It sure didn’t take long for the questions to start coming in on how the flooding will affect the real estate market. While we at the Real Estate Investment Network were focusing on doing whatever we can to provide updates/answers/an information hub/support/insurance info throughout the weekend – in the background the real estate questions began to come in.
Of course, we have been focusing initially on the flood’s effect on the obvious first priority: people (Dr. Paul Stoltz's Insights on Flood Adversity). We have also begun our preliminary analysis on the economic and real estate side of the equation. Its impact will be felt for months and will ripple into many areas of the economy. Here’s what we should see in the coming months (more detail to come as more facts are known):
#1 Housing Market
The most important fact for everyone to remember throughout the next few months is that Housing sales, number of listings, days-on-market, average sale prices/ building permits will no longer reflect the true ‘direction’ of the market. These numbers will all be skewed by the after effects of the floods. Sounds rather obvious when you think about it; however, watch what happens in the coming months as the numbers are released and those who love to scare the world to get attention will use these skewed numbers to support their very weak real estate arguments that the market is collapsing/over-valued etc. Chuckle a little bit when you read it, but don’t get drawn in to the drama; know that the numbers are just not normal.
Skews even “Canadian Housing Numbers”
As we know, Calgary was on a nice and steady growth curve that matched the underlying economics, and this is no different now. Over the coming months, the number and quality of the sales transactions will not be on trend and should actually be ignored, or at least ‘seasonally adjusted’ in your big picture analysis. The next few months, the housing stats will not be indicative of market health. As people focus their attention to getting their lives together, getting their properties together and resetting their housing goals, selling or buying a property won’t be top of mind as priorities shift.
Calgary’s market strength over the last number of months has helped to support the “National Averages” often used as bell-weathers of the “Canadian Real Estate Market.” With Calgary’s market knocked off track, its influence could put negative pressure on the national number. Watch for this influencer create unsupported headlines and arguments.
Days On Market To Be Skewed To Higher Ground
Following this, we should see a ‘shift’ to higher ground. After a traumatic event such as this, many will sit back and evaluate their lives, as well as their housing choices. Most will choose to remain in the same neighbourhood; however, there will be a larger than average cohort who will make the decision to move from flood risk areas. The impact of these decisions won’t be felt all at once in the market; yet, there will probably be an increase (over average) of listings in these areas in the following 12 months. Increasing the number of ‘days-on-market,’ while at the same time decreasing the ‘days-on-market’ in higher ground un-affected regions of the city as both new-comers and those wishing to change residence in the city will have the ‘flooded regions’ at the top of mind.
Insurability Clause To Be Increasingly Important
Because the human memory is short, this shift will really only be felt over the next 12 months or so. However, insurance company’s memory is much longer and will have an effect on insurance rates and companies that will cover properties in the flood zones. That is why it is going to be increasingly important to add the clause to your Purchase and Sale Contract; “Subject to Buyer Confirming Acceptable Insurability of Property.” Many buyer leave insurance discussions until close to closing, and from now on they need to be asking this question at the beginning of the purchasing process.
New Migrants to Calgary
For the next 6 – 12 months, new migrants to the city and surrounding towns will have the sight of the floods etched in their brains. This experience will push many of them to ‘higher-ground’ purchases, increasing the demand further for these areas. Following this period, you will also see ‘relocation specialists’ reminding professionals being moved in by their companies about focusing on higher ground as part of their due diligence. This, or a similar map, will begin to play a role in housing market decisions:
The bottom line is this: the results of this flood will play a role in the housing numbers for at least 12 months in all cities and towns affected by it and will skew the market health readings. Strategic investors will understand this and not get too excited when numbers show extra strong in higher ground areas, or too distraught if numbers come in ‘off trend.’
#2 Rental Market
The Calgary and region rental vacancy rate, already near zero, will hit absolute zero and affordable housing options will quickly disappear. This is due to the combination of current demand from new residents coming into the region for economic reasons, combined with the temporary rental demand from insurance backed home-owners who need a place to live during their renovations/repairs on their homes PLUS displaced current renters. In fact, there just won’t be enough local rentals available to fit demand.
This will drive ‘street’ rents up quickly as suites turn-over, but it will also limit the turnover of current tenants who will choose to stay in their current rental longer as choice of movement will be severely restricted. Sadly, it will also spur increased number of stories of ‘landlords taking advantage of tenants.’ Many of these new renters probably haven’t rented for years if not decades and their requirements and expectation of quality may differ from the current renter cohort; landlords need to be aware of this.
