It’s All About OIL
As the price of a oil broke (and closed above) $75 US/bbl on Apr 21/06, the price of an average SF Calgary home has broken the $400,000 level (June Average SF home price is $410,076). If you'd suggested last year that Calgary property prices would be more than 50% higher in a years time, people would have thought you were crazy.
(April 2006) I’m often asked by people what the outlook or forecast for the Calgary housing market is, especially in light of the frenzied real estate market Calgary has experienced over the past little while. Many people see stories on TV or read articles in the print media which seem to suggest there a bubble in the Calgary real estate market. In my opinion, nothing could be further from the truth.
The average price of a single family (SF) home in Calgary is now $377,352, up a staggering 38% over the same time last year. Calgary condo prices also have risen dramatically – the average Calgary condo now sells for $250,347, a 36% rise from April 2005.
While some are quick to point out this “average” price is skewed by the number of multi-million dollar Calgary homes sold in 2006, the Median price of a SF Calgary home is now $345,000, up 41% from a year ago. Clearly the price of all properties in Calgary have risen significantly (the “Median” is the price exactly in the middle of all sales).
Average price is computed by taking the total sales price and dividing by the number of units sold, while Median price is the Price of the middle unit. i.e. If three homes sold for $200,000, $300,000, and $1,000,000, the average would be the sum divided by 3, or $1,500,000 / 3 = $500,000. The Median is the price of the middle unit, in this case $300,000
What’s behind all this? OIL. Alberta is home to the largest recoverable crude-oil reserves outside the Middle East, according to the Canadian Association of Petroleum Producers. Calgary has always been the oil capital of Canada. The oil patch has long been headquartered in Calgary, and virtually all active exploration and development companies, as well as most service companies, have a presence in the city.
The price of crude oil hit $40 US/bbl in May of 2004, and in just 5 months time passed the $50 / bbl mark. June 2005 saw the price hit $60 / bbl. April 19/06 saw a new all-time record for crude on the NYMEX (New York Exchange) with the price of crude closing at $72.17 US/bbl.
Oil smashed through record highs April 21/06, cruising past $75 a barrel on continued fears of a supply disruptions in Iran and Nigeria and reports of spot gas shortages on the U.S. East Coast.
U.S. oil for June delivery set a new trading high of $75.35 before easing to settle at 75.17 a barrel on the New York Mercantile Exchange, also a new closing record. The May contract expired Thursday at $71.95.
The price of oil will certainly continue to be volatile. A number of the factors causing the latest price increases (political instability due to Iran’s nuclear research program, Nigerian unrest), may well fade away, but with the upcoming hurricane season fast approaching the US, there will always be some uncertainty about supply.
I’m not trying to suggest the world is running out of oil. What I am saying is that the world has run out of cheap oil. The days of $20 - $40 oil are history.
What this means to Calgary is an economic boom unlike any ever experienced. The US has admitted they are addicted to oil, but at the same time, they’re tired of relying on politically instable regions of the world as their source of supply. The oil sands of Fort McMurray have an estimated 189 BILLION barrels of crude oil reserves, and according to the provincial government, energy producers plan to spend as much as C$73 billion in the next 20 years to develop the oil sands.
Which makes Calgary a city unlike most any other in the western world. The city has never seen such an influx of people. Many are employed directly with oil-related companies. Others are with support and service industries. Unemployment levels have never been as low. People are coming to the city in droves.
Available properties for all these people have also never been as low. The inventory of SF homes and condos currently listed are at record low numbers for this time of year. “Experts” predicted that February and March listings would bring the numbers back to where they usually are – it hasn’t happened. Instead, virtually every new listing that hits the market is considered by dozens of agents and hundreds of buyers, all looking for a place to live.
While Calgary properties aren’t all selling the first day or two on market – most recent stats show that 60% of all new listings sell in less than 2 weeks on market. The number rises to just over 90% sold in less than 30 days.
54% of all properties sold the first two weeks of April sold for list price or more (see Calgary market stats page for details). How much over list are people paying? Last week the largest single over-list price paid was $415,000 (the average over-list price paid is $11,162).
I don’t see any end to the current market conditions. Likely this type of market will continue into 2007. Oil prices will remain volatile - expect prices to swing between $60 - $100/bbl. What this means is if you intend to buy, you will be paying significantly more in 6 to 9 months time than you will pay now.
Jim Sparrow
Keller Williams Realty South
Direct: (403) 703-2404
email: jimsparrow@telusplanet.net
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