Calgary Real Estate News & Market Trends

You’ll find our blog to be a wealth of information, covering everything from local market statistics and home values to community happenings. That’s because we care about the community and want to help you find your place in it. Please reach out if you have any questions at all. We’d love to talk with you!

Jan. 14, 2020

Province says 118 drilling rigs added last week is 'good news' for oil and gas

EDMONTON -- Alberta's energy ministry is welcoming news that energy companies in Canada added more drilling rigs last week than they have in five years.

A total of 118 rigs were added in Canada for the week ending Jan. 10, according to the latest numbers from Baker Hughes, which has provided publicly available rotary rig counts since 1944.

The last time that many new rigs were added in the country was back in 2015, according to data obtained from Baker Hughes.

Alberta added 69 rigs week-over-week, while Saskatchewan added 42, numbers show. It brings the total number of rigs added in Canada up to 203.

In a statement, Alberta's energy ministry called the spike in drilling rig activity good news for the province's oil and gas sector.

"Since taking office last year, government has been focused on reducing unnecessary red tape, and introduced the Job Creation Tax Cut, to attract further investment," the ministry said. "We will continue our work to ensure that investors know that Alberta is once again open for business."

The Calgary-based Canadian Association of Oilwell Drilling Contractors (CAODC) agreed that it was good news for the industry, but said oil and gas isn't out of the weeds yet.

"This is traditionally in the past the way that it should work is that we always get a bump in the beginning of January and it lasts until around spring break, so we'll see if this is sustained," said Mark Scholz, president and CEO of CAODC.

He said time while tell how much money producers are willing to spend, as their overall budgets have not seen a material change.

He credited the Alberta government for lifting oil curtailments for new conventional wells in November and reducing corporate taxes and red tape, saying there was "no question" those measures were having some degree of impact.

"There are about an extra 10,000 people working today who weren't working this time last year," said Scholz.

With construction beginning on the Trans Mountain pipeline expansion and Enbridge's Line 3 coming online in December, as well as natural gas prices starting to increase, Scholz said it's a good start to the year for the industry.

"This is still a very difficult industry to be in today, but certainly the way we're starting in 2020 I think this is good news."

 

Source: CTV News Edmonton

Posted in Market Updates
Jan. 13, 2020

Calgary home sales rose in 2019, but prices decreased

 

Sales ended on a high note for 2019, but the latest real estate data for resale homes in Calgary continued to show the city’s market remains weighed down by economic uncertainty.

“Really it’s been a consistent story, so sales activity did improve slightly over 2018 levels, but it’s still really quite low relative to longer term historical numbers,” says Ann-Marie Lurie, chief economist with the Calgary Real Estate Board.

Compared with the heyday of real estate more than a decade ago when sales exceeded 1,600 units in the month of December 2005 and 2006, this past December saw just over 800 transactions. It’s also about 20 per cent lower than in 2014, another high point in sales.

The difference in sales largely hinges on the well being of the energy industry.

“The energy sector has long been a big factor in the economy, so when that did well in Calgary, everything else did so, too,” Lurie says.

Still, 2019 was an improvement over the previous year. All told 858 units sold in December, up from 794 in 2018 when the market slumped temporarily along with oil prices. That’s a jump of more than eight per cent.

While sales grew, prices still declined. The benchmark price in December was $418,500, down from $424,600 in December 2018, a decrease of almost 1.5 per cent.

“Some of the stronger than expected increases in sales were due in part to prices coming down more than we thought,” Lurie says, adding prices fell by more than three per cent for the entire year.

Overall, the benchmark price has been falling in the city for resale homes since 2015 from about $460,000 to its price at the end of last year, a drop of about 10 per cent.

“Since 2014, price declines have been the highest in the apartment sector,” she says, adding it’s fallen about 17 per cent.

“But condo apartment prices over the last year only decreased by 2.3 per cent.”

