In a normal market a good percentage of the properties for sale are tough sells. A rule of thumb I’ve had is that 50% of what’s on the market is crap. However, there is a buyer for everything. You have to look at what percentage or portion of the market is competitive.
If you have a good property, and it’s priced right it will sell.
We missed out on a beauty this weekend. We were just a little too late making our decision and someone else snapped it up.
Around the beginning of October we posted that we saw a definite up tick in activity. I could say the same for the last two weeks. It may be very likely that November and December maybe the best time to buy that this market has ever seen.
I have to chuckle a little bit when I hear people look at the market from a simple inventory perspective. Especially if inventory continues to fall off in the new year and sales pick up from January to May as they have done for as long as I can remember. At least the last 10 years but I’d have to check the stats to be positive.
One thing about the current market that is for certain is that completed deals are definitely taking a lot longer to put together, due to the number of conditions that are loaded into most offers. In many cases it takes multiple swings at the proverbial cat to have a successful transaction.
In a market that is supposed to have no buyers, having a number of buyers interested in certain properties is a sign that certain properties have broad appeal. What makes them appealing to more than one buyer? It tends to be that they stack up better against the competition – buyers looking in a similar price range and area are often likely to choose the same house as the best house, if that house clearly stands out against the competition.
As for new home construction… There is no way to tell for certain because many builders don’t have all their properties on the MLS, but I know for a fact that a number of builders have inched up their sales on MLS and off.
All in all It looks like many people who waited to see what would happen after the peak are starting to trickle back in, so it could be very interesting over the next few months. If inventory drops and buying activity continues to grow again, its very likely the price slide will slow or reverse.
On the other hand, if the trend of the past 10 years is not in the cards and sales are slower in the spring, and higher inventory is in the cards, we’ll see the trend of the last few months continue.
One thing is for certain, this will be hotly debated one way or another.
With the current situation, seasonality is no more a major factor. Remember 05 and 06 winters? The market was unseasonably hot.
I agree that the inventory number is not all that indicative. How banks handle mortgages, I think, should have a larger impact. With both Freddy Mac and Fannie Mae tanking big time, I will be sitting on the fence for a bit longer.
I remember walking into some home builders last year and all of them were offering great incentives to buy. I thought last year was the peak but house prices baffled me in early 2007.
I also checked the inventory of Calgary homes last year as well and there were a lot of properties listed. Yet, the sales activity again baffled me in early 2007.
I do think, however, that the affordability of housing today is out of reach for many and that has led to the increase in listings in late 2007. However, I’m still seeing a lot of construction and help needed signs across Edmonton so a healthy economy is there.
It will be interesting to see what plays out in the spring.
inventory will drop until january
sales will pick up in spring but may still be below last years level. This could allow for continued high levels of inventory.
Maybe resales are picking up somewhat because they are becoming more competitive compared to new construction. Next sping may be the start of the builders pain.
I agree with Sheldon that there are still many buyers out there right now. We just listed our house 2 days ago for $424,900 (priced $20,000 under the market) in Spruce Grove and have we been getting a lot of interest already.
There will always be people looking for deals.
It’ll be interesting to see how EREB dances around the November stats when they come out next week. It will be hard to dismiss an alomst 20k haircut on average price and median in just one month. The big question is how much further do we have to go
http://www.bobtruman.com/Edmonton_SFH_stats/page_1918017.html
BMO and CIBC already coughed up their losses in mortgage-backed securities, so the majority of Freddie Mac and Fannie Mae’s issues could still be isolated to the U.S. (yes I understand it has spread elsewhere in the world economic picture). Holding out as you are MAY be ideal, but I do feel we are a little more sheltered from the overall effects of the credit lending crisis.
based on edmontonian’s comments: this seems logical..it is too bad we can’t throw some volatility indicators and moving averages on the data just to see how things are trending..although they are lagging indicators, they do provide a general direction in which way things are trending. your comments of sales picking up in the spring, but slightly below last years, are inline with this. it is visible on the bar charts. so, I agree. let’s see what we get.
In Calgary, some builders are now paying twice the commission on the buyers side than was paid in Jan.
Properties are moving. That is true. But it has to be priced right. ie at or near the bottom of the price ladder.
This weekend a condo closed 75K above list. Definitely there are buyers for the trophy properties.
However the expensive junk isn’t moving. Some sellers in my area still think their 2 bedroom shack that’s falling apart is worth more than the neighbours brand new infill. Also beginning to see a rash of Pendings back on the actives. Market is really scraping the bottom for buyers.
Bearclaw’s comments are correct: builders are going to feel the squeeze with the resale market and rising costs of labour/materials/land development. Jayman and Landmark built homes that were in the red a couple years back due to rapid cost increases and I think they will cut down on new home construction in the new year. They can’t really lower prices down too much without a massive concession from the trades and a decrease in commodity prices. Wage decreases don’t happen in a heated economy with so much construction happening in both infrastructure and commercial properties. Commodity prices are dictated by the world market and are still quite high. This leads to the lowering of new home inventory and a stabilization of new home prices.
