As you’ve probably noticed, prices in Edmonton are on the decline. I don’t know how far, or for how long they will fall (that’s a topic for another post) but if you have to sell now you have to face the fact that prices are falling.
When prices are falling pricing your property correctly is more important than ever, because if your homes sits on the market while prices are falling you lose money.
Your best pricing strategy in today’s market is to price your home below recent comparable sales. This is a hard pill for some sellers to swallow, when here in Edmonton over the past couple of years we’d routinely priced properties well above recent sales.
Why price below recent sales?
Let’s say your next door neighbour sold their home in July for $400,000, and it is very comparable to your home. In August the average residential price fell almost 3%, so let’s guess that September’s stats will show a 2% decrease and a further 2% drop in October. That means that your property is now worth $380,000 and by the end of October your property will only be worth $372,400.
So, if you list your home today for $400,000, you are already $20,000 over priced. In a few weeks when you decide to lower your price by $10,000 or $20,000 you are still $10,000-$20,000 over priced since prices have dropped. You’ll end up chasing the market down (Sheldon calls this the race to the bottom).
So, if a price that was $10,000 over market value did not result in a successful sale, it is even less likely to produce a sale as the market continues to decline (more on that in a minute).
The lesson: when the market is declining, your property is actually worth less than the comparable sales suggest.
Don’t test the market
It is always tempting to “test the market” by pricing your home above what is suggested by comparable sales. This is a huge mistake. Your property gets the most attention from buyers when it first comes on the market, since any buyers who’ve been out looking and haven’t found anything they like will want to see it.
The initial demand does not continue through the listing period, especially when inventory is as high as it is, because most buyers will only look once and then get distracted by other new listings. Once you lower your price it’s already too late, since they’re onto the next… Now you’re left with only the new buyers coming into the market.
The Price Chop
If you do have to reduce your price, you’ll need to take a big chop, not a little nibble. As we already discussed in pricing your home, you should price below recent sales. The same thing applies when you reduce your price – it must be reduced below recent sales, which can mean a big chop when you started above value and prices have dropped in the mean time.
It’s Not All About Price
Price certainly isn’t everything when it comes to selling your home. Even if you price your home at half its value it won’t sell if no one knows it’s for sale. Marketing definitely matters… so as we’ve said before, if you’re thinking of selling, do your research up front so you know what you’re getting into – price and commissions aren’t the only things that matter.
Good article. Good advice. Good realtors.
Unfortunately this is sad but true (having to price right and not test things).
Our home has been sitting since it was FIRST listed back in May at what then was supposedly a good price at $729,900. After THREE price reductions totalling $45,000, we are now forced to make one more final cut of a further $20,000-a total of $65,000 below original list.
Appraisals back in May obviously were high as the sales prior had been HUGE and that was in the days of ‘multiple offer situations’ etc. so when we had two appraisals at $725,000 being the AVERAGE we felt that $729,900 WAS realistic (higher appraisal was $749,900)….but then the glut of housing started-(we are in an area surrounded by Million dollar homes and we are by far the cheapest.
As a former showhome that shows ‘mint’ it tells you how badly things have slowed down). New home completions, speculators wanting to double or triple their investments etc. In hindsight I wish we HAD started at $699,900 and it probably back then would have sold within a week but not now.
So again. On to another week. Trying to reassure my five children who wonder why mom is so stressed sitting in the NEW home that we unfortunately should not have jumped into. Another week on the market in Sh Pk and we will be forced to to list this one too and go with whichever we can sell. Sad situation but how many of us are in it? Thank GOD I have faith that there is a light at the end of this tunnel.
Price right is important. But decline is not necessary apply to all classes. The previous month percentage decrease is just a general rounded number for all classes. Beside this market general %, more important is what feature you have with your house/condo in compare with the market. Find a right realtor, be confident with what you own and don’t desperate to sell.
Last weekly, one of our neighbors sold their house after 3 days of listing. The asking price was $599k. It was an OK deal, but certainly not deal-of-the-century thing. I guess the market is still strong for not-so-mad listings.
