Calgary's Property Boom - June 3rd 2007

ECONOMICS IN ACTION

Economics is a fascinating subject. By applying economic theory to everyday situations, you can come up with some extremely interesting conclusions. The popular book Freakonomics by Steven Levitt and Stephen J. Dubner is a fascinating read and explains a number of odd phenomena from an economic point of view. More mundane examples of economics are operating around us each and every day, including the state of the Calgary housing market.

Property prices in Calgary have doubled in the past two to three years. Whilst this is excellent news for those who bought a home before the boom took off, it makes it very difficult for newcomers to Calgary or the young to get into the property market. On a national scale, the price rise is simply bringing property prices up to those in other major Canadian cities such as Toronto and Vancouver. As such, the boom is sustainable and there is only a very small chance that prices will fall below their current levels in the foreseeable future. If prices continue to rise at their recent levels, then there is every chance of a bubble developing and a correction occurring sometime in the future.

In the search for more affordable housing, Calgary workers have been looking for property further and further out of the city and putting up with the longer commute. This has had the effect of widening the boom and pushing up the prices in surrounding towns. This is part of the well understood ripple effect. The situation has now reached the point where property prices in the surrounding areas are rising at the same rate or faster than they are in Calgary. There is of course a limited distance that people are prepared to commute and a maximum price they will pay for transportation in order to maintain their lifestyle so as the ripple spreads out, it becomes smaller.

Now is the time when the next economic effect begins to take hold. Some Calgarians are beginning to sell up and move further away; to Saskatchewan and beyond. The attraction is obvious. Sell your expensive home in Calgary, pay off your mortgage and use the proceeds to buy a house in Saskatoon or Regina. Living mortgage free, you can afford to take a lower paying job whilst still maintaining lifestyle. Partly as a result of this effect, the ripple from Calgary is affecting property prices in those cities. If you also consider that Saskatchewan is widely predicted to be the next boom province, then making the move now before it takes off makes absolute economic sense.

The more adventurous and those with few family ties to the Calgary area are moving further afield. Whilst half of Newfoundland is toiling away in Fort McMurray, property prices back in Newfoundland are still very low because there are few jobs of any sort. This doesn’t matter much to a retiree, so if the landscape and lifestyle are to your liking, go for it. Even if you have family in Calgary, the east coast is only five to six hours away by Westjet. Looking at it on a purely time basis, that’s a lot closer than driving in from Saskatchewan once in a while!

So, you ask, the point of this article is? If you’ve read this far, you won’t be surprised to hear we’re selling up and leaving the Calgary area. We’ve always wanted to retire by the sea and a recent trip to Nova Scotia confirmed that this is the place for us. We’re in no great rush to leave Calgary but sometime in the next year or two, we’ll be out of here. Equity from the sale of our property here will bolster income from our RRSPs to the point where we won’t need to work at all if we don’t want to. Even though we have three children here (and four grandchildren) we’ll still see as much of them as we want. We also have two children and other family in England so we’ll be much closer to them too. Perfect!

Comment by TS on September 24th 2007

My opinion is such that the real estate prices in Calgary were falsely inflated by greedy realtors and anxious buyers not willing to risk the potential of losing the opportunity to get into the market.

In fact when I viewed a condo in 2006 with my wife I was appaled at the tactic taken by the showing realtor. We walked into the unit to find realtor business cards strewn about the kitchen counter. The asking price was 154,000 for the 650 sq ft 2 bedroom condo in the Hillhurst area.

I placed my offer at the asking price. The realtor scoffed and said that we wouldn't get it at that price. I asked him what the highest bid was and he said he couldn't tell me. I asked him if he was bidding on the unit and he said "Yes".

I asked him if he knew wha the high bid was. He didn't answer me. He then sated that the offers woudl be ending that night and that he had no more time to spend with us.

Pretty sick if you ask me.

With an average household income of @$70,000 how can a Calgary family possibly afford to pay over $400,000 on a home? We calim to have the best quality of life in the country but I disagree. My 15 km commute takes on average 45 minutes one way...thats an hour a half a day...7.5 hours a week 30 hours a month just driving to work? For every month a drive 1 full day just to work in Calgary. My personal income is well over the average and I have to say I will not be buying a home in this over inflated city. I simply will not be making that mistake.

My prediction is that by Spring 08 the average price for a home in Calgary will drop 25% from where it is today. Unfortunate for those gullible enough to buy a home in the last year and a half.....great for young family's who simply want a home to raise their children in....and in fact just fine for those people who have been in their homes since prior to 2005.

It's time Calgary became the affordable, high quality of life city it claims to be. I have to laugh at the spin I read in the papers and in blogs such as this. GET REAL!!

Comment by David Sawers on October 6th 2007

Making predictions is a thankless task, particularly if anyone bothers to come back to check them later on, which I will certainly do. My prediction (contrary to that of TS) is that the pace of house price rises will probably slow appreciably but I see no indication why a crash, or even a minor correction, might occur.

What is it (other perhaps than schadenfreude) that encourages you to suggest a crash will occur in the Calgary property market? Whilst anything is possible, recent history in Canada and other countries gives no support to your theory.