‘It’s Like Night And Day’ In Calgary
The Calgary Herald reports from Canada. “It was a crazy phenomenon a few months back that garnered attention across the country. But today’s residential resale housing market has changed quite dramatically. It’s like night and day compared to the spring.”
“‘Buyers have a little bit more leverage to work with now that the market has slowed and prices are coming down,’ says realtor Desiree Wells. ‘I think buyers are having a better negotiating tool to go in there because there’s more homes to choose from. There are options out there and getting a better deal it’s higher for them now than it was in the past. We’re not seeing the multiple offers anymore.’”
“‘A lot of the buyers are really taking their time. They see the market slowing and they’re thinking if they wait another month the prices are still going to come down. With that and the influx of homes that we have on the market, of course, that pushes the prices down a little bit,’ says Wells.”
“‘The homes have appreciated so fast,’ she says. ‘Now they’re kind of wanting to cash out and maybe get into a bigger home.’”
“Total MLS combined residential sales dipped to 2,180 in September, a 13.35 per cent decrease from the previous month’s sales of 2,516 and a 17.46 per cent decrease from September 2005 (2,641). At the same time, residential combined listings were 4,783, representing a 47.17 per cent increase over September 2005 (3,250) and an 11.99 per cent increase over the 4,271 homes listed in August.”
“Kevin Clark, president of the Calgary Real Estate Board, says there is one word to describe the current Calgary housing market for prospective buyers: ‘confusing.’”
“The reason the market is ‘confusing’ right now for buyers is because of the demographics. Listings are all over the place. Some areas have more listings than others. Some price ranges have more listings than others. As of last Thursday, 38 per cent of detached homes listed on the market had reduced their list price by an average of $25,000 and 25 per cent of listed condominiums had reduced their list price by an average of $15,000.”
“‘The next six months, the last quarter of 2006 and the first quarter of 2007 will be determined by the inventory levels. It is the inventory and only the inventory that we’re watching,’ Clark said.”
“Broker Ted Zaharko says that ‘buyers have become reluctant to get involved in the frenzy that has typified the city’s market up until now.’”
“Richard Corriveau, regional economist for Canada Mortgage and Housing Corp. in Calgary, says today’s Calgary real estate market compared to six months ago is ‘night and day — a totally different marketplace. Things change very rapidly in Calgary and the resale market isn’t an exception to that rule.’”
“He says about three months ago, the local market saw the first year-over-year decline in sales in over two years and with that the market saw a $10,000 decline in average price.”
“‘That was the turning point in the marketplace,’ says Corriveau. ‘And with that, a lot of people became concerned about whether price pressures would be in a downward direction. And I think a lot of people who were postponing listing their properties, whether they be people upgrading to a new home..or speculators, they saw some concern once prices dropped that $10,000, and without risking further price collapse, they all listed their properties at the same time.’”
“He says another key defining factor is active listings, and they have increased almost three times from what they were in June and almost four times what they were earlier in the year.”
“‘This is good news for the buyer. They have tons of selection to choose from,’ says Corriveau. ‘So they won’t be engaged in any bidding wars like they were earlier in the year. They can shop around, take their time. Offers no longer have to be unconditional, which is important. Overall, a market much more in favour of the buyer — a feature that hasn’t existed for some time.’”
‘As lumber prices are tumbling to historically low levels, sawmills in British Columbia are feeling the pinch. ‘It’s been a lot of years, I’ll tell you, before we were in the pickle we’re in today,’ said Bob Taylor, general manager for Weyerhaeuser’s B.C. operations.’
‘This past week, Random Lengths, an Oregon-based industry newsletter, reported that the price for framing lumber had dropped to $274 US from $401 US per thousand board feet within the last year. The reason for the sharp drop is a slowdown in the housing market in the United States and the related slackening demand for lumber.’
‘That slowdown south of the border is increasingly felt in Canada, whose sawmills sell their lumber primarily to the Americans. ‘The inventory of lumber in the United States is at a point where you almost don’t have to ship another piece of lumber, and they can build all the houses they need to with what’s down there,’ Taylor said. ‘
Does anyone have an estimate of how the 30% drop in lumber prices effects the overall cost of building the typical home ,excluding the cost of land.
Calgary is an oil boom town,between them and Aus and DC you can see a market is a market. RE is tanking no matter what the local economy is doing
Depends on construction methods and the cost of other aspects of construction. But for a single-level 1500sqft home on a concrete slab in CA, I’d guestimate that a 30% drop in lumber probably translates to a 5% drop in total construction costs–maybe 10% at most if the siding, roof, etc were all wood and the building codes are pretty lax.