Secondary Suite Debate Comes To The Front of The Line
This increased demand and reduced supply should re-start the whole ‘secondary suite’ discussion in the City of Calgary. It will be an impetus to getting that program approved and implemented more quickly in order to help provide the required affordable rental options for the city. Let us hope that, during this time of increased demand, that City inspectors are a little more empathetic towards the needs of the renters instead of forcing them out of temporary suites.
There will be a massive influx of building permit requests presented to the city planning and permit departments due to the large number of repair and renovation projects required after the flood waters recede. The responsible home-owner and renovation expert will require proper permits to ensure future sale value. This will also lead to an increased demand on the city building inspectors to get work inspected and approved. Staffing and streamlining of processes are going to be required at the city to ensure that home-owners and renters get back to their homes as quickly as possible.
IMPORTANT NOTE: For future purchasers, it will be extremely important to ensure that proper permitting and inspections were done on properties you purchase in the coming years. Because of the high demand and requirement of expediency during this time, some of the work MAY not be completed as well as you would like it to be. So PLEASE ensure that you get confirmation of any repair/reno work done before you remove conditions.
#3 Retail Sales
Retail Sales in the area will begin to start spiking over the coming months as insurance backed home-owners and renters replace their lost goods. Although retail sales are a much more accurate indicator of consumer confidence than are the oft quoted ‘confidence surveys’ (see this analysis report here), during these coming months they should not be used for this purpose as the retail sales/automotive sales/renovation sales numbers will be skewed much higher due to the replacement (not consumption) of goods.
Retailers, renovators and building supplies providers must be made aware that social media is a powerful tool and if you are even remotely thinking of ‘taking advantage’ of this situation you will be named and shamed by those you take advantage of.
#4 Renewed Focus on Insurance Coverage
This natural disaster will hopefully put a new focus on the importance of proper home insurance, for both property owners as well as renters. And although a direct flood as we have seen here is not often covered in policies, many assumed that it was. In fact many who do have insurance really don’t understand what is covered and what is not. This flood will really bring to the forefront that no two policies are alike and price should never be the only determining factor for insurance choice.
As the waters recede and the repairs begin, we encourage all homeowners and renters to review their policies in detail… even if you weren’t affected by this round of flooding. Find out what is real in your coverage (without assuming) so you can make informed decision on whether to keep coverage the same or find something more comprehensive or competitive.
For instance, right now there will be landlords who will not be collecting rent for a number of months as their suites will be uninhabitable. With some insurance you can get ‘rental replacement’ coverage meaning the insurance company pays you equivalent rent; with many policies this does not exist. With some policies you are only covered for a 30 day vacancy, while others this is extended for months. Some have sewer back-up coverage, while many do not. These are just a few of the important differences that will become very apparent in the coming weeks.
Oh yes, disasters like this don’t go unnoticed, so please be prepared for the following potentialities:
a. Overall Insurance Premiums to increase to cover the costs of this disaster b. YOUR insurance premiums to increase if you are making a large claim c. Potential of some insurance companies no longer wishing to provide coverage in flood-potential zones (or if they do, making the premiums very expensive).
#5 Traffic & Transit
Transit has come to play such a major role in Calgary (and will continue to). However, the flood damage to the tracks will be causing large increases in certain auto-traffic corridors. This commuting difficulty could lead to some areas (even in higher ground areas) having a slowdown in the number of units purchased. This will provide a long-term thinking-investor an opportunity as demand slows in some of these key transit oriented areas.
Luckily (if there are any silver linings at all), this flood occurred after the school year was over. Imagine the traffic chaos if it had occurred during the middle of the school year, with families displaced to all corners of the city yet students having to commute back to their schools every morning. Calgary’s already infamous traffic would have been a nightmare every day.\
When the ‘flood’ headlines die down, and attention is once again brought back to pipelines, protests and politics – the skewed numbers will remain. It will be especially important from now on to ensure that that you actually do complete that extra level of diligence as you buy, no matter what city you are in across this great country of ours.
That extra 10% effort will make all of the difference, whether it is in deciding where to buy, or what insurance to get, or what tenants to rent to. Knowledge is King and diligence is Queen. Together they can make your portfolio Royal – without them you can be left standing outside knocking on the door of the ‘financial castle.’
View my June 2013 E-Newsletter Ecozine Issue #4 with tips for the spring season like killing weeds, getting rid of those pesky pests like ants and mosquitos (the safe and natural way of course!), housing stats, and some interesting news and tips!
