Historically Calgary’s housing market has been referred to in one of three ways – as a seller’s market, a buyer’s market, or as a balanced market. However, today’s market doesn’t exactly fit any of those three descriptions given that different parts of the market are acting in different ways. For example, communities with an average price below $550,000 appear to be experiencing a seller’s market. Average housing prices are up in most communities under this price point, and it seems as though things are only heating up. In many communities above the $550,000 price point however, it appears as though a different story is playing out. A story where houses are sitting on the market a little longer and price reductions are becoming commonplace, leading to declining prices in many higher end communities. Today’s market may very well be best described as a move up market.
In contrast to a normal market where prices in both the high end and low end tend to move together regardless of whether it is a seller’s, buyer’s or balanced market, the current Calgary market seems to be experiencing a period where the average prices in the overall market are increasing due to high volume in the low end, which is causing declines in some higher end communities to go unnoticed, which in turn is causing one of the most significant buying opportunities in Calgary’s history to also go unnoticed.
Take for example Aspen Woods, where in July of 2011 the average sale price was $1,133,375. In July of 2012 the average sale price in the same area was $988,936. Or Signal Hill where the average price in 2011 was $725,990 and in 2012 was $677,950. Both of these higher end communities were subject to declining values over the last 12 months, but for most, this data has flown under the radar. Cougar Ridge by comparison had an average sale price in 2011 of $500,087 and in 2012 of $514,300. While the increases in value in Cougar Ridge are not significant when reviewed autonomously, they are when compared to the declining prices in neighborhoods nearby. Cougar Ridge faired significantly better than both Aspen Woods and Signal Hill year over year. This discrepancy in the direction of values corresponds directly to a buying opportunity for homeowners in Cougar Ridge who have a desire to move up to a home with perhaps more square footage, nicer amenities, or in a more desirable area. In effect, now is the perfect move up opportunity for many home owners in Cougar Ridge.
The same phenomenon is playing out in many of Calgary’s starter communities. High demand in this market is creating an opportunity for homeowners who are already vested to make the leap to their dream homes. One must note however, that the move up market is dependent on purchasing in the right communities. Newer communities over the $500,000 price point tend to have greater opportunity than long established areas or inner city areas. Furthermore, there are communities under the $550,000 price point that also represent the move up opportunity. Take for example Tuscany, who’s average price over the last year was relatively flat at approximately $479,000, versus Royal Oak where values in 2011 were approximately 5% higher than Tuscany, but have crept down to essentially on par with its sister community. For many, a straight across move from Tuscany to Royal Oak would be viewed as a move up.
If the discrepancies in values between the lower end and the higher end markets are not enough, the interest rate market makes this the perfect storm for the move up buyer. For someone who bought in a lower price community four to five years ago, their fixed rate mortgage is likely in the neighborhood of five percent or higher. With today’s rates as low as three percent, every $100,000 in mortgage at yesteryear’s rate of five percent, can buy you an additional $22,896 without your mortgage payment changing. In other words, if you have a mortgage of $400,000 at five percent, you can get a mortgage at today’s rates of $491,588 without your payment increasing, which means that a move up for most people is not only well within reach, but also possible at little to no additional monthly expenditure.
Factor in further that the average family income in Calgary rose from $71,300 in 2006 to $84,200 in 2010 , and it becomes clear that moving up in many cases would have little to no net effect on debt servicing levels even if a family’s mortgage payment increased by a few hundred dollars.
It is clear that move up opportunities are out there, and are more prevalent than at any time in the last five years. The question is, will Calgary home owners take advantage of today’s opportunity. In my opinion, there may only be a three to six month window to move up before prices start moving unilaterally again. Now is the time to get in the game.
Nolan Matthias is the Co-Founder of Mortgage360. He holds a degree in Economics from the University of Calgary.
