Is it time to consider a move to Calgary?

Is it time to consider a move to Calgary? I had a look at the residential real estate market in Canada’s headquarters for the oil and gas industry, Calgary, Alberta. My search focused on expensive homes. What I discovered was a shock …

In the midst of news about the continuing collapse in the price of oil and more layoffs in the Alberta-based oil and gas sector, I got thinking about house prices in Calgary; so I checked the computer for listings of houses for sale with a cut-off of $850,000 or higher. Here is an MLS listing for one of the most expensive homes in an exclusive neighbourhood, 5.6 km. from downtown:

$4,950,000 ELBOYA Calgary, AB

5 Beds
5.0 Baths
4,456 SqFt

MLS® #C3642373

Construction Cost Over $5m. Rare 75 Foot Wide Lot With Views Of The River Valley And Downtown.

This is one of Calgary’s most sought-after locations with a view. It seems that this home, which was built in 2011, might be empty. The seller (probably a “spec” builder) states that the cost of building the home is greater than the listing price. In scrolling through the listings it is clear that there are hundreds of such homes. Built on spec and empty which means the builder is desperate to sell, or soon will be if a lender gets involved.

I addressed a February 19 luncheon meeting organized by the CFA Society of Edmonton as the keynote speaker. The room was packed; a sell-out. I’d like to think it was my notoriety and my speaking ability that drew the crowd, but I know better. It’s the hot topic of the moment - the real estate bubble and possible crash, especially in Alberta but all across Canada too. I spoke about my soon-to-be-released book, When the Bubble Bursts: Surviving the Canadian Real Estate Crash (Dundurn March 2015). In the Q&A, an attendee asked about land; is it the land that fluctuates more in price or is it the value of the building? My answer: Yale University Professor Robert Shiller’s (Nobel Prize in 2013) book Irrational Exuberance, states that the cost of building a house, adjusted for inflation, doesn’t vary much over the decades but the land prices fluctuate in a wide range as excess demand creates bubbles and then a recession or financial crisis causes a crash. After all, wages paid to sub-contractors and the cost of materials don’t decline much at all, even in a recession. So the lot value must drop, if that “$5 million house” is going to sell in an oversupplied market.

But back to the Calgary housing market, as it appears this is where the havoc will start. When I completed that search on Sunday, February 15, there were over 1,000 listings at a price of $850,000 or greater, AND THERE WERE 307 NEW LISTINGS SINCE FEBRUARY 1, in just fourteen days. That’s a lot of paperwork for a large number of agents.

On February 19 the same search revealed that 356 listings in that price category were active. This is absolutely mind-boggling. Another fifty homes in just four days! And total listings had jumped to 1,125 homes. Try the search yourself, if you’re curious.

So the Calgary housing market is changing quickly and the excess supply of homes will take years to sort out. Why will it takes years, not just a few months as many Albertans expect?

Remember that in order to buy a home in that rarified price range the potential buyer must sell another home first. It’s seldom, if ever, that a first-time buyer jumps into the high end of the market. So the stress that will be involved in clearing those 1,100 listings will be unprecedented as prices need to adjust to allow people to simultaneously sell a home and buy a home in a difficult market. It will be a buyer’s market for many months, even years. And realtors are going to work harder than ever to earn their commissions.

Give your realtor a hug today; they are going to need some support.