Here is our weekly update on the Edmonton real estate market. (Lastweek’s numbers are in brackets, and the week before after that). Forthe past 7 days:
New listings: 574 (669, 714,752, 648)
# Sales: 235 (263, 259,275, 275)
Ratio: 41% (39%, 36%, 37%, 42%)
# Price changes: 450 (465, 411, 270, 384)
# Expired Listings: 83, (152, 137, 343, 201)
# Canceled, withdrawn and terminated listings: 39 (66, 58, 45,51)
Net loss/gain in listings this week: 217 (188, 260, 89, 121)
Active listings for single family homes: 3649 (3496, 3367, 3207, 3048)
Active listings for condos: 2969 (2608, 2541, 2446, 2351)
So fewer new listings and sales this week – that’s two weeks in a row. Perhaps everyone has March Break on their mind? Or was it the Easter holiday? It’s funny, you never know whether a holiday weekend is going to be busy or slow until after the fact. Sometimes people like to use the day off to go house hunting and sometimes they just disappear.
Here’s what the week looked like:
Price per square foot rose again for single family this week and remained the same for condos:
*Price/square/foot data taken from Bob Truman’s daily stats web site.
Wow, look at how inventory and new listings is complete outpacing sales. We are definitely in ver interesting times now. Anyone who refuses to see the bubble or a future price correction is living in complete denial.
***Freebie, Sales have been rock solid steady (albeit lower than normal). Inventory has trended down which is a reverse trend from last year at this time. Is there a difference in your mind between a price correction and chaos or are just another cheerleader for the latter. Sheldon
Thank you for getting the stats out, I’ve found that I now look forward to the Friday posting.
Came accross an interesting item.
According to the CMHC Feb 2008 Edmonton report:
Edmonton has over 9500 units under construction as of Jan 2008.
Wow, and there are 3000 condoes listed on MLS, plus how many on Comfree etc..
How long does it take to finish a condo?
Looks like new condo construction more then makes up for the down turn in Single Family Home construction.
Have a nice weekend.
Hi Sheldon,
Can you provide clarification, what do you mean when you say that inventory has trended down?
The first chart doesn’t have the most recent week included.
For the $/sqft do you have the weekly number or is this monthly average what is on the chart?
Thanks!
“***Freebie, Sales have been rock solid steady (albeit lower than normal). Inventory has trended down which is a reverse trend from last year at this time. Is there a difference in your mind between a price correction and chaos or are just another cheerleader for the latter. Sheldon”
Hey Sheldon,
Relax, no need to be so emotional regarding my post. I’m just voicing my opinion. You mention that inventory is trending down? I also would like some clarification as to what that means. Because clearly inventory is way up to record levels.
A price correction or chaos? Or are they the same? You should maybe ask some of you previous clients who have bought during the last two years who’s majority of income is consumed by mortgage payments. Any price correction to already overextended people is a precipitate of chaos.
A fairly simple explanation for the 30-40 sales we’re short this week…..Good Friday. Banks and other lending institutions were closed, hence no mortgage approval for pending sales. If you look at daily stats on the findcalgary.ca site you will always notice that if sales are 45-50 mon-fri…they are 15 on Sat/Sun. Three day weekend weeks will always have lower sales than normal weeks. The fact we’ve had fewer new listings for 3 weeks running is interesting since it coincides pretty closely to the 1 year time frame since investors started to leave Edmonton en masse for Saskatchewan (not coincidentally it’s 8-12 months for new homes to be built and come on the market).
FreeSpeech,
Keep up the cheerleading…we’ve had inventory issues for 10 months, and the last 4 months, prices have been going nowhere. You may still get 1 more chance at some price relief this fall (the slower sales period) if we haven’t burned through enough inventory by then. After that there will be a large supply of condo’s and a dwindling supply of SFD coming onto the market.
http://www.dailyreckoning.com
“The Wall Street Journal calls the last ten years a “lost decade” for stockholders. The S&P is now about where it was in 1999. Stock market investors are ten years older and wiser; but not a penny richer.
And now they’re beginning to wonder about the whole scheme of things. The stock market was supposed to make them rich. “Stocks for the long run,” was the mantra of the late ’90s. Buy…hold…you can’t go wrong. But 10 years seems like a long time. If they don’t go up in a one decade, what makes buyers think they’ll go up in the next? Plus, even now, the S&P still trades at a P/E over 18 – which isn’t cheap. It seems as likely that stocks will go down in the next 10 years as up.
And, of course, there’s the housing market. Ten years ago few people doubted that if they just put money into property and left it there, they would make a good profit. For quite a while, it seemed to be true. But now, for the first time in U.S. history, housing prices are falling nationwide. They’re down about 11% from the peak…and leading economists think they have another 20% – 30% to go. What’s worse, Americans are realizing that it costs a lot of money to hold onto a position in property. There are bills to pay – taxes, utilities, maintenance…all of which seem to be going up.”