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Significant renovations, small down payments and no home inspection are among the top mistakes homebuyers make: RBC Poll
RBC Royal Bank provides tips to combat common home buying pitfalls
The majority (60 per cent) of Canadian homeowners admit they made at least one mistake when they bought a home, according to the 20th Annual RBC Home Ownership Poll. Asked to list up to three scenarios as their top mistakes, Canadians pointed to significant renovations needed to the property (15 per cent), not having a bigger down payment (14 per cent), and lack of a home inspection (13 per cent).
"Unfortunately we don't get a 'do-over' when buying our first home, so it's important to arm yourself with the right advice to avoid unexpected financial costs down the road," said Rachel Wihby, strategy manager for First-Time Homebuyers at RBC. "Skipping a home inspection or rushing a home purchase are cautionary tales for prospective homebuyers, especially younger and first-time purchasers."
Homeowners also cited purchasing too quickly (11 per cent) and failing to account for extra costs or total cost of home ownership (10 per cent) among some of the wrong moves made during a home purchase.
Younger Canadian homeowners (ages 18 to 34) were more likely than the average Canadian to list not having a bigger down payment as a mistake (21 per cent vs. 14 per cent national), according to the poll. A larger percentage of younger Canadian homeowners also did not think about future family and space needs (13 per cent vs. eight per cent national)
Affordability and saving for a down payment top concerns for first-time buyers
The "mistakes" are consistent with some of the common concerns that current prospective first-time buyers face, who say they haven't purchased yet because they weren't able to afford it (46 per cent) or they were saving for a large down payment (32 per cent).
Among these prospective buyers, almost two-thirds (62 per cent) anticipate their down payment will represent up to 10 per cent of the home's value. Half (53 per cent) said it would take up to three years to save enough for a down payment. This time line fits with an earlier RBC news release that showed four-in-10 Canadians (40 per cent) planning to enter the housing market over the next two years will be first-time homebuyers.
Many first-time buyers will use their savings accounts and RRSP/TFSA for a down payment
Aside from taking out a mortgage, prospective buyers expect to fund their home purchase by putting money aside in a special saving account (48 per cent), using their RRSPs (25 per cent), using a tax-free savings account (23 per cent) or delaying other big purchases such as a car or vacation (17 per cent).
"Buying a home is typically the biggest financial decision that most people will ever make, so it's important to plan ahead and keep emotions in check. Seek expert advice every step of the way and leave some wiggle room in your budget for unexpected costs," added Wihby.
The survey found that prospective first-time buyers were most interested in a combination/hybrid mortgage (42 per cent vs. 29 per cent national) and were more likely to be looking for a mortgage that was longer than a 5-year term (39 per cent vs. 22 per cent national).
About the RBC 20th Annual Home Ownership Poll
RBC is the largest residential mortgage lender in Canada. With over 1,400 mortgage specialists across Canada, RBC has helped thousands of Canadians find a home. As the country's number one source of financial advice on home ownership, RBC conducts consumer surveys as one way to provide insight to Canadians about the marketplace in which they live.
These are some of the findings of the RBC's 20th Annual Home Ownership poll conducted by Ipsos Reid between January 31 and February 8, 2013. The annual online survey tracks Canadians attitudes and behaviours regarding homebuying and home ownership. The results are based on a sample where quota sampling and weighting are employed to balance demographics and ensure that the sample's composition reflects that of the actual Canadian population according to Census data. Quota samples with weighting from the Ipsos online panel provide results that are intended to approximate a probability sample. An unweighted probability sample of 3,005 adult Canadians, with 100 per cent response rate would have an estimated margin of error of ±3 percentage points, 19 times out of 20. The margin of error will be larger within regions and for other sub-groupings of the survey population.
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Whether you're ready to re-design your entire home or just intend to redecorate a single room, make sure you have a master plan. Here are the top 5 decorating mistakes and how you can correct them.
1. Poor Furniture Placement. A bad furniture layout can set the tone for the room and is still one of the most common mistakes that many people make.
- Mistake: Don't line up all your furniture and seating against the walls of a room, it's almost impossible to carry on a decent conversation. And no matter what you think it does not give the illusion of more space.
- Solution: Try moving the large sofa off the wall and position it in the center of the room facing the focal point whether it is the fireplace or entertainment unit. Re-orient all the other furniture pieces to work off that sofa, creating a more intimate living space where great conversations can happen.
