# Buying in Calgary



## Betterlatethannever (May 15, 2018)

Curious what everyone's thoughts are on the current market in Calgary. Obviously the market has been in decline for some time but are we near a bottom? If you were or are in Calgary, what would you be thinking about if considering purchasing? I'm thinking primarily about SFD not apartments/townhouses


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## Just a Guy (Mar 27, 2012)

I don’t think the prices have reached a point where properties will cash flow long term. They probably won’t cash flow even in the short term.


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## Betterlatethannever (May 15, 2018)

Just a Guy said:


> I don’t think the prices have reached a point where properties will cash flow long term. They probably won’t cash flow even in the short term.


Purchasing to live in it, but you think there is more decline to come?


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## AltaRed (Jun 8, 2009)

Betterlatethannever said:


> Purchasing to live in it, but you think there is more decline to come?


Not closely associated with the Calgary market, but would assume there are 2-3 more years of pain... until TMEP and/or Enbridge Line 3 goes into operation, oil prices strengthen, and the economy is re-stimulated somewhat. Whether that means further softening most likely depends on whether there are enough buyers of offset those who 'must' sell for one reason or another. Long term though, if there is more of a dip to come, it will reverse itself within 5 years. It is not always possible to perfectly time the market.


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## Just a Guy (Mar 27, 2012)

When I do my back of the napkin calculations for Canada as a whole, I find prices are between 40 and 60% overvalued. When interest rates go back up, prices of houses will correct and correct hard. Now, it’s possible to find houses under market value, they aren’t common but they do exist. If you can find one, it may be a good time to buy. The markets have been pretty dead this year so people (banks especially) are taking some really low offers because no one is buying. I don’t know when interest rates will actually rise, but they will some day (that’s the reason the government regulated the stress test). Of course, the economy isn’t in our control. The government tried to raise rates, now they may be forced to drop them once again.


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## Numbersman61 (Jan 26, 2015)

I’ve been a resident in the Calgary area for almost 60 years and so have some feelings on the Calgary real estate market. In my opinion, there could be some further declines in the real estate values. I am constantly amazed at the amount of residential construction when the the City is suffering economically. The amount you plan to spend on a home is an important factor - the higher priced homes ($1 million plus) are very difficult to sell and most owners with homes in this category are just waiting for the economy to recover. I would not be looking at purchasing a new home but rather looking for a bargain where the situation has become desperate and and the owner is forced to sell - employee relocation, death, senior moving into a retirement facility or financial pressures. The deals are there but you have to be patient and knowledgeable on the market. I live in an upscale community with the majority of the owners being over 50 and financially secure. A few neighbors have listed their homes for sale with very little interest by prospective purchasers. In most cases they just drop the listing and decide to wait for a recovery. However, a few homes must be sold and the price just keeps dropping until a sale is consummated.


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## AltaRed (Jun 8, 2009)

Agree that is typical behaviour in the market. I have seen and experienced a number of Calgary RE cycles.


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## peterk (May 16, 2010)

Also consider the cohort of boomers retiring. This is happening earlier in Alberta, since many retire at age 55-60, instead of 65, on account of being rich enough. It will also hurt Alberta harder because more retirees will leave to elsewhere unless they live in the Calgary region. It is also not yet seen what will happen to all the jobs that don't get refilled, as instead of layoffs many companies are simply waiting out older people to retire and then automating/re-orging their jobs away or making 2 young people do 3 people's job. This will be seen everywhere, but, again, especially hard in Alberta, as the oil-decline-driven re-orgs are coinciding with the retirements.


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## Longtimeago (Aug 8, 2018)

Try looking at the forest instead of a single tree.

What is it you are trying to do, find a good investment to make money or find a place to live? You can spend a $1000 on rent or $1000 on a mortgage. The only risk you face is whatever amount of down payment you start with. The bank has the rest of the risk.