The slowdown in the price decline is partly due to growing demand for affordable homes. Demand for affordability saw the most growth in the attached segment even though its benchmark price still declined by almost four per cent for all of last year.

Attached sales (townhomes and other semi-attached buildings) were up 14 per cent in December compared with the same month last year, and they were up almost seven per cent for all of 2019.

In contrast, sales for homes priced over $500,000 continued to slump.

“We still have price declines in the overall city numbers, but I would argue those price declines are larger in the higher end than the city average.”

But the lower end of the market is “different,” she adds.

As Lurie further explains, the current conditions demonstrate how the city’s market is “divergent” with lower priced homes moving toward balance, and higher priced homes remaining very much entrenched in buyer’s territory.

More than anything, Calgary’s real estate market has become highly neighbourhood specific where one area can experience high demand with less supply, and another the opposite.

“Consequently citywide numbers might not reflect the trends you’re seeing in your community or neighbourhood,” Lurie says.

Posted in Market Updates
Dec. 10, 2019

Calgary Real Estate Market Poised For Recovery Mode

When it comes to investing in real estate, it’s not a matter of striking while the iron is hot. Rather, invest when the market is cool, and just warming up. And according to an analyst who tracks the city’s market, Calgary real estate is just about to emerge from a multi-year slump.

“We’re now seeing GDP growth for Calgary, Edmonton and Alberta as a whole,” says Jennifer Hunt, vice-president of research at the Real Estate Intelligence Network, which provides data and advice for Canadian real estate investors.

As Hunt further notes, economic growth ultimately buoys the housing market.

“GDP drives jobs, which drive population growth, and that drives the rental market and then property values.”

Recently, these economic metrics have been looking better for Calgary.

Despite a Calgary Economic Development update for November forecasting the city’s real GDP (net of inflation) is expected to contract slightly this year (-0.4 per cent), it also predicts GDP will grow by two per cent next year and 2.8 per cent in 2021.

What’s more, migration to the province is up significantly compared with the previous year. Provincial data show in the second quarter of 2019 (the latest numbers available), net migration was 12,899, an increase of more than 40 per cent compared with a net inflow of 9,189 in the same quarter of 2018.

As a result, REIN’s Top 10 Towns and Cities in Alberta — released earlier this fall — ranks Calgary’s real estate market second behind Edmonton among provincial investment opportunities. Hunt says the recovery may be slow-moving, but the city offers plenty of opportunities for investors seeking rental and property value growth.

Indeed, Calgary Real Estate Board data showed a modest median price increase of 2.28 per cent month to date (Nov. 25) compared with the same month last year. That’s a major shift in the direction, which had seen monthly price decreases, year over year, for several consecutive months.

“We’ve heard a lot of news about Husky and Encana, which are stoking fear about the economy,” Hunt says about the large energy companies making recent announcements — large layoffs and moving headquarters out of Calgary, respectively — seen as having a negative impact on the city.

“But the expectation is largely the economy will stay on the positive side.”

One upside for investors in rental properties is vacancy remains low (3.9 per cent in 2018, Canada Mortgage and Housing Corp. data show). As well, rents remain among the most affordable in Canada, according to Calgary Economic Development.

CED further states Calgary’s weekly wages are highest among all major cities.

Hunt also says investors should also look to other, lesser-known metrics REIN included in its Calgary Transportation Effect Report from March.

For example, it found that multi-family homes typically see between a 27 and 99 per cent boost in value when located less than a kilometre away from a freeway access point, or LRT station.

“And then the average single-family home experiences about a 10 to 20 per cent increase within 800 metres proximity to an LRT station,” she says.

The market’s recovery aside, Hunt recommends investors and homebuyers use these more granular metrics in addition to macroeconomic figures like GDP growth to guide their decisions.

“I would caution investors to go in with their eyes wide open, with as much knowledge as possible.”

 

Calgary Herald

Posted in Market Updates
Dec. 7, 2019

4 Simple Ways to Invest in Real Estate

Buying and owning Real Estate is an exciting investment strategy, that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost up front, then paying off the balance, plus interest, over time. While a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can in turn take out second mortgages on their homes in order to make down payments on additional properties.