BTW, another for sale sign just popped up. Very close to the sold property. Since it got listed yesterday and not posted on the mls.ca web, I don’t know the asking price yet.
Sheldon does a great job providing his thoughts and insights on the Real Estate Market here in Edmonton. I have been searching the internet for other blogs and thought that you guys might find these sites interesting reads:
1. This blog is from a realtor in Calgary. People say the Edmonton market is 1 year behind the Calgary. If you believe this then maybe this would be a good indication on where our markets heading. Personally, I have yet to agree with this.
http://www.bobtruman.com/blogs/bob_truman/default.aspx
2. Same site for the person above only that this one contains the sales stats in Calgary every 7 days. Whats very interesting is that compared to last month average sales price is increasing in Calgary.
http://www.bobtruman.com/7_Day_Stats/page_1770845.html
3. This is a site for those that are pessimistic. This person believes that the Real Estate Market in Alberta is a bubble that is / has burst.
http://albertabubble.blogspot.com/
I read these blogs, including the comments religiously. It is my hope that the market doesn’t crash and burn as some say, but at the same time at current levels of pricing how are first time homeowners supposed to get in to the market? I got my 1800 sq. ft, built in 2005 for a measly $210k. This was a fully upgraded home. It’s hard to believe that it can fetch between $480-520k now. $200k back then was seriously a huge stretch for me.
I have a new house going up which I am paying $600k + for.
I know right now it’s not worth what I am paying for it. The market prices started dipping 3 weeks after signing the contract. Oh well, what can you do…? Luckily, I have a good plan to be able to keep both houses without breaking the bank (knock on wood). I hope that in a year or so hopefully this markets recovers by then and we start seeing slow increases. At the same time it would be bittersweet if it did knowing how tough it is for first timers to get into this market.
The first time buyer needs housing prices to go back to $210G before they can enter the market. Young hardworking people are at a significant disadvantage compared to the same young hardworking people only a few years older than them. The central banks expansionary monetary policy is strongly to blame.
CB
Correction:
Average price for Aug: $485,914
Average price in the last 30 days is $473,154.
Thanks Sitter, just noticed. Happy reading.
Hot off the press:
http://www.canada.com/nationalpost/financialpost/story.html?id=d2b33ccf-db06-4324-b8c6-a9a184144b0b&k=80923
Looks like the liquidity bubble in Canada is quite a bit worse than down south. If things don’t get sorted out before Oct 15, there might be a lot less homebuyers with 30+ year morgages looking to buy Edmonton duplexes for $350k.
The MLS website rent vs. buy calculator provided by the Canadian Real Estate Association at (http://www.mls.ca/Calculators/en-CA/calculator.aspx?Price=321600 ) is incorrect and misleading to the public.
If you put in the following information:
Monthly payment if you bought: $3,000
Down Payment: $20,000
Annual property taxes: $300
Interest Rate: 6%
Annual increase in home value: 1%
Monthly rent: $10
Years of comparison: 10 years
It outputs:
“You should Buy!
It looks like you should Buy based on the assumptions you have given us.
Why? If you buy for $484,984.25 (the maximum you would qualify for)you will pay down your mortgage of $464,984.25 by $110,768.15 over 10 year(s) with your Principal and Interest payments of $2,975.00 per month, plus your property will increase in value by $50,740.08 for a total investment growth of $161,508.24
This total is greater than your investment growth from renting which is approximately $62,716.05 after 10 year(s). Thiss was calculated by growing the monthly savings from renting ($2,990.00) plus your current downpayment of $20,000.00 at a standard after-tax rate of 4% per annum.”
I used this example to point out the extreme case, (I understand you can’t rent at $10/month). The point is for every situtation I give the rent vs. buy calculator it always says “You should Buy!” The calculation does not consider the carrying cost of money. For example on a $484,984.25 mortgage you would pay about $29,000 in your first year at a 6% interest rate.
My second problem with the calculator, albeit much more minor, is it does not allow for negative annual increases in home. This calculator makes the assumption that houses never decrease in value. And history has shown there has been declining price trends in the housing industry including Calgary in the 1980′s.
