The spread between the Single Family (SF) House markets and the Condominium market in Calgary continues to grow, with the difference between the two markets being higher than it has ever been since I have been tracking the data. Condos reached a new high Absorption Rate, and the drop in median price of condos is starting to become what I would describe as "dramatic". Meanwhile, houses stabilized somewhat and median prices continue to slowly come down.
Condos: The absorption rate for condos at the end of September 2008 stands at 6.08 - a new high, and now breaking the psychological barrier of 6 - so that is more than 6 months of inventory of condos currently listed on the MLS system. The median price for 2 and 1 bedroom condos now stand at $262.5k and $222.0k respectively. This is down from $300.0k and $255.5k 12 months ago - price drops of 12.5% and 13.1% respectively in the last 12 months. In the last 3 months alone, median prices have fallen 6.9% and 4.1% for 2 and 1-bed condos respectively, supporting my feeling from the street that the fall in condo prices is starting to gain momentum and becoming "dramatic". See Chart A - Absorption Rate and Chart C - Median Prices
Note: See my market report from February 2008 for some insight into why the difference between the condo and house markets.
Houses: The absorption rate for houses at the end of September 2008 stands at 4.97 - still well in the territory to be considered a strong "buyer's market" but a slight improvement over the 5.12 it was last month and better than the high water mark of 5.47 in May of this year. So the SF House market seems to have stabilized and is very slowly improving over the last 6 months. Median prices continue to fall though as one would expect in a strong "buyer's market". The median price now stands at $395k, down from $420.5k (-6.1%) 12 months ago. The median price of houses three months ago was $408k, a drop of 3.1%. So the SF House market continues to be very soft and prices are falling, but not as dramatically as with condos. See Chart A - Absorption Rate and Chart C - Median Prices
Advice For Sellers:
My advice to sellers continues to be to emphasize the critical importance of pricing your property for the new reality. It is crucial to get ahead of the price drops in this market. Most sellers instinctively want to err on the high side when choosing a list price - it is natural to do so. Frankly, it is also a mistake in this market. If anything you want to err on the aggressive side with respect to list price in this market.
For condo sellers this advice is even more important. There is 6 months of inventory of condos on the MLS system - and then much more in the form of new condos not listed on the MLS. And your options are running out too - the official vacancy rate in Calgary has risen from 2.0% in the spring of this year to 4.0% this month (and unofficially my sources in the property management business tell me it is now more like 4.5%). So I was advising many potential sellers who were reluctant to price their property for the new reality to consider renting out their condos instead - but now, so many people are doing just that, that the softness has spread from the condo resale market to the rental market. Condo sellers, you are in a very tough spot with limited options I'm afraid.
Advice For Buyers:
It's a great time to buy - simple as that. Prices are falling and the selection is great, even in the tighter SF House market. And if you are a condo buyer, well congratulations! It is an especially great time to buy a resale condo. If you are concerned that prices may fall even further and are wondering if you should wait, see my market report from last month where I discuss in detail some of the factors you should consider in deciding whether now is the time to buy for you.
Mortgage Availability Suddenly Becomes an Issue
Normally the mortgage rate update is the briefest part of my monthly market report, but there have been significant developments in the last month (and days) that are worth mentioning.
First, the "credit crunch" has hit home in Canada in the last few weeks. There is not nearly as much money out there for lenders to lend to home buyers. As a result, some people who would have been able to get a mortgage just a month ago will no longer qualify or will only qualify at higher interest rates or with a larger downpayment. These include the self employed, the underemployed, people who are a bit stretched financially and people with less-than-ideal credit. It is noticeably more difficult to get a mortgage today than it was just a few weeks ago.
Second, even though the Bank of Canada has lowered their trend-setting Overnight Rate (in a dramatic coordinated move with other federal banks around the world), it is not showing up in mortgage rates. In fact mortgage rates, both fixed and variable, are on the rise. See the weekly mortgage rate trend chart here. There are a few different reasons for this: 1. Banks are trying to recover their losses on the financial markets. 2. Banks/lenders have less money to lend, so they feel they can charge higher rates (supply and demand). 3. Banks/lenders are concerned about falling house prices and mortgage-defaults, and want higher returns because of what they see as higher risk.
So as a buyer, it is now more important than ever to get a mortgage pre-approval before home shopping. And as a seller it is now more important than ever to confirm your buyer has mortgage pre-approval before accepting an offer. The days of easy mortgage-access are over for now.
Andrew Kyle, B.ASc., is a REALTOR® with Royal LePage Foothills and a Certified Condominium Specialist.
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