Maybe there was no bubble. To the surprise of many who follow real estate, Vancouver’s bubble didn’t burst, and in fact prices are still climbing. This article explains that just because prices look out of whack doesn’t mean there’s a bubble. It also raises the question, should foreign buyers be charged a premium for the luxury of owning real estate in Canada? It begs the question, is foreign money playing a role in Calgary’s real estate?
It goes on to describe the positive and negative effects of foreign money on the locals.
“A recent report by Sotheby’s International Realty Canada examined more than twelve hundred luxury-home sales in Vancouver in the first half of 2013 and found that foreign buyers accounted for nearly half of sales.”
“Vancouver isn’t an obvious superstar. It’s not home to a major industry—as New York and London are to finance, or San Francisco to tech—and it doesn’t have the cultural cachet of Paris or Milan. Instead, Vancouver’s appeal consists of comfort and security, making it what Andy Yan calls a “hedge city.” “What hedge cities offer is social and political stability, and, in the case of Vancouver, it also offers long-term protection against climate change,” he said. “There are now rich people around the world who are looking for places where they can park some of their cash and feel safe about it.” A recent paper by two Oxford economists bears this out, showing a tight correlation between London house prices and turmoil in southern and Eastern Europe. The real-estate boom in Miami has been magnified by political unrest in Venezuela. And Vancouver, which has a large Chinese population, easy access to the Pacific Rim, and nice weather, has become a magnet for Chinese investors looking for insurance against uncertainty. A Conference Board of Canada report found that Vancouver’s real-estate market is tightly connected to what happens in the Chinese economy.”
Read more in the New Yorker Real estate goes global.
The Conference Board of Canada rates the Alberta, Saskatchewan, and Newfoundland economies as the best in the world. Canada’s overall economy comes in at #5 when compared to other countries. “Alberta, Saskatchewan, and Newfoundland and Labrador are “A+” economies—they rank higher than any advanced country in our analysis,” said Glen Hodgson, Senior Vice-President and Chief Economist. “Rising income in these provinces has led to higher consumer spending, which has boosted the services sector and real estate activity.”
Read more Resource-rich provinces earn top grade.
What are the implications for the Calgary housing market considering we already have low inventory?
It should be noted that the Conference Board of Canada, like all economic forecasters, has not had a stellar track record when it comes to accurate predictions. Perhaps they are one of the few who have been “less-wrong.”
Has Mayor Nenshi’s desire to see Calgary build “up” rather than “out” resulted in a lack of land on the outskirts of the city for new builds? The director of the University of Calgary’s School of Public Policy, economist Jack Mintz thinks so…
“Calgary now has moved towards what’s called an intensification strategy. And it’s a good thing to have some intensification because you don’t want to hollow out the middle of the city,” says Mintz.
“But you have to have some balance and if there’s no more expansion that’s going to be allowed, maybe we have to close down parks to make way for new housing. Otherwise prices are going to go up because you’re simply going to have higher land prices.”
Mintz says the city needs to think carefully about limiting new housing development if it wants to make housing more affordable.
“The prices can be policy induced. and if you think of it being artificially high that can happen if you’re no longer getting enough supply relative to the number of people who want to move into Calgary.”
ATB economist Todd Hirsch has a different theory…
“I think that’s part of the reason building costs and material costs and labour costs are a little bit elevated in Calgary still because again we’re not seeing the same impact in Edmonton. So I think Calgary’s flood last year still having some residual carry over effect to these new home prices even today.”
Hirsch says once the flood rebuilding is complete, building costs will come down — and we will likely see more moderate growth in new home prices.
Read more Curbing urban sprawl, flood driving up new home prices
What we didn’t hear in this story is that Calgary is inundated with thousands of new residents every year. Last year alone, net migration to Alberta from the rest of Canada totalled almost 45,000. Would there be a problem with supply, and higher prices, if we weren’t growing so fast?
A frenzied market continues…
- 33% of sales were for list price or higher.
- The only occurrence which has prevented all-out insanity is the fact that new listings are increasing slightly. In the price range below $500,000 homes are selling faster than they’re being listed. The absorption rate for homes priced between 0 – 500,000 is .8, so that means there is a 24-day supply of listings. In December there was a 36-day supply.
- 66% of the homes listed last month are already sold.
Suggestion for buyers…
If you’re a buyer, and can wait a few months, there’s bound to be more inventory come July and chances are good that prices will moderate accordingly.
Suggestion for sellers…
There’s never been a better time to get top dollar and a quick sale.
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