The best way to do this kind of calculation is from a net present value standpoint. I think this calculator works properly as it is provided by the Government of Canada: http://strategis.ic.gc.ca/epic/site/oca-bc.nsf/en/ca01821e.html .
Perhaps Edmonton’s sprawl and out- of- reach house prices will encourage increased density near the center. I would expect this to happen along the LRT corridor, as it has in other cities. Appropriately zoned properties in these areas might be worth looking at now as redevelopment is I think only a matter of time.
i should have listened to the alberta bubbleblog
All you need to understand the housing bubble is to understand net-interprovincial and net-international migration to Alberta. And luckily all that is tracked by Stats Canada and available free at:
http://www.statcan.ca/bsolc/english/bsolc?catno=91-002-X&CHROPG=1
In a nutshell we got unprecedented net interprovincial migration flows during 2005 and 2006. But those flows of people are moderating and people are cashing out of the market. And now we’re losing people on net to BC and Saskatchewan. The cruel harsh reality is that nobody moves to Alberta unless Alberta makes them better off. And a lower sales tax and no PST just don’t cut it when you can’t afford a home.
Basically Alberta housing affordability has erroded to the point where it’s not economical for the vast majority of Canadians to move here. And with lower flow and allot of housing supply in the pipeline you can be gauranteed that prices are on the way down.
Just go to any bank website and see what the monthly payments are on a $410,000 single family detached mortgage at O% or 25% down. Then link those figures back to the income distribution studies on the Statistics Canada website. The figures just don’t add up.
And I’m sure somebody reading this will say “but we’re catching up” to Vancouver, Toronto and Montreal. To these people I say “how are those Beenie Babie investments paying off?”. Housing prices are predominatly driven by local economics and income levels unless you have major inflows like we’ve seen over 2005 and 2006. Vancouver consistently gets voted the #1 place to live in the world! Toronto is Canada’s largest city with numerous high paying jobs. And both have GEOGRAPHIC CONSTRAINTS WHICH = CONSTRAINTS TO HOUSING DEVELOPMENT = SCARCITY OF CENTRAL HOUSING = HIGHER PRICES TO LIVE CLOSER TO THE CITY CENTRE. Vancouver has Coastal Mountains and Ocean. Toronto has Lake Ontario and the greenbelt. What constraints do Edmonton and Calgary have?
And as far as Edmonton “catching up” we don’t even get asked to participate in the same survey as Vancouver! It’s effectively winter or “too misreable to be outside” here for 8 months of the year! And our clame to fame is a mall! We’re still named the “City of Champions” off our reputation in the 1980s! “Catching Up” is Bunk! I don’t want this BLOG to paint me as an Edmonton hater but if nobody is willing to say it I will!
Sorry people Edmonton housing prices will correct. Why you ask? Because there has been no structural change to the local Edmonton economy. No new corporate head offices have moved here. We’re still the blue-collar / government town we’ve always been. With almost unchanged income levels for the vast majority of locals who will support the market when net migration fails too.
And let’s face it, when people who have lived here are willing to “cash out” and move to BC and Saskatchewn what does that tell you. In finance we call that “the smart money leaving the room”. And if history has anything to say, when the smart money leaves watch out.
O
One more thing. Let’s not forget that 6-8 months ago every press release (realtors and economists alike) indicated that there was “no speculation driving the market”. That all the increases were based on “long-term fundamentals”. Then around the 4-6 month timeframe (i.e. Sprin 2007) he releases indicate that there “was some speculation in the market”. Then suddenly we were tole that “the speculators had left the market” (I seem to recall this around Juneish).
I’ll let you draw your own conclusion but usually when I’m lied to it means I’ve gotten ripped off.
Silly Promoters. Some of has longer memories.
O
I read the analysis from the stats-can site posted by the gracious Al Bundy, and from my own analysis Alberta will be OK. Some of the concerns that Alberta has lost people to Sask and BC is overblown. Yes, less people are moving into Alberta, but people are still moving here by the droves.
