An article was posted on CBC recently about home affordability dropping across Canada throughout the recession and RBC claiming this could be its lowest point, as housing prices across the country have been stabilizing and even rising in recent months. The reason I felt compelled to comment on this article was in response to several reader comments posted about the article at http://www.cbc.ca/money/story/2009/09/09/housing-affordability.html.
For example, one reader said “Houses are just a bit of wood, plastic, brick and labour. Why is the average cost even anywhere close to $325,000?” The writer forgets about two important factors: land and the market. I will get to land values later.
Markets are based on supply and demand. The principal reason house prices increased so sharply in 2005-2006 was that demand was extremely high while supply could not catch up. As builders poured hundreds of new homes into the Calgary marketplace through 2006-2007, net migration (total population moving to Calgary minus total population moving away) softened. This helped shift the balance of supply and demand in the other direction and we saw Calgary turn into a buyer’s market. With recent record-low interest rates and less new houses being built, we have seen the market really balance out in 2009.
Of course, houses are only worth what someone is willing to pay for them. The same is true for any resale items. Anyone could post a used coffee mug on Kijiji for $1,000 but I’m sure they won’t find a buyer willing to pay that amount. Home sellers can list at whatever price they choose but the house only earns that value if a buyer is willing to pay that amount.
One of the reasons that buyers have been willing to pay the amount that they are is the value of land. Anyone who works downtown and lives in the suburbs can tell you how their daily commute affects their quality of life. For those who can afford to do so, a home close to your workplace means more free time to do whatever it is you love to do.
Calgary is a hub of entrepreneurial energy, high-paying oil & gas jobs, now two universities (with Mount Royal’s upgrade from college) and opportunity aplenty. Surely a piece of land here is worth more than one in Lemberg, Saskatchewan (I can say that… it’s my mother’s home town, population 350) where you would be happy to work at the four-room hotel or maybe the Chinese café. Calgary’s consistently high average income means many individuals and families can have a comfortable quality of life even when purchasing a $400,000 home.
Even when it may be a bit of a financial stretch to move from renting to owning, I believe many home buyers (including myself) can attest to the pride that comes from owning your home, the freedom that comes from making whatever changes you desire to it and the value of investment that comes from building equity over the long term.
If you want to discuss more about land value, supply & demand or how home ownership can benefit your lifestyle, please drop me a line.