2. Oversized Furniture. I can tell you that, contrary to popular belief, size does matter.
- Mistake: Oversized furniture can be overpowering and chunky, eating up the space within the room by making it feel cluttered and smaller than it really is - particularly when those pieces are disproportionate to the space.
- Solution: Large-scaled furniture works best when fewer pieces are used. In construction, there's a saying: measure twice, cut once. The same should apply to decorating. Measure (your space) twice and purchase (the right pieces) once..
3. Unbalanced Room. This is where furniture placement and size come together to create balance. It's very important to be aware of the height, width and depth of all your major pieces.
- Mistake: If your bulky sofa, heavy wood cocktail table and your inherited bombe chest are gathered to one side of the room with a pair of club chairs, all of those "bottom heavy" pieces create an imbalance in the space, both physically and visually.
- Solution: Make sure your overall layout and conversation area is balanced. Then introduce some lighter pieces into the mix. By all means use your sofa, but introduce glass, iron or metal combinations for cocktail tables and end tables.. If you have a very tall unit or hutch in your space, balance it out with a beautiful tall tree or an art arrangement.
4. Poor Traffic Patterns: The ability to walk through each room in your house without navigating through a maze of furniture can be a challenge for some.
- Mistake: You don't want to walk into your family room and immediately be faced with an aisle just wide enough to squeeze through, then knock into the corner of that lethal weapon called an end table.... bruising your thigh again, in the exact same spot as you did yesterday! Always keep the doorways at the top of your list when thinking about traffic patterns in every room of your home.
- Solution: If you have two openings into and out of your space, then move the traffic behind the seating, not through it. If you have a sofa floating within your space and away from the wall make sure there is at least 30" to 36" of clear floor space to walk around between the wall and other furniture pieces. The ultimate solution is to arrange your furniture so that you direct traffic through the space.
5. Identifying A Focal Point. Every space needs to have a focus or anchor for other design elements revolve around. This highlight is the glue that holds the room together, and creates a sense of interest.
- Mistake: Some people never really figure out what the focal point to their room is, while others try to highlight too many. Not taking advantage of natural focal points, such as fireplaces, expansive windows with a killer view, or charming French doors onto the patio can dull the senses and be very uninviting.
- Solution: A good rule of thumb to follow is to look for the most dramatic element in the space. In the family room or great room, the focal point is either the fireplace, windows to the view or the entertainment unit. Make sure that your conversation area somehow faces the area or at least part of it.. If you lack a focal point - create one!
The windowsill is one place where black mold can grow easily as it is exposed to a lot of water and debris during rainstorms. Black mold on the windowsill is unsightly and can cause health problems as they pathogens from the mold can travel into the home when a lot of wind comes through the window. However, black mold is easily removed and prevented with just a little effort from the homeowner.
Black mold, also referred to as just mold, comes in a variety of colors; such as black, white, red, orange and yellow. There is also a distinct odor, usually a musty or earthy smell, that comes with the presence of mold. This characteristic often helps homeowners locate mold when it's hidden from view. When it is in the windowsill, the odor may not be noticeable if it's left open all the time.
Large amounts of standing water and humidity causes black mold to grow in abundance. When there isn't enough ventilation present, black mold will grow where the highest level of water sustenance are located. Enough moisture within the windowsill, though not plainly visible, can be enough for black mold to grow. According to the Toxic Black Mold Information Center, 55 percent humidity or greater for a long stretch of time is enough moisture to trigger a black mold outbreak on windowsills and other surfaces.
Cleaning Up Black Mold
When cleaning up black mold, it is best to put on a pair of rubber gloves first to protect your hands. Fill either a bucket or a spray bottle with warm water and bleach. The bleach will kill the mold quickly and allow you to wipe it away. Spray the mixture directly on the mold and let it sit for five to 10 minutes. Wipe the area using a disposable cloth or a paper towel. Spray more of the mixture as needed. Once you have removed all evidence of the mold, dry the area completely to prevent a reoccurrence.
Keep the window open after you cleaned, to help air out the room and allow for good airflow to help dry everything out. To prevent mold from coming back, keep all areas of the home as free of moisture as possible. Clean up any standing water or condensation as quickly as possible. Using a dehumidifier during times of humidity will limit the potential for mold growth.
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Web searches, How To Videos, blogs and the rest of the Internet have us believing we can do anything by ourselves. But when it comes to something important like buying or selling a home, we're better off trusting an expert.