Calgary Listings Disappearing? Something Smells...

Something smells like fish.

I can't write a huge post today because I am back hard at work. But has anyone noticed on mls.ca that the listings in Calgary have magically disappeared? I receive "private client" email lists and yesterday I received an update with 38 properties for sale.

Today, that list went to 6 properties with no explanation.

Could this just be an honest mistake?

Or is this CREB's response to dismal sales, decreasing prices and impending "soft crash?"

Something just doesn't feel right and hopefully the glitch in the system gets fixed.

Real Esate In the Negative Western Conference 2008

On Saturday, August 23, 2008, real estate "investors" from across Canada gathered in the beautiful city of Calgary to attend the REIN™ Western Conference. For those of you who are not aware, REIN (Real Estate Investment Network) is headed by Don R. Campbell who helps individuals invest in real estate. Don also predicted that property prices in Calgary would appreciate by 11% in 2008 and listings would fall by April. Inventory is still high and prices have decreased thousands of dollars. REIN's success may have been amplified during the time of free credit, "innovative" mortgage products and coincidental economic boom. I would imagine the REIN network increased its member base the most during the last two years as many wanted to ride the wave of the boom and profit. I have spoken to some REIN members who are average income earners who bought multiple rental properties during the boom. Many individuals who subscribed to REIN during the boom may be in a bit of trouble with no clear distinguishable bottom to the real estate "soft landing."

The name of the conference is suitably coined: How to Create Wealth in Real Estate, No Matter What the Market Does.

Is this truly realistically possible?

As with many other organizations who's reputation and livelihood depend on real estate appreciation, the keynote to this conference was more an assurance to REIN members (each member pays a subscription fee of $3375.04 every 17 months - that's crazy!) that the sky isn't falling. I now understand why Don has to be so upbeat about the prospects of building wealth through real estate. People have invested alot of money, personal savings, trust funds etc. in his word and advice. Any honest and realistic negative sentiments would crumble the network.

Best-selling author, Steve McKnight was flown into town from Australia to present his insights on the Canadian Real Estate market. Invite an individual from another country to come speak to others about how to be successful in real estate investing in this country. Makes sense right? Isn't real estate mantra such that proclaims that markets are localized region to region? Are real estate invesment fundamentals applicable internationally now? I digress.

The following are Steve's "Six Generations of Wealth:"
1. Trade Time For Money
2. Save More Than They Spend
3. Asset Appreciation
4. Income Generation From Assets
5. Income Reinvestment
6. Asset Maximization

For those buyers who bought at the peak, "Generations" 2-6 are simply not plausible in the current softening real estate market as property values decline. One can argue if fundamental #1 is possible in a declining market is possible. Time spent worrying about financial health is not my deftinition of time well spent. I even believe that the second fundamental violates what most REIN members have been advised. An average income earner purchasing multiple rental units would be classified as not saving more than you spend. In bubble fundamentals, rent will never cover the full cost of mortgage payments, maintenance costs, etc. of the property. In a declining housing market, rent increases are not feasible (you will see rent decreases). So the owner of the property is responsible for assuming a month to month financial loss which negates the flowing from one generation to the other. The members of REIN are advised to hold real estate over the long term but to actually make it long term requires financial survival during these present times.

SFH Market's Worst Nightmare/Enemy: the Condo Market

The simple physics of building implosion/demolition. Place highly powerful explosive charges to knock out supporting infrastructure and allow the building to cave in on itself.

One can argue that the condo market and the sfh market are two different markets but one must also make the realization that the two have a relationship. The condo market can be portrayed as supporting the sfh market. Does anyone notice how all of the realtor authored blogs avoid talking about the condo market?

Could the collapsing condo market in Calgary bring down the sfh market?

Remember that the condo market is seen as the easiest entry point into real estate especially when price hyperinflation occurs such as they did in Calgary in the last couple of years.

With the announcement of construction being halted on the Gateway Midtown towers yesterday, it indicates that there is substantial trouble in the condo market in Calgary. Right now there is severely low demand for condo units and there will be soon a enormous influx of product coming onto the market. Inner city fundamentals are out of touch with reality.

With a severe reduction in demand and record high inventories, prices will have to come way down.

As Radley77 has beautifully composed graphs comparing the two markets and levels of construction, we can see that the quantity of multi-family units continues to increase outstripping single family units.

For the bulls out there who remain, seeing the quantity of condos being built in the future should be concerning because the element of inventory will not be manageable.

I believe that there is a relationship between the condo market and the sfh market.

If inventories continue to skyrocket, prices will come down as they have now. Because condos have a price point much lower than a sfh, they will become more attractive to the first time home buyer looking to enter into the real estate market.
Once that buyer is removed from the pool of buyers then the sfh inventory will be stagnant and will continue to increase if prices in that market are not lowered (in accordance) to attract buyers.

Once the new mortgage rules come into effect in October, the pool of buyers will be reduced even more.

The reality may be that the condo market may be the first go, followed then shortly by the sfh market.

Layoffs and Stalled Condo Projects

Thanks to Jim A. for emailing in that comic!

I haven't posted in a while because of heavy work commitments. Thanks for your patience and understanding. Since my last post, not much has changed in the local real estate market. Much that was predicted by "doom and gloomers" has come to fruition. The market continues to soften heading into the Fall. Prices are falling and inventory levels are still at record highs. Many condo projects are stuttering to the financial finish line. Things are soon to get interesting.

While burning the midnight oil this evening (morning), I was listening to QR77 news talk and sports radio. The hourly news reports that there are soon going to be layoffs in residential construction as the Calgary real estate market further cools. An official with Jayman was interviewed and a short clip was played outlining the change in their employment outlook. I'm sure that other developers and builders in the city are soon to follow the same inevitable path. This was bound to happen as housing starts have decreased substantially as compared to Calgary's boom years. The same thing happened in the US. But yet Calgary is different. This morning, the following article in the Calgary Herald was available: Layoffs strike Calgary's once-booming homebuilders. These type of layoffs are just the beginning.

In addition, an elite-multimillion downtown condo project has ground to a halt in construction. Gateway Midtown has stopped construction and has also laid off 41 employees in the process. Watercooler talk has it that many purchasers have walked away from their deposits while demand has significantly dwindled. As condo prices and demand continue to decline, many of these million dollar projects are at risk. Even if they are in a excellent location such as downtown Calgary (where all the head offices of oil companies are situated). The only way the project can continue its construction I would imagine that it would take all the suites to be completely sold out at peak prices. The reality is that's not going to happen. Strangely, Gateway Midtown is very close in proximity to many other beltline condo projects currently underway or completed. The suspension of this condo project proves that inner city fundamentals in a healthy economic environment are sometimes out of touch with reality.

But of course, Calgary is different than the rest of the world.