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Calgary’s Real Estate Market Delivers Shocking Discovery

Posted by Joe Samson on Friday, February 18th, 2011 at 7:27pm.

house-with-different-directions_800At first I couldn’t believe my own eyes when I saw the results of the latest real estate research that I have just completed. What I will share with you here will really shock you and it will definitely make you wonder why nobody else is telling you this.

Okay, here is what I had stumbled upon. The whole global economy has been going though recession for the last few years, and Calgary received its share for sure of loosing jobs, decreasing real estate prices, etc…

In 2010 and recently I have been in conversation with many homeowners who happened to buy a property on the peak of our most recent real estate boom in Calgary. The challenge they are facing now is that they would like to sell their property. Because house prices have declined since, they can’t afford to sell or in many cases they have to bring cash to the table. At the end of the day in almost all cases they have told me that they will just wait for the market to go up again then sell.

This thought just wasn’t making sense for me because what is going to cause the housing market to rapidly take off again? There seems to be more foreclosures on the market than ever before, interest rates are on the rise (we have to start paying for the “bail-out” incentives at one point), plus the government is toughening up on the mortgage qualification rules.

But let’s be the devil’s advocate here for a moment. Let’s assume that the home owner will wait because that is what their intuition is telling them to do. The big question is, how long will they have to wait for? The answer will depend on many variables, but realistically speaking we can probably reflect on history and see if we can draw a lesson from there.

Calgary’s last noticeable real estate boom came to a peak in 1981 and that that year the average price of real estate was $107,878 and for the next four years it kept on dropping and didn’t stop until it lost about 25% in value. In 1985 the average sold price of a home bottomed out at $80,183. If we stop our calculations here it’s already bad enough with loosing 25% of our investment dollars. Do you agree?

The truth is that money has a dirty little secret that nobody pays attention to. It’s called inflation. Imagine that you have a bucket with a hole on the bottom of it that is full of cash and the money in it keeps flowing out at the rate of inflation. It doesn’t matter how much you put in at the top, you can never plug the hole.

Let’s say that you agreed to sell your property in 1985 for $80,183 at a loss of 25%. The problem is that now the value of your $80,183 also decreased by 31.56% over  the 4 years. The reality is that you have lost 25% + 31.56% = 56.56% in just 4 years. Crazy isn’t?

In other words, if you would have just invested your cash ($107,878) in 1981 into a basic investment account like a GIC today then you would have accumulated a saving of $141,920 by 1985.

The fact is that the $141,920 in 1985 equals to $107,878 when compared to 1981 or (and here comes the shocking part) if you would wanted to break even with your real estate investment after 4 years then you would have needed to sell for $141,920 to have the same value of money on hand. The truth is that your actualized loss equals to 56.56% or $61,737 if you purchased on the top and sold at the bottom.

What is the lesson here?

(Click on image to enlarge)

inflation

The moral of my research is that if you bought a piece of property in 1981 and you listened to your feelings in contrast to knowing how money actually works, then you would have been waiting for 24 years before your investment broke even. It’s not a typo, it took until 2005 for real estate prices in Calgary to return to 1981 levels after factoring in inflation.

According to many experts, our current recession is much more severe than the one we experienced in the 1980’s. Perhaps on a severity scale, it’s next in line after the great depression of the 1930’s. Will it take another 24 years or maybe even more for prices to recover? Have prices began rising or are they further dropping? The honest answer to that is we just have to wait and see and make our best predictions on the past.

Now that you have the facts, is it really worth it to take the risk to wait or it might be time to move on with your life and live your future? Just to clarify and not be mistaken, I am not suggesting that real estate prices will either fall or rise. All I am trying to shine the light on is that you need to have an open perspective and make your decisions by rationalizing the facts against all speculation and emotional thinking. Be sure to be selective where you receive your advice from.

As always, you can rely on us to help you with your real estate needs and questions regarding the Calgary real estate market.Your Calgary Real Estate Market Realtor®.

Make sure to leave a comment below of your thoughts and feedback.


Calgary, AB Real Estate Blog

 

I am a licensed member of the Real Estate Council of Alberta since 2005 - proudly representing CIR REALTY, Calgary’s largest real estate brokerage. I enjoy keeping my readers up to date with real estate related information that they can easily understand and use for their own benefit. I welcome feedbacks and comments equally from first-time visitors to my blog, past clients and also from my fellow REALTOR® colleagues. Thanks for stopping by!