 

Here are four ways in which investors can put properties to good use:

 

1. So You Want to Be a Landlord

 

Ideal for: People with DIY and renovation skills, who have the patience to manage tenants.

What It Takes to Get Started: Substantial capital needed to finance up-front maintenance costs and cover vacant months.

Pros: Rental properties can provide regular income, while maximizing available capital through leverage. Moreover, many associated expenses are tax deductible, and any losses can offset gains in other investments.

Cons: Unless you hire a property management company, rental properties tend to be riddled with constant headaches. In worst case scenarios, rowdy tenants can damage property. Furthermore, in certain rental market climates, a landlord must either endure vacancies or charge less rent in order to cover expenses until things turn around. On the flip-side, once the mortgage has been paid off completely, the majority of the rent becomes all profit.

Of course, rental income isn't a landlord's sole focus. In an ideal situation, a property appreciates over the course of the mortgage, leaving the landlord with a more valuable asset than he started with.

2. Real Estate Investment Groups

 

Ideal for: People who want to own rental real estate without the hassles of running it.

What It Takes to Get Started: A capital cushion and access to financing.

Pros: This is a much more hands-off approach to real estate that still provides income and appreciation. 

Cons: There is a vacancy risk with real estate investment groups, whether it's spread across the group, or whether it's owner specific. Furthermore, management overhead can eat into returns.

Real estate investment groups are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allow investors to purchase them through the company, thereby joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.

A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies. To this end, you'll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs.

While these groups are theoretically safe ways to invest into real estate, they are vulnerable to the same fees that haunt the mutual fund industry. Furthermore, these groups are sometimes private investments where unscrupulous management teams bilk investors out of their money. Fastidious due diligence is therefore critical to sourcing the best opportunities.

3. Real Estate Trading (a.k.a Flipping)

 

Ideal for: People with significant experience in real estate valuation and marketing.

What It Takes to Get Started: Capital and the ability to do or oversee repairs as needed.

Pros: Real estate trading has a shorter time period during which capital and effort are tied up in a property. But depending on market conditions, there can be significant returns, even in shorter time frames.

Cons: Real estate trading requires a deeper market knowledge paired with luck. Hot markets can cool unexpectedly, leaving short-term traders with losses or long-term headaches.

Real estate trading is the wild side of real estate investment. Just as day traders are a different animal from buy-and-hold investors, real estate traders are distinct from buy-and-rent landlords. Case in point: real estate traders often look to profitably sell the undervalued properties they buy, in just three to four months.

Pure property flippers often don't invest in improving properties. Therefore investment must already have the intrinsic value needed to turn a profit without any alterations, or they'll eliminate the property from contention.

Flippers who are unable to swiftly unload a property may find themselves in trouble, because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property, over the long term. This can lead to continued snowballing losses.

There is a whole other kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, where investors can only afford to take on one or two properties at a time.

4. Real Estate Investment Trusts (REITs)

 

Ideal for: Investors who want portfolio exposure to real estate without a traditional real estate transaction.

What It Takes to Get Started: Investment capital.

Pros: REITs are essentially dividend-paying stocks whose core holdings comprise commercial real estate properties with long-term, cash producing leases.

Cons: REITs are essentially stocks, so the leverage associated with traditional rental real estate does not apply.

A REIT is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends in order to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the aforementioned types of real estate investment, REITs afford investors entrée into non residential investment, such as malls and office buildings, that are generally not feasible for individual investors to purchase directly. More importantly, REITs are highly liquid because they are exchange traded. In other words, you won’t need a realtor and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.

Finally, when looking at REITs, investors should distinguish between equity REITs that own buildings, and mortgage REITs that provide financing for real estate and dabble in mortgage-backed securities (MBS). Both offer exposure to real estate, but the nature of the exposure is different. An equity REIT is more traditional, in that it represents ownership in real estate, whereas the mortgage REITs focus on the income from mortgage financing of real estate.