I lived in Calgary in the mid to late 60s and saw the Alberta economy go through a 'boom/bust' period as it always has and always will. I worked with hundreds of engineers who were all on contracts with consulting companies and oil related companies. When it comes time to renew contracts, these companies simply don't renew in a 'bust' period and do renew in a 'boom' period. As a result, I saw countless people suddenly find themselves out of work with a mortgage to pay. So what did they all do? They simply walked away and lost the money they had initially put in as a down payment on a house. They did NOT lose the $100 per month they had been putting in, any more than someone would have said they 'lost' the $1000 per month they had been paying in rent.

When you are looking for a place to live, you have NO CHOICE but to spend money on something, either rent or a mortgage, UNLESS you already own a home outright. So focus on that, not 'is this the best time to buy' from an investment standpoint. It's not an investment, it's a roof over your head you need.

More important than asking 'is this a good time to buy' is to ask for advice based on your circumstances. If for example you are a contract employed engineer as per my example above, who is subject to contract renewal according to the boom/bust cycle of Alberta's economy, the advice might be to put as little into a down payment as possible. If you are a wheat farmer, the advice might be entirely different. If you own a auto repair shop, the advice might be entirely different again. It all depends on your individual situation of which you have said nothing.

If you want a home to raise a family in for the next 20 years, who cares about boom/bust? The only question then would be how comfortable are you that you will continue to earn an income during the bust periods? Buying a HOME is not about an INVESTMENT. Yes there is an element of investment involved but it is NOT the primary factor you should be basing a decision on.


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## peterk (May 16, 2010)

^ Good stuff LTA.

I might be going through the decision myself in the next year. Certainly a "good price" is a nice to have, but really the decision is mostly about how much roof I want/need.

I don't recall exactly, but is "the bank has the rest of the risk" really true? I think this changes by province? Don't know the latest. I've always thought that to walk away from a severely underwater mortgage one had to be in a pretty bad financial situation with no assets to speak of. Someone who is mid-life with a job and retirement savings and owes 450k on a now 300k house doesn't have much of an option just to move out and drop off the keys without significant long term hassle/repercussions, do they?


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## OnlyMyOpinion (Sep 1, 2013)

I agree with LTA, if this is about buying a house to live in for the long term now is not too bad a time to buy. It could get better but IF you are ready (secure income, down payment, no other debts) and if this is not a short hold (discretionary or forced) then it's about where you choose to live and 'best time to buy' is secondary.

Don't over-extend yourself, but don't settle on a so-so place.

Location, location, location! Make sure its a place you can see yourself being 'stuck in' for a long time (we've been in our place 40 years and have never regretted the house or the location).

Check out commuting time and options (Deerfoot in the morning - not), airport flight paths (some areas are an issue), nearby schools (public sch kids are bussed out of their neighbourhood in many areas), ease of local shopping). Finally, check out the house and neighbourhood carefully - if you are backyard folk, do you have privacy, has it been maintained well, or had cheap lipstick put on to make it look good. Who are the neighbours, are there many rentals (or airbnb) in the area.

Every house inspection I ever had done missed things - do your own critical inspection (easier if you're a handiman-type or know someone who is).

Are you looking for a old fixer-upper in a popular inner city neighbourhood? If so, be prepared for in-fill duplexes to be going up 'next door'.

I hear it is a buyer's market so there is no need to rush.


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## Mukhang pera (Feb 26, 2016)

Longtimeago said:


> What is it you are trying to do, find a good investment to make money or find a place to live? You can spend a $1000 on rent or $1000 on a mortgage. The only risk you face is whatever amount of down payment you start with. The bank has the rest of the risk.


LTA, would you elaborate on the notion that "The bank has the rest of the risk." Are Canadian banks in the real estate speculation business? 