Itchy:
The same could be said for the lower listings…
Good friday as well?
I know that in north central Edmonton I see more “sold” signs. According to EREB’s stats, NC Edmonton would be priced more advantageously that, let’s say, the west end.
Itchy,
Your own admission that prices have gone nowhere is clearly an indication to the direction the market will turn.
Wasn’t every bull on here waiting for the Spring Rush? That’s when prices would rise again remember??
But prices are staying the same.
Soon they will go down.
Prices aren’t static remember?
Where’s the sprin rush itchy?
Sales are down 30-40% YOY in Calgary Itchy.
Who cares about good friday etc.
Look at the Mar 2007 sales figures and compare them to Mar 2008 and get back to us.
Hey Freespeach, why don’t you compare March 06 to March 08 then get back to us. In the mean time why don’t you just keep your poison to yourself where it belongs.
I’d like to see a comparison from March 1953 to March 2008.
Some great gains there, eh?
Actually i think March 2008 sales will be lower then 2006. Maybe even lower than 2005 and 2004 as well. Is that the comparison we should make?
Freespeech,
It is still essentially winter. Since you seem to have forgotten. We live in Canada. People don’t have troubles paying their mortgages and if they do they waste too much money on other things. I think you need to go visit some places in Europe or Asia or Eastern Europe. Then you can find out what really expensive “Flat” ownership is. These people buy apartments for more than we spend on 2000 sf houses. Yet….oh no, they only make a small fraction of our average salary……we have great affordability here compared to the rest of the world and are lucky to be here.
Who cares about sales?
If you want/need a home, just be happy. Just buy the damn thing and enjoy it.
Where are the prices going? Compare 1958 to 2006, bla bla bla. The big bubble, etc.
Geez. If you want to rent, rent. If you enjoy taking care of your property, planting new trees in your backyard, etc just buy and have fun.
For the time being some folks should just shut up.
Lots of paranoia and “I’ll show you one day’s” on here.
FreeSpeech,
Why the frayed nerves? I’m neither a bull nor a bear. I don’t think prices are going anywhere in a meaningful way. I’ve been saying this for months now. The next best chance for any kind of downward pressure on prices will be this fall. After that we will be drawing on new SFD home starts of about 225 a month (Jan/Feb08) vs sales of 700 a month (Jan/Feb08). It’s a pretty simple statement of facts…you can draw your own conclusion.
As for good Friday I again was simply stating a fact…finalizing the sale of a pending property on the long weekend is hard because you can’t get mortgage approval when the lending institutions are closed. There are always a few that close because they already have the mortgage approval but are waiting for removal of other conditions like completing an inspection of the home/ or haggling over things that stay or go.
As for listings, I don’t think that Good Friday is an impediment to listing as agents are always available on weekends and all they have to do is enter it on the mls. Maybe Sheldon or Sara can shed light on that. And finally, comparing sales to 06/07 is a fools game. The entire reason we have the kind of inventory we do now is because of the Investor distorted market which inflated the sales numbers. If you want a true reading of strength in the market, look at 03/04/05.
Itchy,
Are you for real?
There are no frayed nerves here. I sleep well at night thank you very much.
You’re comparing new home starts vs sales? You’ve got to be kidding me. Did you also factor the resale market as well? New home starts and resale home listings easily trump the measily 700 sales/month. That’s why we have a gluttony of property on the market in both Calgary and Edmonton.
“If you want a true reading of strength in the market, look at 03/04/05.”
You’re kidding right. So you’re going to sweep the last two years under the rug because they don’t support your argument? Remember, Edmonton is the best economy in the world right now.
Sales shouldn’t be down. They should be more of less the SAME.
Everyone is drenched in black gold remember?
The population is more in 2008 than in 2005. Yet sales are back to normal preboom levels. Doesn’t that make you wonder why?
You nixed your own argument when you want to compare the strength of the market with 2005 numbers. What were the prices back then?
Half of what they are now.
So you want to justify your high prices but want to compare sales numbers 3 yrs ago of market strength. That doesn’t make sense at all.
If you admit that the last two years were an anomally then you are in fact indirectly labelling the last two years as a bubble and the prices for the last two years shouldn’t be justifiable.
It’s like you want to have your cake and eat it too.
Don’t ignore inventory. Inventory can’t keep climbing without prices adjusting. It’s simple economics 101.
-
When banks are reduced to beggars…
“Thought Q4 was bad for banking? Wait for Q1′s results, when firms will be begging investors for fresh capital again after another projected $50 billion of write-downs.
(…)
Since November, Wall Street firms have raised $81 billion to replenish their beaten down capital stores, but that has been practically wiped out by further declines in the value of their credit derivatives and other holdings.