The Bottom Lin

 

Whether real estate investors use their properties to generate rental income, or to bide their time until the perfect selling opportunity arises, it's feasible to build out out a robust investment program by paying a relatively small part of a property's total value up front. But as with any investment, there is profit and potential within real estate, whether the overall market is up or down.

Posted in Buying Topics
Dec. 4, 2019

Top 10 Tips for Selling Your Home During the Holidays

Attract home buyers even during the holidays with these useful tips.

The holiday season from November through January is often considered the worst time to put a home on the market. While the thought of selling your home during the winter months may dampen your holiday spirit, the season does have its advantages: holiday buyers tend to be more serious and competition is less fierce with fewer homes being actively marketed. First, decide if you really need to sell. Really. Once you've committed to the challenge, don your gay apparel and follow these tips from FrontDoor.

  1. Deck the halls, but don’t go overboard.
    Homes often look their best during the holidays, but sellers should be careful not to overdo it on the decor. Adornments that are too large or too many can crowd your home and distract buyers. Also, avoid offending buyers by opting for general fall and winter decorations rather than items with religious themes.

  2. Hire a reliable real estate agent.
    That means someone who will work hard for you and won't disappear during Thanksgiving, Christmas or New Year's. Ask your friends and family if they can recommend a listing agent who will go above and beyond to get your home sold. This will ease your stress and give you more time to enjoy the season.

  3. Seek out motivated buyers.
    Anyone house hunting during the holidays must have a good reason for doing so. Work with your agent to target buyers on a deadline, including people relocating for jobs in your area, investors on tax deadlines, college students and staff, and military personnel, if you live near a military base.

  4. Price it to sell.
    No matter what time of year, a home that’s priced low for the market will make buyers feel merry. Rather than gradually making small price reductions, many real estate agents advise sellers to slash their prices before putting a home on the market.

  5. Make curb appeal a top priority.
    When autumn rolls around and the trees start to lose their leaves, maintaining the exterior of your home becomes even more important. Bare trees equal a more exposed home, so touch up the paint, clean the gutters and spruce up the yard. Keep buyers’ safety in mind as well by making sure stairs and walkways are free of snow, ice and leaves.

  6. Take top-notch real estate photos.
    When the weather outside is frightful, homebuyers are likely to start their house hunt from the comfort of their homes by browsing listings on the Internet. Make a good first impression by offering lots of flattering, high-quality photos of your home. If possible, have a summer or spring photo of your home available so buyers can see how it looks year-round.

  7. Create a video tour for the Web.
    You'll get less foot traffic during the holidays thanks to inclement weather and vacation plans. But shooting a video tour and posting it on the Web may attract house hunters who don't have time to physically see your home or would rather not drive in a snowstorm. 

  8. Give house hunters a place to escape from the cold.
    Make your home feel cozy and inviting during showings by cranking up the heat, playing soft classical music and offering homemade holiday treats. When you encourage buyers to spend more time in your home, you also give them more time to admire its best features.

  9. Offer holiday cheer in the form of financing.
    Bah, humbug! Lenders are scrooges these days, but if you've got the means, then why not offer a home loan to a serious buyer? You could get a good rate of return on your money.

  10. Relax — the new year is just around the corner.
    The holidays are stressful enough with gifts to buy, dinners to prepare and relatives to entertain. Take a moment to remind yourself that if you don't sell now, there's always next year, which, luckily, is only a few days away.

Source: HGTV

Posted in Trending
Dec. 4, 2019

Average price of a home in Calgary drops by over 4%

CALGARY -- The Calgary Real Estate Board says there were fewer sales in the City of Calgary last month, continuing a trend that has persisted for some time.

In its housing market report released this week. CREB says 1,160 units were sold in the City of Calgary last month, with the drop being driven in the apartment sector.

There were 21 per cent fewer apartments sold in the city last month over November 2018.