It may be - however surprising to moi - that in some Canadian jurisdictions lenders are limited to pursuing their remedies against the land and only the land. So, if the mortgage goes into default and a sale leaves a shortfall, the mortgagee takes the hit. That is not the law in British Columbia. Here, standard mortgage terms usually contain a "personal covenant", meaning the mortgagors covenant and agree to pay the debt no matter what. This is made clear under s. 8(5) of the Prescribed Standard Mortgage Terms under the BC Land Title Act. They are reproduced here:

http://www.bclaws.ca/civix/document/id/lc/statreg/332_2010

Any judgment obtained by a lender against a borrower is contractually preserved by section 8(5), despite a sale of the land. This is why lenders prefer an order for sale rather than taking title upon foreclosure; if there is any deficiency of proceeds, the lender’s right to collect that deficiency from the borrower is preserved by the judgment.

Here's an illustrative case:

_Bagry_ v. _Vaishnav_, 2016 BCSC 1172

MORTGAGES — Contracts — Interpretation • Foreclosure — Personal judgment — After their assignment into bankruptcy, defendants entering vendor take back mortgages with plaintiffs, on which they later defaulted — Net proceeds available after foreclosure insufficient to pay plaintiffs' mortgages in full — Court allowing plaintiffs’ claim against defendants for the shortfall, finding nothing in mortgage contracts derogating from defendants’ contractual personal liability — Defendants’ prior bankruptcy not a bar to recovery, since an indebtedness incurred by a debtor after an assignment into bankruptcy is not a claim provable in bankruptcy and claims for such indebtedness not stayed.

https://www.courts.gov.bc.ca/jdb-txt/sc/16/11/2016BCSC1172.htm

I would have to think in any jurisdiction where, as LTA suggests, the bank gets to underwrite any falling market losses, most banks would want a rather hefty down payment to offset the risk. Upthread, JAG predicts a 40-60% drop in prices, so surely no bank would agree to lend against real estate unless the purchaser pays at least 50% up front.


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## AltaRed (Jun 8, 2009)

Most mortgages, 80% LTV or more, are also CMHC insured. They carry the risk. I think AB and maybe SK still have non-recourse mortgages (at least those without default insurance such as CMHC), and if so, that may be what LTA could also be alluding too. I may not be current in my understanding.

Added: It may only be AB https://www.cbc.ca/news/canada/calgary/jingle-mail-alberta-housing-1.3430867


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## Mukhang pera (Feb 26, 2016)

Looks like Alberta might just be a debtor's paradise! 

Is CMHC required, by law, to accept a known risk as long as someone puts 20% down? With a 60% drop coming, sounds like CMHC might have to make an assignment in bankruptcy before too long.


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## AltaRed (Jun 8, 2009)

With a 20+% down payment, I suspect (not certain) there is no CMHC insurance, nor would they be obliged to do so. Besides why would the borrower want to pay for that insurance premium anyway?


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## Just a Guy (Mar 27, 2012)

Alberta and Saskatchewan are the two remaining provinces with non-recourse mortgages. You can mail the keys back to the bank and take a hit on your credit rating. All other provinces, they can come after you for the difference.in fact cmhc can come at you for the amount they covered for you as well.

Cmhc is only on mortgages over 80% LTV.


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## Mukhang pera (Feb 26, 2016)

I think my query would have been better phrased thus:

Is CMHC required, by law, to accept a known risk as long as someone puts 20% _or less_ down? If a cataclysmic price drop is on the horizon, it seems that CMHC would (and very much should) want to avoid signing up for some certain losses.


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## Just a Guy (Mar 27, 2012)

Cmhc can go after the old homeowner for the losses in every province other than Alberta and Saskatchewan...so only in two provinces do they face “certain losses”.


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## Numbersman61 (Jan 26, 2015)

Just a Guy said:


> Cmhc can go after the old homeowner for the losses in every province other than Alberta and Saskatchewan...so only in two provinces do they face “certain losses”.


I believe this incorrect. If the loan is guaranteed by CMHC, they can recover the deficiency in every province. If the loan is not guaranteed by CMHC, it is a non recourse loan in Alberta and Saskatchewan.


