Calgary Housing Market is on fire
Calgary's new-home market on fire
From Thursday's May 11 Globe and Mail
Calgary's new-home market has never been hotter, with prices up close to 30 per cent in just 12 months and record sales volumes expected this year for single-family houses.
Between March and April alone, the cost of a new home jumped 5.9 per cent, according to figures released Wednesday by Statistics Canada. In the past year, the gain was 29.6 per cent, a number that helped to drive the national average up 7.6 per cent, its biggest gain since 1990.
The unexpected and continued strength of the Alberta housing market also is behind a major rethinking of the outlook for new-home construction this year. Canada Mortgage and Housing Corp. (CMHC) Wednesday predicted new-home starts will rise more than 10 per cent this year in the province from 2005 levels.
Building and buying a house in this pressure cooker of a market is hardly for the faint of heart. Prices and the costs of construction have become a moving target in recent months, with dramatic swings from one week to the next making a mess of developers' margins.
Indeed, costs have been so volatile that a few builders are refusing to give buyers a firm price and delivery date on their home until they have a finished product. Others are building more homes on spec as a way to avoid getting clobbered by a market that is full of surprises.
“I like to describe the situation as fluid — it's like war,” said Jay Westman, president of Jayman MasterBuilt Inc., a leading home builder in the province.
“A lot of builders have had to dramatically increase prices,” agreed Ryan Ockey, president of Cardel Homes and head of the Calgary Home Builders Association. Mr. Ockey said he's even had to scramble to find crews to move dirt on his lots after the contractors he hired got a better offer on one of the province's many infrastructure projects.
Despite the rising consumer demand, Mr. Westman said 2005 was the worst in 25 years for his family's firm, which got squeezed by rising costs for a product that it had already sold at a fixed price. “We got killed. We just got killed,” Mr. Westman said. “It was either you pay the new roofing price or we are not going to install your roof on Monday. I was in a very bad mood by the fourth quarter.”
A top-notch framer, he said, can now make between $80,000 and $140,000 a year, almost double the going rate a year ago.
In response, Mr. Westman said his firm has revised its pricing practices to accommodate the new reality of double-digit inflation. Asking prices on its mid-market homes are revised at least once a month and sometimes every two weeks, and the company is trying to build some houses without preselling them to keep its margins healthy.
“We feel more confident going forward. We think we have a handle on this, but it's been a bit of trial under fire.”
The situation also is hard for consumers intent on buying a new home in a market with limited supply.
“It's rather frightening for a buyer,” said Richard Corriveau, the regional economist for the Prairies with CMHC and a long-time observer of the Calgary housing market. Mr. Corriveau said huge demand and limited supply along with rising costs make it hard to predict where prices are going. As well, he said, the rich bonuses and stock options now being handed to many workers mean it's hard to say what the market will bear.
“Albertans have a strong ability to pay cash for a home — you can't underestimate that.”
In response to these factors, CMHC Wednesday drastically revised upward its forecast for new-home construction in the province. It now expects 45,000 homes will be started this year, more than 10 per cent above 2005.
The federal agency also increased its outlook for British Columbia to above 2005 levels and raised its national forecast to 222,000 from 208,700. The new national forecast is just under the level reached last year. The revised forecast draws a clear line down the middle of the country, with Manitoba and markets to the west showing gains and everywhere to the east experiencing declines.
Mr. Ockey at Cardel Homes said there is no question that demand is strong, but he questions how local builders can put up more homes than they did last year. Already, many are using skilled workers from other provinces and even other countries. His own drywall contractor has about 30 workers from Mexico employed at his company's building sites.
He is planning to build the same number of homes this year as he did in 2005. “We could all sell more homes. But could I build them? Not in a reasonable period of time.”
Mr. Ockey said the issue of not selling at a fixed price is something he and other builders talk about, but he said so far only a very few, smaller builders have refused to give buyers a firm number. “We're trying to do the best we can for our customers,” he said. “There are sure some concerns for some builders.”