CREB says it's likely due to the continued uncertainty and poor economic conditions weighing down on the market.

"Achieving more stable conditions will take time," said Anne-Marie Lurie, CREB chief economist in a release. "While the amount of supply in the market continues to ease, the persistent oversupply continues to weigh on prices."

According to the report, the average price of a home in Calgary is now $458,523, 4.37 per cent less than in November 2018 when it cost about $479,593 to buy a home.

CREB also says the number of new listings in November has dropped year-over-year to 29,874, nearly 11 per cent less than last year.

Elsewhere in the southern Alberta region CREB says sales have improved in Airdrie, where a decrease in new listings helped to ease the oversupply in the market. Cochrane's market also remains oversupplied and the benchmark price of a home there was $394,200, over four per cent lower than November 2018.

Calgary Real Estate Board Housing Stats: Home Stats Doc

Source: CTV News Calgary

Posted in Market Updates
Dec. 4, 2019

New arena could be ready for Flames' 2024-2025 season

The timeline for building a new $550-million event centre could see the Calgary Flames kicking off the 2024-2025 season in their new Victoria Park digs.

Following a year of finalizing design details and acquiring the requisite permits, construction will commence in 2021 and be completed in 30 months, or 2-1/2 years, said Clare LePan, spokeswoman for Calgary Municipal Land Corp. (CMLC), which will quarterback the project.

Less than a day after city council ratified a cost-sharing deal to build the facility, LePan couldn’t say exactly when in 2021 construction would begin. But that timeline could put its completion in sync for the October 2024 Flames’ season opener.

“We don’t have definitive dates. . . We’d like the facility to be completed in advance of the NHL season starting,” said LePan.

After years of wrangling and verbal sparring over the need for a replacement for the 36-year-old Scotiabank Saddledome, a new chapter now lies ahead, she said.

“A huge amount has been done to get here but it’s now turned into a living, breathing project that has to be realized,” said LePan.

It’s possible the Flames could take their first face-off in the new building in the fall of 2024, said Coun. Jeff Davison, who spearheaded efforts in pursuing the deal for the city.

By then, the Scotiabank Saddledome will be 41 years old.

But for now, the next step is determining how the new building will look and function, a process expected to kick off after Sept. 5 when a CMLC report — on how public engagement will proceed — goes to the city’s Event Centre Assessment Committee, said Davison.

That’s largely to ensure, he said, that a multitude of expectations can be met by that feedback, which will be added to those of conceptual designers.

“Calgarians have said loud and clear this is not just going to be a hockey facility, it’s something that can used for more than one purpose,” said Davison.

A virtual pre-requisite is that the 19,000-seat facility be capable of hosting major concerts, something the Saddledome’s unique but finicky roof was often unable to accommodate, he said.

“Calgarians are tired of going to Edmonton for those,” he said.

And the beauty of the recently-opened central public library, just a few blocks away, will be expected to set a standard for the Flames’ new home, added Davison.

“We’d expect nothing less,” he said.

That consultation will also include how the surrounding Rivers District is developed for public use, said an CMLC official.

The new facility will occupy a three-hectare site at 12 Avenue and 4 Street S.E. on Calgary Stampede-owned land now occupied by parking lots.

Its construction will occur almost in tandem with the expansion of the BMO Centre, which is also expected to be finished in 2024 and whose proximity will benefit the event centre and overall cohesiveness of the Rivers District, said the CMLC’s LePan.

“It’ll be just across the street. . . It’s quite rare for a city to be able to co-ordinate that,” she said.

The demolition of the Saddledome won’t happen until after its replacement is completed, added LePan.

One of four city councillors to vote against the new arena deal said he remains concerned about how any cost overruns will be shared in the pact, that sees the city and Flames’ parent company Calgary Sports and Entertainment Corp. putting up $275 million each  for construction costs.

Jeromy Farkas also said he’s also concerned about a possible repeat of the kind of flood damage that ravaged the Saddledome in 2013.