I am scared for those investing in Saskatchewan as I think if there is going to be a bubble it may be there. The population net migration growth is significant, but only 6,000 or so this year. Even with the growth this year, the population is lower than it was in 2001. Alberta at least has billions of projects up and running, and may more beginning. (such as the 48 billion worth of upgraders near Fort Sask and Redwater) Sask is booming due to high commodities in oil, potash. There are diamonds north of PA, spinoffs from the oilsands, and explorations of their own oils- sands, and gold exploration as well. I feel more comfortable in Alberta knowing that when the economy slows, and oil retreats, that I know that the future of Alberta is more solid. I would be scared in investing in Saskatchewan if the net migration there has only replaced what has been lost in the last 5 years. This is coming from a proud Saskatchewan farmboy/ expat.
Maybe the growth in housing is seen in centers such as Saskaboom and Regina, Estevan, and some small towns is more due to people moving from the rural areas of Saskatchewan to bigger centers. Cause although 6,000 people according to Stats-can have moved into Saskatchewan in the last year, it has only replaced population that was lost.
Sorry to say, investors are going to lose money. That is what happens when there is lots of inflation. People are unable to build successful business forecasts and volatility leads to business losses. EnCana has threatened to stop investing by $1 billion/year due to the royalty review. However, even without the royalty review, Alberta is no longer a competitive place for their business. They have to contend with soaring labour costs, just like the people have to contend with soaring housing prices. As soon as big oil stops investing here because we are no longer a competitive business environment, we are all going to be doomed. I read that they are drilling six times more wells in the United States than in Canada. It’s no big secret, these businesses will continue to invest where they have the highest return on investment.
To Smokey:
So, the natural resource industry in Alberta is really solid and that of Saskatchewan must be a bubble?
Let’s put it straight, as of now, the housing price of Saskatoon and Regina is about 1/2 to 2/3 of Edmonton and those working for Potash earns as much as (if not more than) the petroleum workers here. Who has a larger bubble? What would someone in Saskatchewan think?
Hi O,
I am glad to see your posting. You spelled out all the words in my mind.
How do you see this correction? How big is it? I am expecting to see the 1700 sq ft houses in the west end (brand new house) to go back to around $300 to $350 (now they are around $490K. What do you think?
Dave
In reply to a previous post.
Vancouver is rated the sixth most OVERPRICED real estate in the world.
http://seattlepi.nwsource.com/forbes/329119_overpricedrealestate24ww.html
In reply to a previous post.
EnCana is fear mogering. Some Energy companies have been making 50% plus profits in Alberta! Back when the Royalty policies went into effect oil was about $20 so they were designed to promote development. Energy companies back then invested here on the hopes of 12% returns. Ha Ha. Do you really think companies who are making huge profits of 400% more than planned are going to just leave or stop production? NOT going to happen. They like money I’m guessing. If they do leave there is a long line of International energy companies willing to develop here even with the new Royalty rates in full force. Decreasing production would just further promote an increase in energy prices? I don’t buy the labour cost argument of these companies either. My friend who has worked in Oil for 30 years actually makes less today once you factor in inflation etc? In the 80′ he was easily making 40-50 an hour and now he makes 50-60? Hmmm gas at the pump has went up 350% but his wages only went up at most 40% So is it really costing energy companies more to get the oil or is it actually cheaper now in the big picture? The US is nearing a crises on energy shortages and they have downplayed it in the media. One NORMAL winter is all it is going to take to set natural gas prices on the climb higher. Oil is not going to drop significantly EVER again. Maybe $60 is the bottom now. $100 next year may even be hit briefly? The fact that the global economy has not even blipped over high energy prices proves the market will probably continue to sustain high oil prices. What we need to worry about is shipping raw oil to the US instead of refining it here in Alberta.
Based on GM’s Union deal in the US it is highly likely Eastern Canada Auto Workers WILL either be taking a pay cut or just be fired in the near future if they don’t. It is cheaper to build cars in the US. I am surprised though at how well manufacturing has been holding up in Canada as a whole with the rising dollar. The high dollar however may just take time to really hit the industry. On the other hand importing new equipment and material for manufacturing is now cheaper so offsets this a bit.
