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moneysense.ca, 14/06/06
Housing: Up, up and away
According to The Canadian Real Estate Association, the price of an average resale home hit a record $303,836 in May 2006, up a stunning 12.9% from the year-ago period. The hottest markets were out west with Vancouver up 24%, Calgary up 44% and Edmonton (Go Oilers! Go!) up 23%. The increase was much more sedate in Toronto (up 5.5%), Ottawa (up 4.8%) and Halifax (up 7.7%).
I wonder if the price appreciation in the Western markets is sustainable. Take Calgary, where an average house costs $358,000. Even assuming a traditional down payment of 25%, the monthly mortgage payment (on a $268,500 mortgage, 5-year 5.35% fixed rate, amortized over 25 years) would be $1,616. That’s just the mortgage. Adding property taxes, insurance, heating, hydro, water and sewer and maintenance could easily push housing expenses to $2,500 per month. An annual income of $90,000 would be needed just to qualify for the mortgage (assuming no other loan payments). How many average households can really afford the average house?
moneysense.ca, 14/06/06
I think what is happening in Calgary is the average household are able to afford the average house so the average house price goes up. The energy boom is having an impact on average salaries in Alberta and it seems like that is being reflected in average house prices.
Contrary to Oxcc I think what is happening in Calgary is simple demonstration of short economic memory. People are so happy to forget about simple lessons: http://www.expressnews.ualberta.ca/article.cfm?id=7396
Yes, the economy in Alberta, esp. Calgary is very hot. But, a 47% increase in one year? A Globe and Mail report suggests that the main reason is the “growing shortage of lower-priced homes in the resale market”. Doesn’t sound sustainable to me.
I’m just wandering what kind of analysts are working for the Canadian Real Estate Association. “Growing shortage of lower-priced homes in the resale market”? Deficit of the low-priced homes pushed all low-priced buyers to buy middle- and high-priced homes? It’s like to
say: the persons who can’t afford Ford Focus should buy Mercedes Compressor. Sounds like creative nonsense.
Taylor: My fault for not quoting the entire sentence. Here it is:
Soaring house prices have resulted in a growing shortage of lower-priced homes in the resale market, he said, which is crimping sales of lower-priced homes and driving up the national average price.
“With prices on the way up and a shortage of listings in lower price ranges, some buyers may feel that if they don’t buy now, they may not be able to afford to later,” Mr. Klump said.
I agree that a 47% increase in one year is steep. I think there might be one kind of liar showing up here though (there are 3 kinds according to Mark Twain; liars, damned liars and statisticians). Is what they are saying that the average price of houses sold in a given period has gone up or that the prices of houses in general has gone up in the given period? It is a subtle distinction but that could make the difference. Think about what would happen to the average price of houses sold if a billionaire walked into a given market that say sold 200 homes on average per month and started buying up 10 $1 million houses per month.
If the 47% increase isn’t just an anomoly I agree that it isn’t sustainable.
I’d be curious to know what the median house price was…
I live in a condo in Toronto and for years I’ve listened to “experts” say that the bottom is going to drop out of the Toronto condo market and prices will plummet. Since I’m looking to upgrade to a larger condo, I’ve been waiting and watching for this doomsday prediction to come true but so far – nothing! So much for the so-called “experts”!
Phil: Great point. Forecasting is the weakest link in investing. Experts are calling a top in real estate for more than three years now.