“It’s building on a flood plain and we’re going to be on the hook for flood insurance but we don’t know what the cost of that premium will be,” said Farkas. “And if the budget does go over for the ($15 million) demolition of the Saddledome, council hasn’t set aside anything.”

He said residents of Victoria Park who live mostly in newer condo developments west and northwest of the proposed site haven’t been consulted about how the project will proceed.

“As this proceeds, it’s only going to heat up,” he said.

Farkas also opposed the agreement because it comes at a time when the city is slashing emergency service funding.

But he said as area councillor, he’ll now “roll up his sleeves to make sure it’s a success.”

Source: Calgary Herald

Posted in Trending
June 18, 2019

Calgary home sales see uptick for second consecutive month

 

There is some good news for Calgary’s long-depressed real estate market.

According to new data from the Calgary Real Estate Board (CREB), home sales in May 2019 across the city were 11% higher compared to the same period in 2018, representing 1,921 units sold for the month. But this is still 10% below long-term averages.

Growth in sales last month was primarily propelled by homes priced under $500,000.

Furthermore, the month finished with a decline in new listings, and it pushed down inventory levels, with 7,467 units listed — a 12% drop compared to last year.

The disparity between sales relative to inventory levels has improved, but the market is still oversupplied.

“While sales activity remains low based on historical activity for May, the easing prices have brought some people back to market, while also preventing some others from listing their homes,” said CREB chief economist Ann-Marie Lurie, in a statement.

For detached homes, sales for this housing type reached 1,182 units in May, which is a 12% increase over the same month last year, but still 13% below long-term averages. Inventories for detached homes fell from 4,504 units last May to 3,921 units this month, and it is the first time since May 2017 that year-over-year inventories declined.

Attached homes also saw improved sales activity; year-to-date sales for attached went up by 2%, making this the only home type to see a year-to-date improvement.

Apartment sales, however, continued to struggle, with the year-to-date sales sitting at 1,030 units, representing a 7% decrease over the same month in 2018 and 28% below long-term averages. Continued oversupply could cause prices to further drop.

As of May, the benchmark price for apartments was $246,900 — 0.6% lower than the previous month and nearly 3% lower than last year’s levels. Since 2014, prices for this home type have dropped by 17%.

Overall, the benchmark price for the month across all three home types was $423,100, which is a slight month-over-month improvement but 4% lower than 2018 levels.

 

Source: Kenneth Chan with Daily Hive

June 18, 2019

Office buildings turn to apartments, bring downtown Calgary back to life

If there are no companies willing to move into Calgary's empty office towers, real estate developers Strategic Group are betting people will.

That's the thinking behind the developer's decision to reconfigure some of its office buildings in Calgary and Edmonton as rental apartments, rather than fighting the headwinds of persistently high office vacancy rates.

One of those is the Barron Building, a historic building on Stephen Avenue that was Calgary's first skyscraper and the home of some of its first oil and gas giants when it was completed in 1951.

"I love the building," said Strategic Group president Randy Ferguson, in a Monday interview with Calgary Eyeopener host David Gray.

The building is 11 stories tall with a single residential unit: a penthouse apartment that once belonged to J.B. Barron.

The plan was to keep it that way when Strategic Group bought it, but then the oil crash happened, said Ferguson.

"We put a redevelopment plan together that we worked on since 2012 to convert the building — double the floor plate — into an office building while still respecting the architectural characteristics of the building," Ferguson said.

"Unfortunately," he added, "our plan was completed and permitted in 2015 where things came to a little bit of a stop in the office industry."

Now the interior is being reconfigured into residential units, with an expected opening in 2020.

Departing tenants

That same phenomenon came into play a few years ago, when Alberta Health Services announced it wasn't renewing its lease at another Strategic Group building, known as the Cube, on 11th Avenue S.W., across from the Midtown Co-Op.

Rather than trying to find a new tenant to replace their departing one, the company decided to repurpose the building as apartments.

