Folks in Toronto, Vancouver, Milton or Lunenburg would be smart to think about Calgary once a day. It’s probably the most American city in Canada. Only fitting then that it would be the leading edge in what’s looking scarily like the early days of a US-style housing meltdown.
Fact is, if you own a house in Cowtown today, and you need to sell it, you’d better be prepared to deal with flinty vultures, or see it veg for a long time. Like years. As one realtor told a local reporter this week, if the property isn’t outstanding, “it might sit on the market perpetually.”
So far this month 825 houses have changed hands in this city of 1,080,000 people. That’s down about 25% from last November, and off 7% from last month, which was down by a third from last autumn. It’s the six consecutive month of substantial year-over-year sales declines, which means this is far more than a blip since it spans some of the best real estate months on the calendar.
As for prices, Calgary’s average topped out in the summer of 2007 at $506,000, and a SFH now sells for about $455,000. That number has been reasonably stable this year, the result of a slide in sales which allows relatively few higher-end homes to keep the average elevated.
More important is what’s being experienced by sellers. One of them told me this week, after having a custom-built home on the market for 20 months, that ‘the only option left is to rent it and wait for the market to come back, which looks like it might take five years.’ Meanwhile, as you might imagine and expect, local realtors are sprinkling the fairy dust of false hope.
“I firmly believe that we’re going to see more growth and activity probably not too early in 2011,” says local cartel president Diane Scott, “but I think about February or March we’re going to see a lot of people coming off the fence.” She bases that on, well, nothing.
The fact is things are almost certain to be worse in the spring. The simple reason is so many people have snorted the realtor dust and removed homes from being isted that when they pile back on in March, buyer demand will be overwhelmed. Currently there are about 10,000 houses for sale in the city (which means sellers will wait, on average, almost a year for a buyer), but could easily swell to the early-2008 level of 15,000.
And that would turn a six-month-long sales rout into the beginning of a price decline would could last much longer. More vultures. More desperate vendors. More price reductions. Most lost equity for everyone. It’s a pattern familiar to almost every American homeowner.
Because, like Vancouver and Toronto, house prices raced too far, too fast. Calgary was about a year ahead of those cities in price appreciation, thanks to oil which spiked to $147 a barrel, creating a false wealth effect. That made realtors greedy and homeseekers horny. Bidding wars ensued, and suddenly it cost 25% more to live in the middle of Alberta than in the middle of Toronto’s six million residents. That was unsustainable, of course. Just as, say, the average Van house at $800,000 is today.
Exacerbating things was a recession which knocked oil prices down, increased unemployment everywhere (it’s now a chilling 10% in the GTA) and actually led to a decrease in Calgary’s population last year. Now the city is in crappy financial shape (like Toronto and Vancouver), and the new metrosexual mayor is talking about a big tax increase.
Being full of practical people with cowboy genes (unlike Vancouver’s polluted hippie DNA), Calgarians have decided to stop buying houses. It’s a good decision, of course, give what’s about to happen.
We have a handy indicator of that. It’s called the US.
Yesterday the latest Case-Shiller home price index was released, showing new price declines in 18 of 20 major metro areas. Prices were down .08% in September, and this is after four years of almost continuous meltdown. Said an analyst who expects another 20% decline in real estate values: “Housing is in big trouble. As prices go down, more people get underwater, leading people to walk away. That will be Act II in the whole drama of the housing collapse.”
By the way, my bud Benny Tal, senior CIBC economist, gave a speech a few days ago to a mortgage group, which was not widely reported. He talked about the 24% of American households who now owe more on the mortgages than their houses are worth. It will take until 2017, he said, for house prices to rise to the point where the average person in the U.S. is able to get out of negative equity. That will be 12 years after the market started to crumble.
Now, it might be extreme to say Calgary’s headed in the same direction. It might even be imprudent to suggest what happens to the largest city west of Toronto is a harbinger for the rest. Perhaps we’ll somehow escape the housing meltdown that nailed the middle class in America, Britain and most of Europe.
That’s your Calgary moment for today. What did you learn?