If you have to be anywhere in Canada IF a big slowdown hits then I agree with a previous poster (I think he was a Saskatchewan Seal Farmer) Alberta is still the best place to be. I have nothing against Eastern Canada or Saskatchewan (BC is another story. Ha Ha) but I know numerous people from the East and 90% of them say they will never go back once they have lived in Alberta? Why is that? They all have reasons but the general feelings I get is they think it is much better living here?
I know a realtor in Calgary and he thinks Condos may even post an increase for September? Is this true?
There are plenty of other BIG business deals in the works for Edmonton which do not have media coverage. The Edmonton story is far from over people.
Overall I still think we are all going to be very surprised at how well the market holds up here.
I also agree with Michaels post and the article. Since August we have been in ‘The race to the bottom’ as Sheldon put it. We priced our house compared to our neighborhood at the time- this is very misleading and was a huge mistake. Turns out the neighborhood was over-priced. Those listings that we priced against have not sold and are now expired. It has been a hard pill to swallow to face the facts that we have to list our newly renovated home lower then what previous plain-jane homes have sold for. We had alot of people come view our house at the begining, but no one is even looking at it now. The realtors that have seen it says that it shows beautifully, but the market is just way too slow. Good time to buy, that’s for sure. I’ve been nervous- as we need to sell, but I’m not desperate and would rather rent it for awhile then get compleatly low-balled by a buyer with the doom-and-gloom mentality of the market.
From Calgary Herald:
Alberta’s economy to slow: TD report
“The odds are good that Alberta’s economy will avert the classic boom-bust cycle of the past, says a report released this morning”
http://www.canada.com/calgaryherald/news/story.html?id=82556222-5397-4be5-9601-f989ff0965db&k=33587
Is there any economy in the world that doesn’t go up and down?
Alberta isn’t going to crash and burn, but it can’t grow non-stop either.
Most native Albertan’s have seen 2 or 3 slow downs in their lives.
Calgary Sun has a poll “Do you think Calgary’s heading for an economic bust.” Half of the people say yes. Talk about low consumer confidence.
I’m sorry but every report you read is a lagging indicator of the economic situation. Did TD know there would be record levels of housing inventory at the end of September? Did they know the outcome of the royalty review would be? Did they know that that Canadian central banks would have to have to inject a billion dollars of cash as recent as yesterday to support distressed mortgage bonds?
I believe that housing will be well below $300G by the end of next year.
@ Nate,
Yes economies in all countries go up and down, but people don’t migrate a lot.
In Europe even if the economy is up and down there is not so much migration of population as in Canada and this scares me.
Because if things don’t go well in Alberta people will move out (as they moved from other provinces to here) and it will be ghost city.
JMAG:
I wouldn’t be quite that naïve. What makes you think prices will rebound to previous levels? If I were you I’d lower my price and get out while you still can at very high levels. Year over year numbers are up huge.
Lureho,
There has been heavy migration across Europe ever since the start of the European Union.
http://ec.europa.eu/justice_home/doc_centre/asylum/statistics/docs/2001/immi_emigration_en.pdf
There was a mass migration out of Alberta in 82/83. The place definitely didn’t turn into a ghost town then and homes regained their value after a few years.
People that moved here a year ago and purchased a home for 500k that are planning on trying to sell and escape in a year might be shit out of luck. But hey, buying at the peak of a curve is pretty dumb unless you’re in it for the long haul.
O there is smart money and not so smart money everywhere. There is no mass exodus as you say.
This is a price correction and the pendelum will swing the other away and I do predict that the prices in May and June will be surpassed again.
There were people in the 80′s who said those prices will never be reached.
There are certainly pluses to Toronto. A great Canadian city. Its no Edmonton but that’s another debate.
This article is on pricing and certainly there are many viewpoints on what is and should be happening.