10 Responses to "Calgary’s Real Estate Market Delivers Shocking Discovery"

Rachel Vanderveen wrote: Hey Joe,

Thanks for this insight! It sure does make a lot more sense to live for what the needs of your family are right now, rather than wait for something that may never come.

Posted on Wednesday, March 2nd, 2011 at 11:53am.

Shariq Zia wrote: Good research !

What do you have to say about condo prices in Calgary ? Are they at their lows as well ? Do you see them moving up over the next 5 years ? If yes, then how much ?

Thanks,
Shariq

Posted on Thursday, March 3rd, 2011 at 1:11pm.

Joe Samson wrote: Hi Shariq,

There seems to be less-and-less new condo listings coming on the market. In fact, it's 12% less than it was a year ago at the same time. It appears to me that the real estate prices have stabilized over the last 12 months in Calgary.

If you couple that together with the recently increased activity in the oil patch, than it paints us a pretty optimistic outlook for the future. If you look at real estate for the last 20 years, then you will find that on average it has increased about 6% a year. To tell you exactly how much is it going to increase over the next 5 years is like asking me if it’s going to rain in March two years from now. Honestly it’s unknown how much prices are going to change, but I believe that it will be more on the positive side.

Posted on Thursday, March 3rd, 2011 at 2:48pm.

Joe Samson wrote: Hi Shariq,

There seems to be less-and-less new condo listings coming on the market. In fact, it's 12% less than it was a year ago at the same time. It appears to me that the real estate prices have stabilized over the last 12 months in Calgary. If you couple that together with the recently increased activity in the oil patch, than it paints us a pretty optimistic outlook for the future. If you look at real estate for the last 20 years, then you will find that on average it has increased about 6% a year. To tell you exactly how much is it going to increase over the next 5 years is like asking me if it’s going to rain in March two years from now. Honestly it’s unknown how much prices are going to change, but I believe that it will be more on the positive side.

Posted on Thursday, March 3rd, 2011 at 2:49pm.

Pramod wrote: Thanks for the Artical.Now i want to know that is it time to buy any house putting 20% down payment.Is there any chance for droping the price of the house?

Posted on Friday, March 4th, 2011 at 8:26am.

Joe Samson wrote: Hi Pramod,

Thanks for your comments. As I was saying in my previous comment above, I cannot tell you what to do or what’s going to happen with real estate prices. What I can help you with is to guide you onto the right path so that you can do your own researches and eventually draw an educated conclusion from it. My logical thinking says that you need to be very careful of making financial decision based on other people’s opinion. Rather educate yourself by doing your own research and decide based on that.

Where can you get all that information from?

Let me know if you are interested in finding out how to do these kinds of researches and if I can get enough people to comment back to me that they are also interested in finding out, then maybe I can do another blog entry on the topic in the future.

Posted on Friday, March 4th, 2011 at 11:58am.

Jason wrote: Hi Joe, great website and really thought provoking article, I agree that you need to be very careful when making financial decisions based on other people`s opinions.
<a href=http://www.clementeam.com">JasonFromOkotoks</a>

Posted on Friday, March 4th, 2011 at 10:32pm.

Pramod wrote: Hi Dear

I am really thankfull to you.Hope for future communication.

Posted on Monday, March 7th, 2011 at 10:17am.

Pramod wrote: Hi Joe

Actually a person is paying rent $ 1100/ p.m. & if he pays installment of 1400/p.m
in which $ 800 is bank intrest & $300 is principal
plus 300 is utility so now you can guide me that who will be in benifite ,person staying on Rent or Purchaser.Because i am really going to purchase a house ,but confused ,so i want some advice.After 5 years price of Houses will go up if the Rawmaterial prices will be increased.But i am confused because my son inlaw has purchased House in March 2010 ,the same house i can get after oneyear Mini.$ 30,000/- less,so i am very confused for Buying house ,so please guide me & oblige.

Thanks Take care

Posted on Wednesday, March 16th, 2011 at 7:48am.

Joe Samson wrote: Hi Pramod,

That’s a fantastic question what you have asked me about buying vs. renting. It’s such a common and profound question that I have decided to write a quick bolg entry on the topic. Here is the link to it: http://www.joesamson.com/blog/should-i-rent-or-buy-a-house-that-is-the-question.html

Please let me know of your thoughts in the comments.

Joe

Posted on Wednesday, March 16th, 2011 at 2:08pm.

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