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## Just a Guy (Mar 27, 2012)

I can’t find anything really definitive, but it looks like you may be right.


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## Longtimeago (Aug 8, 2018)

I will admit to a quick 'throwaway' comment re the risk. I was more focused on the point of buying a home to live in vs. an investment and that the OP should be looking at it from that perspective.

I can indeed however recall many people just walking away from mortgages when they lost their jobs in a 'bust' period in Alberta. I can also recall the same in Ontario in early 80s when mortgage rates went to 20%. Many people who had say a 5 year mortgage they took out at 10% had no choice but to walk away as they were unable to pay at a 20% rate at renewal. Also of note, many of them had got a 'first time homebuyer's' deal from the Ontario government which basically had covered the down payment. So they had even less money in to consider. 

As for just how liable they were, put yourself in their place. No job, no income, what can you do to me? You can't get blood from a stone. People left Alberta and moved back to Ontario or Nova Scotia or wherever they came from. Chase me there if you can find me. People declared bankruptcy. People just didn't care. Sue me, put me in jail, at least I'll get a bed and 3 meals a day. The law can say whatever it wants but a threat is only a threat if I care about it. When people are in a desperate situation, some threats simply don't matter to them.

I don't know what contract laws were applicable in the 60s in Alberta or Ontario in 81 but I KNOW that people walked away from mortgages, car loans, credit card debts, etc. without a backward glance, because they saw no other choice open to them. Perhaps you have to be in that situation to understand how they were thinking.

But this thread is not about legal liability, it is about whether the OP should buy a house in Calgary now or not so let's try to address the OP's question, not change the thread into anything else.


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## Betterlatethannever (May 15, 2018)

Just a Guy said:


> When I do my back of the napkin calculations for Canada as a whole, I find prices are between 40 and 60% overvalued. When interest rates go back up, prices of houses will correct and correct hard. Now, it’s possible to find houses under market value, they aren’t common but they do exist. If you can find one, it may be a good time to buy. The markets have been pretty dead this year so people (banks especially) are taking some really low offers because no one is buying. I don’t know when interest rates will actually rise, but they will some day (that’s the reason the government regulated the stress test). Of course, the economy isn’t in our control. The government tried to raise rates, now they may be forced to drop them once again.


I also have thought about this. I have limited knowledge on economics but it seems to me that Canadas real estate situation is much different than the USA and most other countries. It seems very difficult to make a large financial decision with the looming idea of being able to lose 20-40% or more on it. Especially when compared to the risk of renting/investing. 



Numbersman61 said:


> I’ve been a resident in the Calgary area for almost 60 years and so have some feelings on the Calgary real estate market. In my opinion, there could be some further declines in the real estate values. I am constantly amazed at the amount of residential construction when the the City is suffering economically. The amount you plan to spend on a home is an important factor - the higher priced homes ($1 million plus) are very difficult to sell and most owners with homes in this category are just waiting for the economy to recover. I would not be looking at purchasing a new home but rather looking for a bargain where the situation has become desperate and and the owner is forced to sell - employee relocation, death, senior moving into a retirement facility or financial pressures. The deals are there but you have to be patient and knowledgeable on the market. I live in an upscale community with the majority of the owners being over 50 and financially secure. A few neighbors have listed their homes for sale with very little interest by prospective purchasers. In most cases they just drop the listing and decide to wait for a recovery. However, a few homes must be sold and the price just keeps dropping until a sale is consummated.


Well I would NOT be considering buying new or looking at the $ range that high. I would be looking for a used starter home with the idea of staying between 5-10 years and either keeping it to rent out if its worth it or selling after that time and moving to a more desirable location/home better suited for family life with children. I suppose the exposure of a potential further drop is less if the cost of the home is less. Eg 10% drop of 400k is much less than 10% drop of 1 million. When you say knowledgeable about the market do you just mean prices in areas? Knowing what is actually a good deal or not? 