Meanwhile, the existing condo/home owners looking to move up with new homes won’t sell their homes for too low of a price because it means they can’t afford a new home. However, they can still price it at a reasonable price and this will be dictated by how low new home prices can go–which is not much due to labour shortages/wages and high commodity prices.
We may see a churn of homes in the resale market before inventories drop and people start looking towards new homes. I think this is where the stabilization will play out in this heated economy.
I think that the rising costs story is overstated.
Labour yes, building materials not so much.
Land prices have gone ballistic and there may be some give there.
I totally think home builder do their foot stomping and price crying to the media as free advertising so people can justify these prices. They have healthy margins. Look at how much advertising is in the Edmonton Journal i doubt a story “Builders Gouging Consumers” anytime soon. Remeber too that they have reduced the amount of land and quality of materials in new homes to account for rising costs.
buying a 4-5 year old home is more beneficial in terms of taxes, new homes are so high in taxes, buyer just cannot ignore that.
Yes, home builders do have healthy margins from the past two years. However, some of their homes were in the red at the start of the boom and a few builders almost went under. We’ll just have to see how much give there is in their profit margins.
Land prices are also dictated by the labour costs due to the costs of servicing the land. Again, we’ll have to see how much give there is as well.
I work for builders and I have to say their margins are low!!!
Surprised?
So you think that there isn’t any room for builders to lower their new house prices?
You are wrong, the problem with construction industry here in Alberta is that it is like a pyramid of subcontractors.
One big contractor with big money and few people signs a big contract and gets a low margin (because they don’t have labor, and because it is in big scale earnings are good like Walmart, low margin bis sales)
The second contractor takes the contract and does a partial job (usually this contractor have more staff than the first one mainly in office an just a few in site, and he does just a small portion of work contracted and then the rest of work contracts to another one.
The third one sometime is the company that does the real work and has to deal with employees and unions or in some cases even the third one subcontracts to another one usually self-employed or small companies with 2-10 people crew.
So each of these guys have small margins but when you add them up they are really high.
So I guess this is why the prices are so high on new homes and because Alberta is booming, talking to trade guys each of them wants to become contractor. It looks like atomic chain reaction, splitting in smaller and smaller companies.
The solution is kick out the middle man.
I know Calgary is not Edmonton, but I had a quick look at the CREB website and their number for average sale price over last 30 days is $455.092… in oct it was $452.254 (1% increase). Since we are close to the end of the month I don’t think this number will have a significant change.
Sheldon, do you think edmonton will have similar performance?
Fontes,
The short answer is: not likely.
http://www.bobtruman.com/Edmonton_SFH_stats/page_1918017.html
His stats are always off…
LOL,
Would you make that comment if his stats showed the average price going up for 6 months straight?
LOL,
Would you make that comment if his stats showed the average price going up for 6 months straight?
So… What are Bob Truman’s sources or reference?
Sales for the last few month seem to be holding steady AND the rate of the price drop per square foot is slowing as well. Prices could still go either way in the New Year but this does seem to indicate some stability in prices may not be that far off. Then again this could mean nothing.
Where are we on this graph?
http://tinyurl.com/2bbkpw
“Where are we on this graph?”
Denial
ray, Bob Truman is a Realtor and his info is from MLS internal database, I guess.
Sean,
I agree.
SFH off 6% so far in November, 25k off the average and 23k off the median. Buckle up folks we’re in for one hell of a ride.
http://www.bobtruman.com/Edmonton_SFH_stats/page_1918017.html
Mr. Picasso, what are you going to say when or if prices begin to increase? Prices are starting to go up in Calgary, and historically Edmonton will follow suit. Inventory is dropping, granted I realize the reason for it is dropping, and don’t need to be told.
Why do you think the bubble is crashing? Where do you think prices will fall to? What is your bias in saying these things will occur? Do you wish for prices to drop? Do you think the economy is falling apart? Just please qualify your argument, rather than sending us to a link with with stats. You have essentially made a statement, and tried to substantiated it by giving us a link. You have done nothing to change my mind, or at least inform me of what you see. I am open minded, and would love a cleverly constructed argument.
Yogi,
“Prices are starting to go up in Calgary”
SFH median will be down significantly this month, as will condo median and average. A week or so of increases is too small a sample size to draw the conclusion that “prices are starting to go up”.
“Why do you think the bubble is crashing?”
Plenty of homes for sale, no fundamental support for current prices (ie purchase prices are not justified by rental revenue).
“Where do you think prices will fall to?”
Inevitably, prices will drop and/or rents will increase until purchase prices are justified by rent. Given the large number of homes on the market, my guess is that there is more downward pressure on prices than there is upward pressure on rent.
“Do you wish for prices to drop?”
Personally, yes. I’d rather not tie up so much of my personal wealth in shelter. Also, I don’t see how high housing prices are a benefit to society.
“Do you think the economy is falling apart?”
