Persistent sellers’ market conditions drive up prices

City of Calgary, December 2021

Market Continues to Favour the Seller in October

City of Calgary, November 2021

Sales remain strong in September

City of Calgary, October 2021

Market continues shift toward more balanced conditions after torrid start to the year

City of Calgary, September 2021

If you are in a competing bid situation, it is important for you to know your negotiating position. You need to know how many offers are coming in, what you can afford, and what risks you are willing to take. When it comes to submitting a competing bid, you must be aware of which conditions need to be in the offer for your specific situation and which ones you can risk not having on the contract. An experienced real estate professional will help assess and communicate the benefits and consequences of each variable   to help safeguard your interests.

In Vancouver and Toronto there were lots of subject-free competing offers, Calgary has seen fewer. I would only be comfortable presenting a subject-free offer if my client is a sophisticated buyer who fully understands the ramifications of that type of offer..

Whenever I have a client considering entering a competitive bid situation, I ask, “What price will you feel good about and not regret, regardless of which way it goes?” I want to ensure if they lose the bid, they won’t feel like they should have paid an additional $5,000, or if they win the bid, they don’t feel that they’ve paid $10 000 too much. To help the client make that decision, we provide our clients with research about what similar properties have sold for in the area. It is always the client’s decision.

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It depends on why the new homeowner is buying. If they are buying because they see the long-term benefit of owning their own homes and they are ready to make the change from renting to home ownership, then buying may be a good choice because of the low interest rates. However, I would recommend they find a good real estate professional who can discuss their personal situation to determine if now is the right time for them or not. In June, we started seeing price reductions and homes coming off the market then coming back on, both are signs that the market conditions are changing.

If they are buying because they want to see a capital increase in a short period of time to make a quick buck, now is not the time to buy. It is likely that we have already seen peak prices. As inventory increases the prices will level off.

When the pandemic has passed and the balance between supply and demand results in prices levelling off, it will be a good time for new homeowners to start looking. In a more stable buying climate, they may not have to compete with others when writing an offer so they can take more time making the right decision for their families.

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Alberta is still largely dependent on the oil and gas industry for its economy and the North American political leaders are taking an anti-oil policy stance, so recovery may be slow. The city is starting to attract sustainable energy companies.

However, it will take decades for sustainable energies to significantly increase jobs in the province due to this sector being relatively new. We have seen growth in the technology and health care sectors which bodes well for the economic future of our economy.

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To judge where a market has been and where it is going, I analyze the absorption rate. Simply put, this rate measures how many properties sell in comparison to the number of properties for sale during the month. As I track this metric over time, I can see the balance between supply and demand.

Let’s look at the largest market segment driving Calgary’s real estate growth, detached homes. In March, the absorption rate was 77.46%, which means 77.46% of all homes for sale in the month of March were sold. In April, the rate dropped to 73.60%. In May, the rate dropped to 59.77% and in June the rate dropped even further to 55.78%. This signals a reduction in demand during normal times, however, in today’s environment this does not mean the demand is shrinking. The buyers are still there, they just have more to choose from as more properties have come onto the market. This is a normal occurrence after a super-heated market like March’s because people realize that they can get a good price for their home. This year it’s a bit different because along with the natural interest in getting the best dollar for a property, those sellers who would have sold in 2020 but were hesitant to list are now listing their homes because they feel safer due to Covid-19 safety protocols and vaccinations.

The next few months will be telling for the Calgary market. If the detached home absorption rate falls below 40%, we will see prices level off and potentially go down a bit.

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The reason all the real estate markets in Canada went a bit crazy was because two events happened simultaneously. First, we had a pandemic. Many potential sellers chose not to sell their homes because they didn’t want people bringing the coronavirus into their environment which caused low inventory. The lowering of inventory occurred when interest rates were at their lowest ever levels making borrowing money cheaper, thus increasing the demand in the market.

When you have low supply and high demand, prices are pushed up as buyers compete for the limited number of properties.

Experts were a bit mystified about why Calgary’s real estate market was so strong. Other Canadian cities like Vancouver and Toronto have immigration and migration of citizens looking for jobs in diverse labour economies to support the demand for homes. Calgary’s current economic prospects are not as strong, so the reason for the run-on real estate was the low cost of borrowing, a desire to be isolating and working in a bigger home, and the housing market’s low inventory. As a result, Calgary didn’t see the increase in prices as early as the other cities and the market is cooling down sooner.

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Susanita

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Sincerely,

Susanita de Diego