Longtimeago said:


> Try looking at the forest instead of a single tree.
> 
> What is it you are trying to do, find a good investment to make money or find a place to live? You can spend a $1000 on rent or $1000 on a mortgage. The only risk you face is whatever amount of down payment you start with. The bank has the rest of the risk.
> 
> ...


Definitely find a place to live to build, nothing glamorous, just to build some equity and buy a nicer home down the road. You're right, its difficult to give advice when you don't have a lot of information. Let me give you some: Late 20's, married, no kids but looking to start a family in the next couple years. My wife is working and I'm finishing up some extra schooling and won't have trouble finding stable work. We see ourselves staying in Calgary for the foreseeable future but we don't know what area of town we would want to live down the road when raising a family. For the next 5-10 years the location is less important to us as the financial gain of building some equity. So I suppose a more detailed question would be "is it worth purchasing something to build up equity for 5-10 years and then moving to a more desirable location or just rent and wait until we can afford a better location/home when we are more established?"



OnlyMyOpinion said:


> I agree with LTA, if this is about buying a house to live in for the long term now is not too bad a time to buy. It could get better but IF you are ready (secure income, down payment, no other debts) and if this is not a short hold (discretionary or forced) then it's about where you choose to live and 'best time to buy' is secondary.
> 
> Don't over-extend yourself, but don't settle on a so-so place.
> 
> ...


Great advice, thanks. As state above though, I would be looking at a place that I would NOT want to be stuck in for 40 years so that is something I will consider. I would rather settle on a so-so place for a time and reevaluate in 5-10 years. But maybe I'm looking at it incorrectly.


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## Just a Guy (Mar 27, 2012)

When you factor in realtor costs, legal fees, potential fees to break the mortgage, etc. It usually takes 7 years of regular home appreciation just to break even. If you’re looking to build equity in such a short time, real estate isn’t the right path. Real estate is a slow growth commodity. That’s why investors use leverage in real estate, otherwise it doesn’t work well, there are much better options. 

Also consider the costs of major renovations, or even a series of minor ones which may not give you a return (no one pays you more for a new hot water tank for example). 

I also think interest rates will rise in the next 5-7 years which makes your house more unaffordable to potential buyers, meaning the price will probably go down. Remember, for every 1% increase in interest, your payment will increase about $50/month for EACH 100k you borrow. If you can’t afford to pay an extra amount each month for your place, chances are other people, in the same market can’t either which means prices have to drop. No richer person wants to pay more for a smaller house, they want the same houses they always want. You are going to be selling to people just like you. If you can’t afford it, neither will likely buyers.


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## twowheeled (Jan 15, 2011)

this is not related to the context of this thread, but I really believe rising interest rates will come from central banks losing control. Unless you are of the opinion that the Canadian economy has some hidden ace up it's sleeve and potential for a great deal of growth in the coming years.


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## twa2w (Mar 5, 2016)

Mukhang pera said:


> I think my query would have been better phrased thus:
> 
> Is CMHC required, by law, to accept a known risk as long as someone puts 20% _or less_ down? If a cataclysmic price drop is on the horizon, it seems that CMHC would (and very much should) want to avoid signing up for some certain losses.


No, CMHC and other mortgage insurance providers are not required to provide mortgage insurance in every case. Although in CMHC's case they are mandated I believe to facilitate or assist Canadians purchasing houses. They can and do occassionally decline either a property or a borrower.
A property may be declined if it fails meet certain standards. The same applies to a borrower.( credit rating, debt dervicing, stability etc)
CMHC does an annual stress test on its portfolio to determine risk. What happens if interest rates rise a certain amount, or if property values fall etc. Of course CMHC is backed by thd government so they do tend to be more generous than the private mortgage insurance companies in their acceptance of risk.
CMHC rarely goes after homeowner default shortfalls. Usually not much point as once the house is lost, the person has little assets left anyway.


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