I did some analysis back in July in which I showed that Calgary’s real estate market can only support, at present, a value of around $400,000.
Using CMHC’s Mortgage Affordability Calculator, assuming zero debt, zero taxes and zero heating costs, zero down and a 40-year amortization at an optimistic lending rate of 5.5%, the median Calgarian household needs roughly $7,600 per month to afford a median house price of $455,861, well above the area’s actual median house price of $411,000. However, this is grossly optimistic, as everyone pays property taxes, most pay heating bills and many pay debt service.
What if we assume the following?
* Average credit card debt is $20,000, roughly equal to $300/month in interest alone.
* Utilities are $300.
* Property taxes are $100/month.
The 40 year/0% down scenario drops to : $397,217
The 35 year/5% down drops to: $381,266This is slightly below Calgary’s $411,000 median house price. Either people are putting far more money down on their homes, or the market price can fall slightly to allow all the inventory to clear.
The italicized text is the golden nugget here. Calgary’s median house price is now in line with those figures. Taken from the CREB website today:
What does it mean? I think it means that Calgary’s real estate market is being propped up by a remnant of 40-year, 0% down mortgages. This October, we can kiss those goodbye. After October (the day after the election, interestingly), the new wave of 5%/35 year mortgages will wipe a swath of would-be buyers out of the market. These post-October borrowing conditions will only support a median house price of $380,000. It’s an educated guess, and I’ll see how it’ll play out.
Related:
House prices overvalued by up to 25 per cent, study warns
UBC Sauder School of Business discussion paper: Are Canadian housing markets Overpriced?
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