I’m not sure – there are certainly indications that a downturn is coming. But even if the economy remains strong I don’t believe that precludes the possibility of a real estate bubble.
I’m long term bearish (as in years) not months. It will take some time for this bubble to unwind. I will buy when the price is justified by rental yield. No sooner, no later. Edmonton/Calgary real estate is overvalued by a bunch of metrics. I am willing to wait out the bubble until there is a better entry point. Both Calgary & Edmonton have just witnessed price drop of 10ish% and 12ish%, and it’s still fundamentally overvalued. Rent vs. buy economics for myself is in favour of renting, even if I expect house prices to climb by a modest amount. The carrying costs of buying a house that is overvalued are huge. Until house prices drop more significantly, I will not be buying.
Losing $50G in capital over the past couple months shows how devastating it could be to buy in a market that is fundamentally overvalued. Once you remove speculation from the market, we will be in an entirely different pricing regime.
The argument used to be that there was a lack of housing inventory, and there was mass migration to Alberta. That resulted in people paying for houses that would be irrational just so that they could have shelter. Now there is too much inventory, and migration has dropped off. The stampede of buying is gone and buyer’s are behaving much more rationally. As such, the upside growth for Edmonton house prices is very small, where the downside is gaping.
Mr. Picasso, thanks for your responses. You are correct about assertion that SFH median being down, although average is up in Calgary. Whether the average or median price is the best tool for analysis of current trends, average is the one that people and media focus on more closely. My opinion is that the next headings in the Calgary Herald or Sun will imply prices are up on SFH, and this will negate the impact on people noticing condo prices are going down. The way I see it is that people will see news about increasing prices on SFH and their will be more interest in the market. Inventory is dropping whether it is people removing listings are some are being sold. I anticipate more demand with news that real estate in going up, but with less inventory the fundamentals are in place for this to occur.
I want you to know that however I am investor (not flipper or specuvestor or bull as some say), and that is my bias. I am attempting to remove my bias from my responses, but it is difficult. I am curious as to whether I will be wrong in the next little while. I have many questions? How will the royalty regime effect real estate, or will predicted interest rate cuts affect demand? Will the scope of the calapse of the manufacturing sector create increased in-migration. The only thing I can say with any certainty is that who knows what will unfold.
As for whether the market is crashing you stated, “Plenty of homes for sale, no fundamental support for current prices (ie purchase prices are not justified by rental revenue)” I have to say purchase prices were hardly justified by rental income before the boom, in many cases. It was difficult to purchase property before and make cash flow unless you put down a down payment, or used a line of credit to reduce monthly payments. I think a better way of determining a measuring stick as to whether the fundamentals support current prices is stats that show what people spend on average on mortgage payments.
Whether people want to believe prices will drop the fundamentals support continued growth. As my one friend who was in sales pointed out to when I complained that the prices were too high on some goods, “a item is worth what an individual is willing to pay.” Simply put if a house is worth a certain amount to someone then that is what that house is worth.”
I admit this type of reasoning is somewhat simplistic.
Yogi,
I’m not Picasso, but took a crack at answering some of your questions anyway.
“You are correct about assertion that SFH median being down, although average is up in Calgary. Whether the average or median price is the best tool for analysis of current trends, average is the one that people and media focus on more closely.”
CREB recently switched to emphasizing medians, so it will be interesting to see what the spin is on this month’s numbers.
“My opinion is that the next headings in the Calgary Herald or Sun will imply prices are up on SFH, and this will negate the impact on people noticing condo prices are going down. The way I see it is that people will see news about increasing prices on SFH and their will be more interest in the market.”
Another round of irrational exuberence is not impossible – but I’m not sure that an isolated average price increase (likely due to the sale of several very expensive homes in a month of low sales volume) is enough to fuel it.
In any event, it looks like Edmonton prices will be down across the board. Projecting increases in Edmonton based on a questionable “increase” in Calgary seems pretty tenuous to me.
“I want you to know that however I am investor”
Well, I probably would be too – if I saw any non-speculative opportunities.
“Inventory is dropping whether it is people removing listings are some are being sold.”
The consensus seems to be that this is mostly because people don’t sell or buy during the Christmas season.
“It was difficult to purchase property before and make cash flow unless you put down a down payment”
Expecting positive cash flow without a downpayment seems unreasonable to me. But right now, you can’t even come close to covering cost of ownership with 20% down.
“I think a better way of determining a measuring stick as to whether the fundamentals support current prices is stats that show what people spend on average on mortgage payments.”
I don’t understand how that’s a better measure than the supply and demand for housing.
“Whether people want to believe prices will drop the fundamentals support continued growth… Simply put if a house is worth a certain amount to someone then that is what that house is worth.”
Sure, something is worth what someone will pay for it. But prices are still dropping in Edmonton, and inventory is still high (with, by most estimates, more relistings and new homes on the way). People aren’t willing to pay what was being paid six months ago, and 2-3 months from now I suspect that they will be willing to pay even less.