More Negative Equity On The Horizon

The much anticipated "spring rush" has been a complete disaster in Calgary's real estate market. This is well documented in the MSM these days. It was during this period that sellers were hoping to unload their anvils of debt to unsuspecting greater fools. The hope and anticipation were met with retreating buyers. In analyzing historical trends, sales should dwindle further during the next coming summer months propagating further price declines.

In July 2007 we saw the peak for Calgary SFH market hit an average price of $505,920 and median price of $439,000 (achieved in June 2007). This was followed by months of declining prices. The year ended in December 2007 with an average price of $444,769 and a median price of $406,788. Summer buyers would already owe more on their mortgage loans than the value of their homes.

Suffice to say, we may start seeing month-over-month price declines as early as this month. This means the price declines will be longer and more painful for sellers this time around. With inventory at record levels and low sales, the price declines this year will be magnified.

By the end of this year, there is potential that a high percentage of home buyers during the last two years will in a negative equity position. Negative equity, an element in the real estate game that your friendly real estate "professional" did not address during the frenzied buying hysteria. But is has now become a reality for most home owners in Calgary. In combination with being "house poor," many bubble buyers will be in a constant state of financial duress. This may mean not having enough money to send your real estate "professional" a Christmas card this year.

As negative equity builds, market exit strategies for sellers are minimized and financial losses will be greater.

Those who are overextended could possibly tip the rest of the market into a severe correction.

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A new reality in Calgary. Overextended homeowners will use creative ways to find tenants to help cover mortgage costs on multiple homes.