When prices were going up I argued they are valid because sellers are willing to sell and buyers are willing to buy at those levels. The same is true now. However, there are extremists on all sides who say things that are outlandish and basically sidetrack the real discussion.
Personally I’m seeing more interest in people looking to move to Alberta then I have in the past two years because they see opportunity as opposed to where they are now.
Once again. Its inventory and Demand and factors of course in between.
According to that monument in Churchill square, that “few” years it took for house prices to come back around after the 81 bust was 10 if I remember correctly. 10 years for inflation to bring prices back to where they were during the runup…this runup is way bigger than 81 and its global.
Sheldon,
Total disgree with your ‘few’ years to recover. You must have the historial prices even earlier then 1970…put them on time line and disocunt them against the inflation of each year (Govt sites have that historical data) The price of that 1980 boom was only crossed around 1995.
As a human being we have the responsiblity for all other human beings. If we see a ditch we will let others know that there is a ditch and to be careful.
I see a big ditch, i see so many people trying to cash out, I see inventory’s getting buildup, I see less sales, I see a lot of rental adds, I see less immigration, I see credit crunch, I see Alberta Royalities review…
May be I am wrong, I wish I am…but guys especialy the first time home buyers be careful…
I being an immigrant can say with out any bias that i have seen Canadains being very upright, very straight forward.
In continuation to the previosu email…
I being an immigrant can say with out any bias that i have seen Canadains being very upright, very straight forward people….dont let this greed change our national character.
Here are the inflation adjusted numbers from 1971, I posted these on the Calgary Blog about a month ago.
Inflation adjusted numbers in 2006 Dollars
http://www.ucalgary.ca/oia/files/oia/Alberta_2006.pdf.
Yr – Act$-Inf-2006$
1971 22,227 5.366 119,270.08
1972 23,681 5.135 121,601.94 2%
1973 27,146 4.786 129,920.76 7%
1974 34,809 4.347 151,314.72 16%
1975 43,995 3.912 172,108.44 14%
1976 58,064 3.613 209,785.23 22%
1977 62,884 3.32 208,774.88 0%
1978 71,679 3.057 219,122.70 5%
1979 78,719 2.81 221,200.39 1%
1980 84,367 2.55 215,135.85 -3% October NEP
1981 91,438 2.259 206,558.44 -4%
1982 91,405 2.028 185,369.34 -10%
1983 85,667 1.929 165,251.64 -11%
1984 79,246 1.878 148,823.99 -10%
1985 74,175 1.824 135,295.20 -9%
1986 74,306 1.763 131,001.48 -3%
1987 76,878 1.696 130,385.09 0%
1988 81,841 1.651 135,119.49 4%
1989 89,017 1.585 141,091.95 4%
1990 101,014 1.498 151,318.97 7%
1991 107,076 1.414 151,405.46 0%
1992 109,594 1.395 152,883.63 1%
1993 111,796 1.378 154,054.89 1%
1994 112,501 1.359 152,888.86 -1%
1995 110,577 1.329 146,956.83 -4%
1996 109,042 1.3 141,754.60 -4%
1997 111,545 1.273 141,996.79 0%
1998 114,536 1.26 144,315.36 2%
1999 118,871 1.23 146,211.33 1%
2000 124,203 1.188 147,553.16 1%
2001 133,441 1.162 155,058.44 5%
2002 150,258 1.124 168,889.99 9%
2003 165,541 1.076 178,122.12 5%
2004 179,610 1.061 190,566.21 7%
2005 193,934 1.039 201,497.43 6%
2006 250,915 1 250,915.00 25%
2007** 344,792 0.97 334,448.24 33%
** Estimate 3% CPI and Aug EREB avg price
Neil,
Those numbers don’t mean much unless you also account for population growth, interest rates, unemployment rates and current income levels.
My families home was purchased for $79k in 81 and dropped to $40k in 82. They still own it and it’s worth about $400k according to the Calgary market now. My parents will probably keep it for another 10 or 20 years though. It’s been a home more than an investment for them.
Unless interest rates shoot up to bankruptcy levels like they did in the 80′s, we aren’t likely to see any “leave my keys in the mailbox” price reductions this time around.
