Forward (February 5th,2017): Looking back over the pasted 2 years the Calgary residential Real Estate market has faired much better than many anticipated. Although there have been some policy changes since the time of this post, the principles still ring true today.
This is a re-post from my social media (Facebook account, February 5th 2015).
Calgary Real Estate! What's going on in the market !?
With January behind us we are into 2015 and so far one thing is for sure, short term predictions of the Calgary Real Estate market are just that… predictions.
Many Albertan’s are diligently watching Oil prices which closed yesterday (Feb. 3rd 2015) at just over $53 USD a barrel.
Mortgage lending rates are at historical lows, 5 year fixed rates well below 3% and 5 year variable mortgages at a current effective rate of just over 2%.
CREB’s (Calgary Real Estate Boards) Chief economist Ann-Marie Lurie has said “Low oil prices throughout January, combined with a shifting outlook in the energy sector, caused unease for consumers. As a result, monthly housing sales activity fell to levels not seen in five years.” And “Nonetheless, if supply levels continue to rise at levels that exceed the pace of demand growth, we can expect this will start to impact prices in the city.”
Short term Real Estate Investors looking to make a profit on appreciation only, are taking a greater risk in times of uncertainty.
In times of uncertainty it’s easy to lose your cool but it’s important to remember the fundamentals:
-Buy location! The first rule of Real Estate location, location, location! In heated sellers markets where choice properties end up with multiple offers and often a sales price over the listed price, it can be difficult to obtain a great property in a great location. When listing inventory increases the opportunity for long term buyers arise, where buyers can be more selective on what they want and what they are willing to pay for the features they are looking for.
-Leverage - leverage is great in a climbing market but it’s a sword that cuts both ways, be mindful of debt and don’t over extend yourself or your family.
In the Long term Real Estate is a great investment:
-you can get in with a relatively small investment (eg. you can obtain a $400,000 asset with approximately $20,000 capital) Try doing that with most other investment vehicles.
-Your monthly payment not only pays interest but also a portion of the principle on the mortgage loan. You’re building equity with each payment. Additionally there are several pre-payment options on most mortgages which will allow you to pay off your loan much faster by making minor adjustments to payment frequency, amount and/or one time payments. Check the rates of return on your investments, throwing and extra $500 directly against the principle of your mortgage may have a better return than buying a mutual fund.
-Cash flow, if you are renting out a piece of Real Estate the goal is to have positive cash flow. This means that monthly rental revenue exceeds the total monthly expenses.
-Appreciation (i.e Market prices going up), should be the icing on the cake and not the sole investment strategy when looking at a Real Estate investment. A Real Estate investment that only succeeds with appreciation isn’t an investment, it’s speculation. Appreciation on you prime residence is capital gains tax exempt (confirm you situation with you book keeper / accountant).
A move forward point:
Some buyers are choosing to hold off on a purchase until they are more certain with economic outlooks and where oil prices are headed. The challenge of looking to time a purchase once conditions improve is that pent up demand of other buyers timing their purchase and low interest rates could lead to a run up of prices once more positive numbers and outlooks show up in the media.
There is an absolute 100% guarantee that Real Estate prices, in the short term will do one of three things, go up, go down or stay the same (yes I know I’ve covered every base here) but If you have based your investment on the Real Estate fundamentals, you will be well positioned to handle short term fluctuations.
That’s my take on Calgary Real Estate, I encourage you to do your own research before making a decision. I love to talk Real Estate and to hear every opinion I can. If you would like to discuss Real Estate, debate Real Estate, would like more Statistical market data or discuss how to position yourself for success, feel free to contact me.