Far and away, the most expensive component of construction is labor. If the cost of labor declines 30%, then you might see a noticeable decline in the cost of construction. But it usually takes a prolonged slump in construction before quality skilled labor is willing to take such a drastic reduction in wages. Right now, the primary savings in labor is coming from reduced demand for workers to work at overtime rates on the weekends.
The cost for new construction will drop over the next 8-10 months because of reductions in labor costs, undeveloped land prices plummeting, and really expensive materials (like copper wire) dropping. Lumber falling is nice, but its a relatively small portion of homebuilding expenses in the grand scheme of things.
Another cost that’s going to drop considerably fairly on the building slump is rental equipment. A year ago, we would need to call three or four days ahead to schedule a rental of scissorlift–sometimes having to call multiple places to find someone who had something available and paying ridiculous delivery and pickup fees. On Friday afternoon at around 3pm, I called United Rents to try to get a 6k47 forklift scheduled for as early as possible on Monday up in Colfax (we and they are based in Sacramento), and our account manager asked if we’d prefer 6am, 7am, or 8am. We’ll be looking to negotiate our rate schedule down 10 or 15% (back to what we were paying in early 2005). A couple weeks ago we got free pickup and delivery the next day for a walk-behind trencher.
Many of these places have brand new equipment that’s just sitting in their yards. As long as most of these residential builders remain in hibernation, its a buyers’ market for equipment rentals as the rental companies just try to cover the debt service on all their new equipment.
Finally, a more responsive rental vendor will help contractors cut down on the mother of all budget killers: idle time for skilled labor.
As a local I can tell you things ain’t what they were here in BC. One of the major papers had an article about sales down 24~% inventory up 11~%. Since I work in a construction related business the news was not welcome. I showed the article to some people and it was discounted immediately. Here in BC people are using Calgary as an example of why houses are still too cheap here, now I suppose it will be used as an excuse on the way down too!
O/T, but just wondering: what’s with the spelling out of “per cent” in all the Canadian, British, and Australian papers? Don’t you guys have “%” keys?
A little off topic.
- Extreme Makeover -
My company will participate in the ‘Extreme Makeover’ TV show. It will be in the
nexy two weeks in Redondo Beach CA. We have been notified of 5 different streets
but the final choice is still secrect. Our company will install the cabinets,
we will have about 20 volunteers and our time slot will be 3am to 9am. The entire
street is to be closed off at both ends for one week.
I have never seen the program, but I understand the winner has suffered extreme hardship.
I will keep my fairly happy life instead of a free makeover. House values in the hood about 750K.
I haven’t seen it either but would like to try to watch so be sure to update on CA or bits blog as TV slot approaches.
We had one of those near us. A family with 8 kids, and the wife/mother had died. Their house was around 1200 SF, and the Extreme Makeover crew tore it down and rebuilt a nice, big house for them. Of all the “home” shows, I think this is the winner. I’ve only seen around 4 shows, but they are tear-jerkers.
Please let us know when you will be on! Very worthwhile, IMHO.
For fantastic coverage of Calgary, check out Calgarian Contrarian’s site. If you browse through his site, you’ll see how inventory dropped to almost nothing through the Spring 2006 market, but has now moved up sharply, back to 2005 levels (and climbing). Prices are up **50%** year over year. It was a total frenzy there this Spring.
As for Vancouver, our market seems to be in tune with Seattle’s. That is, we have finally in the last three months started to see the old familiar pattern emerge - sharp drop in sales; inventory start to rise; price increase deceleration. Prices still rising though - but that happened in many US bubble markets for 6-12 months after the sales topped out. I’m pretty sure it’s all over here but for the crying.
For BC, the drop in US lumber demand will hit us very hard. Also drops in tourism due to strong C$ and no more HELOC’d vacations.
For Calgary, it’s all about oil. If prices stay below $60, things will start to get dicey I think, since many people believed the peak oil cr@p that told everyone they were going to $100 and beyond. It will be a disaster there if oil prices drop considerably more.
Hey, VHB, I was hoping you would show up. I saw this quote and wondered if the article was refering to your site:
‘Residential housing prices and sales volumes have leveled off in Squamish in 2006, leading to a real estate market favouring buyers for the first time in recent years.’
‘A popular real estate web log heated up with opinions on Squamish’s future in recent weeks, some speculating that the town is in for a market crash partly due to an inundation of residential units.’
Hi Ben,
Squamish has certainly levelled off, but I can’t take the credit/blame! Squamish is a town maybe 30 miles north of Vancouver along a bad mountain highway. It’s maybe 40% of the way up to Whistler ski resort. The highway is being upgraded for the Olympics, so speculators hit Squamish heavily, talking up how it was going to be a great commuting location for people working in Vancouver. I should point out that *after* you snake along the mountain highway, you *then* hit heavily clogged bridges to get into Vancouver. Nice commute.