I’m not trying to be a fear monger here, I’m just trying to get us all back to a sense of reality. And unfortunately, I don’t sell shoes like Al Bundy. Instead I work at a major financial institution where part of my job is to research what’s going on in the housing market. But hey, if some of you actually think that prices are going to shoot up in excess of 75% over the last 18 months, when income levels haven’t come close, and inflation has been around 5% year-over-year that’s great. Keep buying homes.
And for the record, I don’t think it needs to be an exodus to cause a housing correction. I think even returning to historical positive net-migration with our current supply outlook could cause a reduction in housing prices. Just drive around Edmonton, everywhere you look a new multi-family is going up. An old home is being torn down to in-fill with a newer one.
I drove by a couple muti-family condo units tonight and there were so many ComFree signs in front of the building they’d run out of room. It looked like pin-cushion.
People come here to work. Plain fact. Look at the participation rate (highest in the country). Look at the employment rate. Talk to people who are retiring. Do they stay in Alberta? People I talk to don’t (and yes it’s a cross section of Albertan’s and interprovincial migrants) don’t, but maybe yours do.
And please enough with the BILLIONS of dollars in investment projects. Yes it’s allot and yes it’ll have a positivie affect. But does anyone look into that list beyond the headline number? Honestly? To give you an idea, last month when I looked into it, of the $180 Billion in projects, 52 Oilsands projects counted for $110 Billion. And of that $110 Billion about 70% was “proposed” or “announced”. Now “proposed” basically means someone said “we’re going to build an upgrader”. “Announced” requires a little more effort to my understanding in terms of approvals from EUB. Very little percentage wise was either “under construction” or “nearing completetion”. With the Federal green policy debate and the Provincial royalty review having that proposed/announced total squarely in it’s crosshairs I take that number with a grain of salt.
But there’s another $70 Billion you say. Yes there is and that’s predominantly in Power, Pipelines, Infrastructure and Institutional. The first 2 are usually driectly related to the Oilsands or Conventional. And the last 2 are more related to the dealing with the inflows of people we’ve gotten or hope to get in the future. Basically, if oilsands investment curtails, so do the others. Check out the full list and crunch the numbers yourself if you don’t believe me.
http://www.alberta-canada.com/statpub/albertaConstructionProjects/mpindex.cfm
All that said, CMHC and Genworth have been great at coming to the plate with lots of 30, 35 and 40 year mortgages. Buy a second home mortgages with no money down. Buy a recreational property with 10% down. Hell, buy 2 additional rental properties with a 25 amortization and no money down. Couldn’t be that bringing these products to market in the last legs of the run up also helped the market overshoot. Again food for thought, you decide.
I think we had a bid-up period caused by massive inflows of people moving here and buying homes with higher proceeds from selling there homes in another province. Maybe there was also a reduction in supply as condo conversions took supply off the market temporarily. Or investors bought homes and held or renovated. Or people paniced and bought with no conditions and multiple offers. That’s the way I look at it though.
How far prices will fall will really depend on the balance between the total migration inflow and new supply coming on stream. And on the willingness of local Albertan’s (whose incomes haven’t adjusted to account for the increased cost) to accept the new price level as given and leverage themselves with higher amortization products. Which, by the way, often mean you pay the bank more in interest than the purchase price of your home. Again I’m not making this stuff up. You can research it if you choose to.
BNS Economics said that Calgary and Edmonton were overpriced by 25% and 18% respecitively. And the study based the long term trend on the actual market price data as opposed to the fundamentals. You can find the study here:
http://www.scotiacapital.com/English/bns_econ/retrends.pdf
But, then again, TD Economics came out said Edmonton would run another 20+% and lead the country. The study is here:
http://www.td.com/economics/special/pg0907_housing.pdf
All I know is that I’ve seen the price charts and allot of price spikes in my research life. Not many price trends spike and then go flat or grow at 5% year-over-year. But again, I could be wrong.
