Sunday, August 19, 2007

Falling over bags of cash

So I was walking down the streets of downtown Calgary, AB for the past few days and have bruised knees and sore ankles from tripping over other people's dropped bags of cash. I'd ask someone for the time, they'd give it to me and a $5 dollar bill for my trouble. Cash is king and there is plenty of new royalty in Cowtown.

On a more serious note, there are stark differences in the Calgary RE market to that of Victoria. First off, Calgary suffers no perceived shortage of land. I use perceived here a purpose; I don't believe for one minute that Victoria suffers from a shortage of land either, rather we suffer from a shortage of will to develop infrastructure that would support outward growth. We also have plenty more NIMBY's than they do, but that's another story altogether. Anyway, my point here is one about perception, and the difference between Calgary and Victoria as I interpret it. In Calgary, they see opportunity and challenges, they work to fix them, and they grow as a result. And as a secondary outcome, their massive growth has, despite the overwhelming price increases in RE, kept their prices more in-line with fundamentals.

How can I say this? My sister bought a house in Airdrie, 30 kilometres north of downtown. She paid less than $300K last year (she bought before completion and closed in the last 7 months) and between her and her partner pay out less than 35% of their after-tax income in mortgage and property tax payments for a 2200 SF home. That's the suburbs you say, and not actually in Calgary. You're right. But considering that in heavy rush hour traffic it took me less than 25 minutes to pull into the downtown hotel parking lot (4th Ave and 5th St) of the convention I was attending every day I'd say it's reasonable enough.

Compare that to the nearest bedroom community of Victoria in Langford. $300K doesn't even buy you an 800 SF brand new, two-bedroom condo before completion. And you can't get downtown in 25 minutes during rush hour. So, the price difference here, only taking price per square foot into consideration is $375/SF in Victoria compared to $136/SF in Calgary, or $239/SF. It is comparing apples to doughnuts for certain, but I'll go on record anytime, anywhere with this statement: the lifestyle that Victoria offers, with the weather that Victoria has, is not worth $239/SF in purchase price, especially when you consider incomes. Calgarians are making, on average, almost 20-30% more for semi-professional and professional jobs.

Guess what? Calgary's market isn't as hot as it used to be. Where slick ads used to sell homes, show homes, and lots of them (in my sister's community of less than 300 homes, there are more than 2-dozen show homes), are now necessary to entice buyers into new communities. And communities they are. In Victoria, developers market pseudo-villages to older buyers. In Calgary, developers market new communities, with all the amenities--schools, shopping, daycares--to younger, getting-established types. I wonder which is the more sustainable market for a city to grow with?

The downtown markets are, of course, completely different and likely far more comparable. But that isn't the point of my comparison. I'm comparing products that fit our economic criteria in two vastly different locations with different appeals and different drawbacks. I've lived in both towns and like them for different reasons. Calgary wins this comparison, for me alone, without fail, on any conditions I may place on the comparison.

9 comments:

Anonymous said...

BC is a funny place. We were near Kelowna and when we said we were from Victoria the "Kelownians??" kept saying that the climate was terrrible in Victoria and what were we doing there. I also understand that there are huge empty communities of condo developments that no one lives in. One woman told me they were lik ghost towns. Bought up by Albertans that never go there. She said it was rather spooky.

hhv said...

Sounds eerily similar to The Songhees at night. Albertans are worried about declining revenue from the oil patch. They are highly conscious of the boom bust cycle. I'll find it easy to understand when they start cashing out of their "speculative" retirement/vacation properties around BC.

Village said...

You know, I've become so familiar with the inflated prices. I've started looking at MLS and going, "That doesn't seem like a bad deal." When something lists with a suite for under $400k. Places that less then 5yrs ago would have been under $250k.

Quick math in my head reaffirms my position that the numbers don't work. But being so accustomed to seeing what I believe are insane prices. Anything coming under those prices almost looks like a deal.

Eventually it'll come around. I can't believe everyone in this city is making $100k+/yr. I'm okay with purchasing at 5x annual income. But I expect that to be in the city, not when that place is in Sooke, Cowichan Bay etcetera.

hhv said...

we suffer from the same "ailment" village... that's why we make a point of looking outside of BC to inject a sense of reality every now and again.

JMK said...

Hi HHV,

Are you holding Calgary Alberta up as a paragon of urban planning? I've only been there a couple of times, so maybe I missed something, but it seemed to be nothing but tract housing serviced by strip malls interspersed with the occasional box mall, all massively spread out. If by "develop infrastructure that would support outward growth" you mean building more 6-lane expressways leading from office park to Wal Mart to McMansions, then you can get that in any of hundreds of North American cities, and probably cheaper than Calgary.

Of course if you really want to do this to Victoria, lobby your MLA to remove the ALR. There is lots of land on the Saanich Peninsula and in the western comms that could hold more suburban 2200 sqft homes with 2-car garages.

Anonymous said...

Edmonton MSM finally tells the real story!!! I hope the TC picks up this one:

http://tinyurl.com/2ffs9h

hhv said...

jmk, I'm not suggesting Calgary is anything but better than Victoria when it comes to offering something more in line with economic fundamentals using our buying criteria. This assessment is completely subjective.

I prefer living in Victoria. I'd love to see less sprawl and more density in all locations, not just here. But to me, if you increase density, that should have a corresponding decrease in price/SF. That doesn't seem to be happening here. It's almost as if today's Victoria developers are pricing in the next 10 years of asset appreciation. Again, just an unsubstantiated opinion on my part.

Patience said...

Re:Edmonton Journal Article link posted by Anonymous 10:47

Thank you for posting this link! My favourite part:

"Taking out a mortgage with little or no down payment, interest-only payments, or an amortization period greater than 25 years is essentially the same as renting, unless you can deduct some of the interest against rental or business income. In fact, it may even be more costly than renting, if the property falls in value while you own it."

I am assuming this is true...any thoughts?

greg said...

jmk -

I have to agree with you about urban sprawl. However, where developers are concerned, I don't have a lot of faith in the inviolability of the ALR.