Tuesday
14Apr2009
Historical Home prices in Calgary
Tuesday, April 14, 2009 at 9:16AM
With some people drawing comparisons between the recent decline in home prices in Calgary to the decline that happened in the early 1980's I thought it would be interesting to look at some historical pricing information going back to 1966.
According to the Calgary Real Estate Board, in 1981 the average price of a home in Calgary was $114,838 and this price declined by 27.1% over the next 4 years to $83,244 in 1985. A large part of the cause of this decline was high interest rates that made it difficult for people to afford a mortgage payment required to purchase Real Estate.
The more recent decline can be blamed on over-supply in the housing market after a several year long boom that saw record sales and record price growth and encouraged builders to construct as many homes as possible and encouraged speculators to buy multiple homes. Clearing out this excess inventory takes time.
To compare the current situation to the 1980's it's important to be aware of and consider these different causes. In July 2007 the monthly average price of a single family home in Calgary peaked at $505,920. It then declined over the next 18 months to reach a low of $413,049 in January 2009. This represents a decline of 18.3% from the peak.
Over the past two months the average price has stabilized and increased slightly to $420,354. The increase in price has been accompanied by a sharp improvement in the absorption rate, which compares the pace of home sales to the amount of inventory on the market. The number of new listings brought onto the market in March was down 23% from the same month last year.
Always consider Real Estate to be a long term investment. A home that sold for the average price in 1981 would probably sell for $420,354 today (an increase of 368% or an average of 13.1% per year over 28 years - UPDATE - SEE Comment #3), and by now the mortgage would have been paid off. This increase includes minor setbacks during the 1981-85 down market and the more recent July 2007 - January 2009 decline.
According to the Calgary Real Estate Board, in 1981 the average price of a home in Calgary was $114,838 and this price declined by 27.1% over the next 4 years to $83,244 in 1985. A large part of the cause of this decline was high interest rates that made it difficult for people to afford a mortgage payment required to purchase Real Estate.
The more recent decline can be blamed on over-supply in the housing market after a several year long boom that saw record sales and record price growth and encouraged builders to construct as many homes as possible and encouraged speculators to buy multiple homes. Clearing out this excess inventory takes time.
To compare the current situation to the 1980's it's important to be aware of and consider these different causes. In July 2007 the monthly average price of a single family home in Calgary peaked at $505,920. It then declined over the next 18 months to reach a low of $413,049 in January 2009. This represents a decline of 18.3% from the peak.
Over the past two months the average price has stabilized and increased slightly to $420,354. The increase in price has been accompanied by a sharp improvement in the absorption rate, which compares the pace of home sales to the amount of inventory on the market. The number of new listings brought onto the market in March was down 23% from the same month last year.
Always consider Real Estate to be a long term investment. A home that sold for the average price in 1981 would probably sell for $420,354 today (an increase of 368% or an average of 13.1% per year over 28 years - UPDATE - SEE Comment #3), and by now the mortgage would have been paid off. This increase includes minor setbacks during the 1981-85 down market and the more recent July 2007 - January 2009 decline.
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Reader Comments (4)
I'm glad to hear some sensible discussion on the market rather than chicken little "the sky is falling" type talk. Timing the markets, real estate or otherwise is always a fool's game anyway. Need to invest? Buy stocks when they represent a good value, not when you THINK it's the bottom. Same goes for real estate, if you need a place to live, it doesn't make much sense to keep paying someone else's mortgage while waiting years to time the market.
Just my $0.02
I agree. When thinking about buying it's more important to focus on whether it's the right time to buy for your own situation not by trying to perfect the timing of the market as a whole.
The only way to know you've reached a peak or a bottom is several months later looking back at what would have been "the perfect time".
Thanks for the info Michael. Have to comment though on you reporting 13.1% as the "average return per year." I believe when consumers see an average annual return they are going to compare that to a 5 year GIC at 3% or a mutual fund returning 8% per year [these rates are the financial industry standard "compound average annual return", CARR]. But your 13.1% is not a CARR and is therefore misleading [and I'm sure you don't mean to mislead consumers]. So a 368% growth over 28 years should be reported as a CARR ~ 4.6% per ann. May I suggest you amend your above newsletter? Thanks!
Buck - Thanks for reading and adding your excellent point regarding the compounding return.
It is an interesting comparison to a mutual fund returning 8% a year average... I would also point out that you can buy a house with 95% borrowed money at well below 4.6% these days and live in it or rent it out for income while you pay off the loan. There are all these intangible benefits of home ownership that you don't get with a GIC. Freedom from rent, a place to raise your family, etc.