O
Sorry that BNS study is 25% overvalued for Edmonton and 18% for Calgary. And basing the long term trend on the market price data, if there is a bubble, means that these numbers are conservative.
O
Hi O, great commentary and I totally agree with what you are saying. The aspect of P/E ratios or investor yields is another important concept. This report was done in February 2005 and substantiates that both Calgary and Edmonton have relatively poor returns on investment.
http://www.rbc.com/economics/market/pdf/cityvaluation.pdf
As housing in one of the biggest investments most people purchase in a lifetime, banks have a vested interest in seeing house prices rise (unless it poses a significant risk to the economy). Also they have a vested interest in extending amortization periods. A monte carlo simulation may have resulted in a probability cloud with a P50 of +20%. However, +20% sounds like a very generous upside evaluation, so much so, that one may question the motives of their forecast.
Nate
I posted those numbers to show that from 1973 to 1976 housing prices can increase significantly without causing economic collapse (you should look at the real numbers, http://www.ereb.com quarterly report). Then from 1977 to 1980 they flattened out, this to me shows a return to normal, not the utter collapse some are forseeing. Now jump ahead to 1980, the NEP was announced, look what happened to prices then, slowing declining until 1982. In Aug 1982 major oil companies pulled out of oil sand projects in Alberta (due to NEP) and housing prices crashed until 1987.
I’ll give you inflation was high back then, but I’ll bet you that the BOC was using a more realistic method of calculating the CPI than the skewed version they use now.
I think in the short term prices will go down, but not much. Once all the people who thought they could upgrade for free, investor/flippers who got caught at the peak, those that are cashing out for what they think are green pastures else where and those probably 1500+ condo conversions are sold or returned to the rental market, things are going to return to normal. And not the massive increases we’ve seen in the last couple of years, but 5 maybe 10 percent a year.
Right now there is no place in Western North America that has so much forseeable economic growth than Alberta. So if Mr Ed is reading this don’t screw it up with your decision on the royalty review. And yes, I believe rates should increase but on oil sands only, not on Conventional Oil or Natural Gas.
I think there are a lot of interested people in what is going on in the market lately. What I mean is that the many people who have wanted to buy the first home, with the increase in housing have decided they can not afford their dream. Many people I know are waiting, and at some point a lot of these people will be purchasing again, after this market correction.
One thought based on what I have seen and my humble opinion and nothing else is that I have noticed at my local grocery store the pile of the I think it is Edmonton Real Estate papers which come out of Thursday, are disappearing far more rapidly than usual. This simple observation which proves nothing I admit, but tells me that if the same amount of these papers are put out every week, then these papers are flying out off the shelves. It use to take all week for these papers to be gone. The past two weeks these MLS listing papers were almost all gone within three days. Either there is growing interest in the marketplace, or the Co-op has a damn good sale on toilet paper.
Heya Smokey,
I can explain the faster disappearing papers…. They fill the racks to the same level every week. In the past that MLS paper was about 5 pages big so there were way more copies in the bin. Now that paper is so huge they can only fit a few dozen so they appear to disappear faster
All kidding aside… I am sure that more people are aware of what is going on with the Real Estate prices. Just from my little world the topic comes up almost every function I go to and I do not start the conversations!
Cheers!
Predictions on September stats?
My guess is we will see a drop in average prices of 2%. Days on market is increasing but inventory dropping slightly by a few hundred?
That’s what my crystal ball says!
Could be wrong and maybe it is worse! We will know soon.
Get ready to run to the hills!
Predictions for September… the number of new listings coming on the market has slowed. Sales have seasonally slowed. This means inventory should still be up over last month, but not a huge increase like we’ve seen each month since last February. My initial look at things shows the absorption rate has increased from 7 months to over 8 months. This means a lot of homes for sale right now will not sale for 8 months! Stepping back that is much closer to a normal market than what we experienced in ’06.
Predictions for September… new listngs will cross 10000 mark. Sales will drop… average price will drop about 2 to 2.5%.
we will see a avearge price level of end of 2006.
Correction: Not new listings but overall listings will cross 10000 mark.