it and hope for the best.
But the opportunities are really starting to show up more in Calgary than Edmonton.
In Edmonton, we're seeing that market still perform fairly well.
But inevitably, if the job losses start to hit Edmonton, then you're going to see a slowdown up there, as well.
All right.
Stay with us.
When we come back, we're going to have more Don Campbell from the Real Estate Investment Network.
We're shifting our focus to Vancouver and Toronto.
You're watching Money Talk.
We'll be right back.
[MUSIC PLAYING] We are back with Don Campbell, senior analyst at the Real Estate Investment Network.
We've been talking Calgary real estate.
Now we're shifting to Vancouver and Toronto.
I've got a board here I want to bring up and you can't see it, Don.
But in a nutshell, the average price of a home back in, I think, in September last year-- $1.4 million in Vancouver; October, $1.6; December, $1.7; January, $1.8.
$400,000 in four months-- what the heck is going on?
It's really quite interesting, and we're going to talk a little bit that dirty for a second.
And that's the key bit, is the Vancouver real estate market is really driven by dirt, demand for dirt.
If you break those numbers down into condos and townhouses and single-family homes that have actual dirt, you really see that the drive in it, the dramatic increase in average sale price in dirt or in single-family homes, single-family homes with laneway houses, et cetera, is what's driving that number.
Condos are performing kind of average, frankly.
As a matter of fact, since 2008, the average carrying costs, all-inclusive for a condo in Vancouver, is only $100 more than today in chained dollars, inflation-adjusted, than it was in 2008.
So the condos aren't moving so dramatically.
It's all about the dirt.
We have also a chart here we're going to bring up.
I think these are prices from, and this will make you dizzy, 1977 to 2016.
And again, it's to your point-- what you're saying is these detached ones, of course, that are just, like, through the roof.
Through the roof, that's where a lot of-- it seems to be like a bit Don Quixote, everybody's chasing after, looking for monsters that don't exist.
And first off, I think the last time we were talking, everyone was blaming foreign investors.
Now, everybody's blaming flippers.
And then everybody's going to blame something else.
And frankly, all it is is basic fact.
And we all want to blame one thing, and we don't need to.
We just need to look at there's a high demand for something that there's not a lot of, and they're not making any more.
And that's dirt.
We're surrounded here on the west coast with mountains and oceans and agricultural land.
Oh, stop rubbing it in in.
Oh, and by the way-- I don't know, it's 25 degrees or something today.
I don't know.
You're killing me.
But yeah, you're killing me.
But frankly, that's where that demand and that's where those prices are going.
Condos have gone up in price.
Obviously, they have.
Cheap dollars, really, really inexpensive mortgages are occurring here, and that's where the market is really being pushed up.
It's not just one thing.
It's not foreign investors or flippers.
It's multiple, different things that are driving the market, and the same thing we're seeing in Toronto.
Let me ask you-- we've only got about 45 seconds to devote to Toronto, center of the universe.
It's appropriately getting 45 seconds.
I say that facetiously.
I'm a Maritimer.
I know you do.
Let's talk about the average price in GTA $622,000 in 2015 up about 10% from 2014.
Are we going to still see the same rate of acceleration, and in 20 seconds or less, please?
Yes, we will.
We'll see the same rate of acceleration.
And once again, it's getting dirty there, as well.
Anything that's going to be serviced by the new transit-- hopefully they decide how they're going to do that, whether it's a subway or not-- is going to have higher demand than that 800 meters or more away from those transit nodes.
And the dirt, those single-family homes, that's where your average sale price is going to go.
Condos are going to continue to perform at or below market.
Insightful as always, and a pleasure as always, Don.
Thanks so much for joining us.
Thank you, Kim.
Thank you.
Don Campbell joined us from Vancouver.
He is senior analyst at the Real Estate Investment Network.
Thank you for joining us.
And that has taken a tremendous toll on not only Alberta's economy, but also its housing market.
For a look at where we go from here, we are joined by Don Campbell.
He is senior analyst at the Real Estate Investment Network in Vancouver.
He is also the author of many books on real estate investing in Canada.
Don, always great to have you with us.
Nice to be back.
Thank you, Kim.
Let me ask-- and not to age you, but you've seen a few housing cycles over the past few years.
I think you've been involved in what, three decades, I think?
Three decades.
Three decades, yeah.
And you started when you were 10, so it's all good.
[LAUGHTER] Tell me, having been through this, where are we with Alberta?
Let's start there, or Calgary, in terms of the housing cycle.
How much of an impact have we seen so far?
What's interesting is it reminds me-- you look across the country and it reminds me of Charles Dickens-- "It was the best of times, it the worst of times, it was the times of wisdom and the times of foolishness." And that's what we're seeing across the country.
And right now, Calgary is enjoying now the not worst of times because more is to come, but we're starting to see that downward pressure in Calgary.
And there's not a lot of foundation behind it at the moment, which is quite interesting to watch.
So if I was looking at some stats, and we've pulled some out here, I think the average sale price in 2015 for Calgary down about 2.6% according to the Calgary Real Estate Board.
What should we be looking at in terms of what's coming?
The magic month, of course, is the 18th month.
The 18 months after the GDP starts to slow down, i.e.
the oil started to come down, is when it really starts to hit the housing market and the resale housing market.
We're forecasting this first quarter to be pretty darn tough in Calgary as far as average sale price drops.
We saw a little positive blip in the luxuries side, which will help the math equation, of course, when you're doing average sale price, a positive blip.
But we're entering a time now when we forecast that the sellers are really going to have to start adjusting their prices, and that's going to drive the average sale price down.
And explain to those of us who don't live in Alberta nonrecourse mortgages.
How does that play out?
What are they?
How does it work, and what impact does that have on the market, as well?