Ferguson said the combination of design and location made it an appealing candidate.

"We looked at the building over what might happen in the next 10 to 15 years as an office building," Ferguson said, "and we looked at our costs and our returns on converting it to residential — and due to the location and the physical structure of the building, it was ideal for repurposing."

The building contains 67 suites. Ferguson described it as "more of a jewel box type building" than a lot of the high rise style apartments downtown, which distinguishes it from them, and as the thinking goes, appeals to a different sort of demographic.

"There is a big propensity and a big demand for purpose-built rentals in the city of Calgary today," Ferguson said.

"That could mean singles, it could mean empty nesters. It could mean new citizens moving into the city and even into the country."

The Cube is still under construction on its exterior, but has people living in it already.

"We're particularly proud of the Cube," Ferguson said, "because it's the first repurposing project that we're delivering into the two big markets in Alberta."

Artist's rendering of The Cube, a former office building that has been transformed into rental apartments in downtown Calgary. (Courtesy Strategic Group)

Demographically desirable

Strategic is also converting several office buildings in Edmonton into residential towers, for the same reason they're doing it in Calgary: older stock offices can't compete with new office buildings in a shrinking office demand economy.

But, Gray asked, what about the condo gluts that exist in both cities?

Ferguson suggested that there's room for rental units, particularly when compared with aging rental stock in both cities.

"The two youngest cities by a demographic in the country are Calgary and Edmonton and a young population," Ferguson said. "Remember, our average age is 35, and a young population has a greater propensity to rent than to buy.

"The second leading economic indicator is the fact that our rental inventories in the two big cities in Alberta, greater than 50 percent of that inventory was built prior to 1976 — so there's tranches of inventory every year that are becoming functionally obsolete."

Interior of an apartment in the Cube, on 11th Ave S.W. in downtown Calgary (Strategic Group)

Change downtown

It's not cheap to convert office buildings into residential units. The Barron Building conversion will cost $44M, while the Cube's is around $24.5M — but Ferguson said it beats the alternative.

Will it change downtown Calgary?

Could a ghost town transform into something resembling a community?

"It can absolutely change," Ferguson said.

 

Source Link: CBC

June 11, 2019

Debt blamed in credit crisis could help Canada with housing risk

The type of securities blamed for triggering a credit crisis in the U.S. a decade ago could now be part of the solution in Canada, where a cooling housing market is a key risk to its US$1.7 trillion economy.

The Bank of Canada is discussing ways to encourage a more robust market for residential mortgage-backed securities with potential investors. Only about $1.5 billion of Canadian uninsured mortgages have been pooled in RMBS deals, or about 0.1 per cent of the country’s mortgage debt, according to rating company DBRS Ltd. No lender has widely marketed such a deal since September, when private lender MCAP sold $254 million of the notes.

While previous efforts to kick-start an RMBS market have borne little fruit, this time may be different as Canadian home prices are rising at the slowest pace this decade amid higher interest rates, regulatory changes and tax increases designed to reign in surging prices, particularly in Toronto and Vancouver.

“While lenders are very well equipped to manage normal market risks, I suspect they are rather unwilling to take on the additional risk of future government intervention in the housing markets,” said Andrey Pavlov, a professor of finance at Beedie School of Business of Simon Fraser University in Greater Vancouver. “Therefore, lenders are likely more interested today than they have ever been in hedging their residential real estate exposure, and mortgage backed securities would be a good way to do so.”

Lenders create mortgage-backed notes by packaging property loans into securities of varying risk and returns -- too much risk it turned out during the U.S. financial crisis when shady loans made it into MBS tranches. There’s been little evidence risky mortgages have become a feature in Canada. In addition, mortgages are “full recourse” in most of the country, meaning lenders can pursue borrowers even after they’ve walked away from the property.

On top of raising funds, the sellers of the underlying assets can reduce the regulatory capital they have to set aside to cover eventual losses should they meet certain conditions, including selling significant portions of the lower rated, higher risk bond tranches.