There is a message board here in Van called ‘Real Estate Talks’ inhabited by lots of specuvesters and some bears as well. They had a big long thread about Squamish (here. I highly doubt that the RET thread had *anything* to do with what’s happening in Squamish. They don’t get anywhere near the traffic that I do, anyway
A lot of people who work in Whistler live in Squamish due to the former’s Aspen-league prices. So why aren’t the upcoming Olympics holding up Squamish’s RE prices? It’s just a small town and the “Olympic effect” should be a lot stronger there.
since many people believed the peak oil cr@p that told everyone they were going to $100 and beyond
Just keep your head buried in the (tar) sand.
Sorry for the OT, but:
Peak Oilers are the same as RE pumpers: They claim that because something is scarce or limited in supply (oil, land) therefore the price will head to infinity on a straight line.
Check out Hotelling’s model for natural resource pricing. That’s all you need to know.
/OT
Come on, VHB… “Peak Oil” makes no such claim.
“They aren’t making any {land,oil} anymore”
That’s the crux of the argument of peak oilers and RE pumpers. Same diff.
Light weest crude probably production probably peaked in 2005. Sure there is plenty of oil in the world; it’s the easy to get to light sweet crude that is becoming scarce. The North Field was producing 6 million bbpd in 1999. They’re already down to 4 million bbpd. There is a lot of suspicion that Ghawar is in decline. Saudis just can’t produce more than 9 million bbd anymore. Venezula is now producing mostly heavy sour crude. Mexico is in decline. Read Twilight in the Desert by Matt Simmons and draw your own conclusions. He lays out the facts. The real problem with the peak oil debate is the veil of secrecy behind which the Arab producers hide behind. But when all the biggest producers have been using water injection for twenty plus years and when the water cut is becoming increasingly difficult to control, it’s hard not to draw the conclusion that at best we’re looking at a plateau of production and most likely we’re looking at a fall off in production.
The difference is that global oil production exceeds supply by less than 3%, with production at best stagnant and supply increasing. You can’t say the same for land — especially coming from Canada, which has less than 10 people per square mile.
There is land and then there is land — not all land is equal … somehow building spec houses in Moose Factory doesn’t make sense for attracting Toronto commuters. And yup, there is peak oil — in point of fact one of the indicators is volatility in price. FRCP is correct.
Sh!t, meant to say “…production at best stagnant and demand increasing”. Oh well!
The Great One Himself (AG) was just in Calgary on Friday where he announced “the worst may be over” for the U.S. housing industry.
Boooowahahahahaha.
Maybe the Canadians will feel sorry for him and offer him asylum as a political refugee. The way thing are going back home, he’s gonna need it. Hey, Al — that’s not coffee you smelling, it’s tar and feathers.
I just saw Alan the week before and he said nothing of the sort. In fact he was quite direct in his remarks about overvalued housing.
‘Buyers have a little bit more leverage to work with now that the market has slowed and prices are coming down,’
Funny — I would have guess the reason prices are coming down was because buyers have a little bit *less* leverage.
A month or so ago, there was an article about Calgary and how it was “different” because of oil revenue and such. I said it is the same because lots of leverage, buy now before priced out forever, RE never goes down was the prevailing wisdom. Lots of panic before June 2006 driving prices to record levels.
Well what do you know, turns out first time buyers got priced out, and natural gas prices start to drop along with oil prices, and people start getting nervous. Also turns out we are not running out of land the way people thought 6 months ago. Believe it or not, there is lots of land as far as the eye can see.
Markets are driven in the short run by psychology, and in the long run by fundamentals of supply and demand. Bad idea to invest thinking that today’s psychology will remain constant forever. Moods change, pendulums swing… And emotions can trump logic, just not forever… not just in USA
The drop in lumber is not surprising. I expect further drop into 07 in ALL materials used in construction. Rental equipment will drop more. I agree that labor will take longer to weaken but as work becomes hard to come by it will drop. Looking to start building in the 3rd quarter of 07 thus building at $80 to $90/sq.ft including land. As a builder I am sitting on the sides lines with several rental properties providing cash flow to meet my daily living needs - it is not much margin there but puts food on the table until I can start building again. I have circled the wagons!!!
Good for you Tampa — I simply retired from a far less vulnerable market. I don’t need the headaches or the risk in my dotage:-)
Lumber is among the most volatile commodities which is one of the reasons why the 1982-83 recession (which occurred in tandem with the biggest RE crash since the Depression) was so bad in Vancouver and all of BC.
But “it’s different this time”.