The nonrecourse mortgages in Alberta, it's under the property law.
And you can, in essence, mail your keys in when you finally go, I don't want to pay this anymore.
Of course, there's a lot of repercussions for doing, and it's not a recommended strategy.
But that's really what drove the US market, because all mortgages in the US were nonrecourse.
So you're starting to see a little bit of that out in the smaller outlying areas or the more one-industry towns.
But it's not a big, big, big impact.
Of course, if oil stays at $20 or $30 for the next two years, then it's going to be a much higher impact.
But right, now we're just seeing actual, true market dynamics come in, where properties that were listed before that people were fairly unrealistic on their value of their properties, they refused to dropped their price-- those listings have expired.
They're now being relisted with a little bit higher motivation, and therefore the prices are going to start coming down.
And the buyers are still sitting on the sidelines trying to figure out what that provincial government and what the federal government are going to do, if anything, to help prop up that economy.
Well, yes.
And that is-- and I don't want to be someone who's pointing and say, OK, what's going to happen next, how bad does it look?
Where it is there opportunity in this for people, again, who have a very long-term horizon?
I guess a lot depends on where you think oil prices are going.
Does it depend in terms of what the province and the federal government does?
What kinds of things should you focus on if there is an opportunity in this, or is there?
There is opportunity, and there are a number of us who are looking at the multifamily world right now because the yield, the Canadian bond yield, is so low that our mortgages that we're able to get on multifamily, like apartment buildings, et cetera, are very, very low.
And, of course, the demand for people who are selling their properties is to move, unfortunately, into a rental accommodation.
So the demand for rentals is going to go up.
But we have to understand that the in-migration last year and the year before into Alberta was quite spectacular.
And that's protected the buffer, actually buffered, the housing market.
And the opportunities now are lying in those of us who have 5, 10, and 15-year windows for holding property.
This next year, maybe two years, is going to be bumpy and you're going to have to be very proactive in your management.
You just can't buy it and hope for the best.
But the opportunities are really starting to show up more in Calgary than Edmonton.
In Edmonton, we're seeing that market still perform fairly well.
But inevitably, if the job losses start to hit Edmonton, then you're going to see a slowdown up there, as well.
All right.
Stay with us.
When we come back, we're going to have more Don Campbell from the Real Estate Investment Network.
We're shifting our focus to Vancouver and Toronto.
You're watching Money Talk.
We'll be right back.
[MUSIC PLAYING] We are back with Don Campbell, senior analyst at the Real Estate Investment Network.
We've been talking Calgary real estate.
Now we're shifting to Vancouver and Toronto.
I've got a board here I want to bring up and you can't see it, Don.
But in a nutshell, the average price of a home back in, I think, in September last year-- $1.4 million in Vancouver; October, $1.6; December, $1.7; January, $1.8.
$400,000 in four months-- what the heck is going on?
It's really quite interesting, and we're going to talk a little bit that dirty for a second.
And that's the key bit, is the Vancouver real estate market is really driven by dirt, demand for dirt.
If you break those numbers down into condos and townhouses and single-family homes that have actual dirt, you really see that the drive in it, the dramatic increase in average sale price in dirt or in single-family homes, single-family homes with laneway houses, et cetera, is what's driving that number.
Condos are performing kind of average, frankly.
As a matter of fact, since 2008, the average carrying costs, all-inclusive for a condo in Vancouver, is only $100 more than today in chained dollars, inflation-adjusted, than it was in 2008.
So the condos aren't moving so dramatically.
It's all about the dirt.
We have also a chart here we're going to bring up.
I think these are prices from, and this will make you dizzy, 1977 to 2016.
And again, it's to your point-- what you're saying is these detached ones, of course, that are just, like, through the roof.
Through the roof, that's where a lot of-- it seems to be like a bit Don Quixote, everybody's chasing after, looking for monsters that don't exist.
And first off, I think the last time we were talking, everyone was blaming foreign investors.
Now, everybody's blaming flippers.
And then everybody's going to blame something else.
And frankly, all it is is basic fact.
And we all want to blame one thing, and we don't need to.
We just need to look at there's a high demand for something that there's not a lot of, and they're not making any more.
And that's dirt.
We're surrounded here on the west coast with mountains and oceans and agricultural land.
Oh, stop rubbing it in in.
Oh, and by the way-- I don't know, it's 25 degrees or something today.
I don't know.
You're killing me.
But yeah, you're killing me.
But frankly, that's where that demand and that's where those prices are going.
Condos have gone up in price.
Obviously, they have.
Cheap dollars, really, really inexpensive mortgages are occurring here, and that's where the market is really being pushed up.
It's not just one thing.
It's not foreign investors or flippers.
It's multiple, different things that are driving the market, and the same thing we're seeing in Toronto.
Let me ask you-- we've only got about 45 seconds to devote to Toronto, center of the universe.
It's appropriately getting 45 seconds.
I say that facetiously.
I'm a Maritimer.
I know you do.
Let's talk about the average price in GTA $622,000 in 2015 up about 10% from 2014.
Are we going to still see the same rate of acceleration, and in 20 seconds or less, please?
Yes, we will.
We'll see the same rate of acceleration.
And once again, it's getting dirty there, as well.
Anything that's going to be serviced by the new transit-- hopefully they decide how they're going to do that, whether it's a subway or not-- is going to have higher demand than that 800 meters or more away from those transit nodes.
And the dirt, those single-family homes, that's where your average sale price is going to go.
Condos are going to continue to perform at or below market.
Insightful as always, and a pleasure as always, Don.
Thanks so much for joining us.
Thank you, Kim.
Thank you.
Don Campbell joined us from Vancouver.
He is senior analyst at the Real Estate Investment Network.
Thank you for joining us.