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Longer Term

The notes are repaid as borrowers pay down debt. The legal duration of the bonds could be significantly longer than the expected repayment rate suggests. This could be a useful tool for lenders to offer longer-term mortgages in a country where most of the home loans have a 5-year term. The repayment of the bonds can be adapted to the repayment of the underlying collateral.

Up until 2016, Canadian lenders relied heavily on Canada Mortgage & Housing Corp., the country’s national housing agency to insure mortgages with down payments of less than 20 per cent and then packaged those loans into mortgage-backed securities to fund obligations. But as part of its efforts to curb taxpayer exposure to the housing market, the government made it more difficult to get insurance. The market for uninsured mortgages took off -- MBS based on the debt less so.

“There’s an ongoing education job around investors just to highlight the difference between that product and the CMHC product, and we are investing in that so that the market grows over time,” Bank of Montreal Chief Financial Officer Tom Flynn said in an interview last week. The RMBS “market is not nearly as developed as the CMHC mortgage bond market is. I would say our hope is over time that market will grow, and the banks generally I believe are interested in issuing that product.”

The Canadian Fixed-Income Forum, a Bank of Canada-led group made up of participants in the bond market, has been working since at least last year to analyze the conditions and incentives that would be required to expand interest in the asset class, according to the minutes of their meetings. It conducted a focus group last month with mostly buy side institutions about the disclosure on the underlying collateral and other features they may require. The group, known as CFIF, was scheduled to discuss the issue again at a June 4 meeting.

Data Portal

One way to bolster investors’ confidence in deals would be by setting up a public database of mortgages used in securitization deals including anonymized details of the borrower, property and loan performance, Bank of Canada governor Stephen Poloz said last month. A similar project was supported by the European Central Bank in a bid to re-start sales of asset-backed securities after investors shunned hard-to-value assets following the seizure of the U.S. mortgage securitization market in 2007.

“A loan level data portal is a great idea,” said Imran Chaudhry, a senior portfolio manager at Forresters Asset Management Inc., which manages about $8.5 billion of assets and has invested in Canadian securitizations. “Issuing public RMBS deals would provide a larger investor base to the issuers and help establish a diversified funding source for them over a longer term.”

The starting point of RMBS as a funding tool isn’t the most attractive for banks as investors may demand an extra yield of 20 to 30 basis points over their senior bail-in debt in a stable market situation, said Chaudhry, who is part of the CFIF. Yet, once a market develops the spreads will tighten and it will make economic sense for the lenders to issue, he said.

Uninsured Surge

All these efforts are occurring at a time when the household debt-to-disposable income ratio in Canada at the end of 2018 hit a record high of 175 per cent, up from 136 per cent in 2006. By contrast, U.S. household debt to disposable income ended last year at 98 per cent, the lowest since 2001, according to data compiled by Bloomberg.

“A key domestic risk is a sharp correction in the housing market,” officials at International Monetary Fund said in May 21 statement about the state of the Canadian economy. To be sure strong immigration, underlying strength in the economy and an unemployment rate near historic lows argues against such a scenario.

Lenders’ exposure to an eventual downturn may be increasing. According to the Office of the Superintendent of Financial Institutions, the Canadian bank regulator, the ratio of uninsured over insured mortgages has jumped to the highest since 1997.

At the end of March, the volume of uninsured mortgages surged 14 per cent from a year ago, accounting for about 59 per cent of the $1.17 trillion of home loans at Canada’s federally regulated banks, while insured home loans fell 7.8 per cent from a year ago, according to data from OSFI. On Tuesday, the regulator announced it was increasing a domestic stability buffer for systemically important banks to two per cent of their risk weighted assets from 1.75 per cent, effective Oct. 31, citing vulnerabilities that include household indebtedness.

“To be clear, the system is not broken—it has served Canadians and financial institutions well,” said Poloz in a May 6 speech in Winnipeg. “We should not stop looking for improvement.”

 

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