How is Calgary Real Estate going to perform in 2008?

No one is really arguing that the boom in Calgary has tapered off in 2007. Okay, the medium price of a single family house has actually dropped about $32,523 from the peak in June. But why did it happen and what can we expect to see in 2008.

The best way to predict the future is by examining what happened in 2007. A lot of self declared real estate experts are now crying wolf that real estate in Calgary is done and finished. Two main reasons why they are saying this is due to the famous Royalty review of the Stelmach government and a more factual reason would be the 7.3% drop of real estate prices in the second half of 2007.

Let’s look at the situation from an optimistic point of view as well. Calgary’s real estate prices have increased by 10.54% since the end of 2006. If you were to invest in an average house about a year ago with a 25% down payment, this investment would have netted you a 42% return on investment even after the moderation in real estate prices. Compare this 42% ROI to the stock market in 2007 and then we’ll realize that if we would have invested in the Dow Jones Industrial Average we could have expected an average of less than 9% return. If you minus inflation and taxes you’ll be lucky to cash in a 3-5% return from the average stock.

What really happened in 2007, and why did the prices in Calgary’s real estate market retreat? The number one reason for the softening of prices is due to the supply and demand market. Towards the end of the year, Calgary’s real estate inventory has exceeded 5.5 months of supply. Meaning that if we have the same amount of buyers on the market as in the past month, it would take 5.5 months to sell what’s available for sale right now. In a balanced market it usually takes 2-3.5 months to sell an average home. This oversupply in inventory has created a strong buyer’s market in the second half of the year.

Many people have planned to cash in on Calgary’s real estate boom by purchasing new construction condos and houses. However as more inventory flooded the market, buyers have become more selective when it came to making a buying decision and this hesitation coupled with the increased inventory has slowed down the resale market. Some builders have also dropped their prices to lower levels than what they have sold their units for earlier in the year. This has created a chain reaction and forced some speculative investors to make harsh decisions to drop their prices to salvage the salvageable. Currently 43% of the properties for sale on CREB are either vacant or occupied by tenants. This percentage is a really good indicator of people who don’t want to be investors anymore.

Fore sure it’s going to take some time for the inventory to be bought up again, perhaps more than a few months. However, it will only happen after the market shakes out those who looked at real estate as a short term, get rich possibility. In 2008 we should expect an above average growth again due to the ever lasting economical advantages in Alberta.

Date: Friday, January, 4th 2008 @ 07:31:44 AM
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