But the write-downs have continued, further pressuring capital as banks are forced to hold more in reserve against the distressed assets. The catalyst: ratings agency downgrades on structured products like collateralized debt obligations containing subprime-tainted mortgage collateral.”
http://www.forbes.com/business/2008/03/27/banking-citi-merrill-ubs-biz-wallst-cx_lm_0327banks.html
…and pay previous debt with a new bigger debt (plus interest on the old one) by borrowing more and more money…
“The Fed has been holding auctions every two seeks since December to provide short-term loans to commercial banks. It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe.”
http://money.cnn.com/2008/03/28/news/economy/bc.apfn.fed.creditcrisis.ap/index.htm?postversion=2008032813
…one has to wonder how long this can be sustained.
Credit is getting restricted and more expensive in the U.S. and Canada regardless of the Central Bank rates. This will push the RE prices lower exacerbating the problem and leading to further restrictions in credit (mortgages). The Canadian banks have already been hit with the U.S. related write-offs and if the local housing market deteriorates (due to the restrictive credit among other things) they will be in a very similar predicament to the U.S. banks.
So where are the buyers? They ARE “priced out”, it seems, once the prices got high and credit tough. The result of that is visible in the RE market in Edmonton and Calgary. Now the buyers will have to get “priced in” for the market to change. And that might be a bit more difficult than “pricing out” in the current global financial crisis and economic conditions.
-
FreeSpeech,
Yes it’s true, I am a real person. Now try and stay with me on this because I know it’s a difficult concept, but if you’re building 225 new SFD homes a month and sales of resale SFD homes in Edmonton are 700 a month, you have a net loss of 475 SFD homes a month over that time frame…am I right or wrong? If someone goes to a builder and builds a house it’s not counted in the monthly mls sales figure being quoted by Bob Truman which is where I’m getting my sales stats from). The only way to add to inventory is to have more people moving away than coming here or to build more houses than are being sold which is exactly what happened in 06/07. If you add less houses to the total pot than are being sold
inventory will have to come down…period.
I don’t have to justify high prices…the market’s price is the markets price…I don’t set it.
You can compare sales in 08 to 07 if you want. I’m saying that’s not how I judge the market, as it was distorted by investors. Take a look at the mls or comfree SFD listings and tell me what percentage of the homes are brand spanking new, never been lived in. I’m betting it’s a very high number…I’ve heard as much as 25-30%. Investors in the SFD market are gone man. If you want to compare 07 to 08…then lets. New home starts were around 1400 in Jan/Feb07…they were 450 in Jan/Feb08. That is a market correcting to a glut in inventory just the same as the overbuilding was the market reacting to too few houses.
By the way the boom started well before 2005. We came here in the fall of 2002 and there was diddly for sale believe me. We came out in June and found a builder spec that hadn’t even been started yet and payed 232,000. We came back in September so I could start my job and the same house in the same area (6 doors down) was 259,000.
And finally I do admit the last 2 years were an anomally (that’s what I’ve been saying) and yes it was a bubble of sorts and that hissing sound you heard for 6 months last year was the air being slowly let out of it. Sorry it wasn’t a big enough bang for you but there is a decent chance there could be a little more hiss this fall.
piccaso how come you never post I miss you
Have you seen this guy’s latest?
pricedoutinedmonton.blogspot.com/
Shedlon and Car 27,
Panic and anger is visible in your writings…just see it as a game and enjoy…
Itchy,
“if you’re building 225 new SFD homes a month and sales of resale SFD homes in Edmonton are 700 a month, you have a net loss of 475 SFD homes a month over that time frame…am I right or wrong?”
Seems wrong to me, as supply and churn are two different things. For example, if a family sells their existing SFH to a current condo owner and buys a larger existing SFH from someone retiring to Victoria, that’s 2 SFH sales and no impact on new home supply.
If you’re trying to project future inventory levels, a better approach might be to look at the historical ratio of SFH starts to population increase.
“Take a look at the mls or comfree SFD listings and tell me what percentage of the homes are brand spanking new, never been lived in. I’m betting it’s a very high number…I’ve heard as much as 25-30%. Investors in the SFD market are gone man.”
There probably aren’t many investors looking to buy, but as you point out it seems that there are many that are still trying to sell. With so many brand new, cash-draining unoccupied homes on the market, doesn’t it seem most likely that prices will decrease?
OK… so I am being upfront as a RE investor. I own 3 homes with partners and I own my own house.
I am almost ready to stop coming to this blog, just because it is pointless. I come on to try to hear news and thoughts about what is taking place and all I read is bashing and both sides fighting it out as to why and who is right. It really is tiresome.
If you don’t want to buy, but rent… go for it. But stop bashing us and playing investors and buyers as dumbies. 3 years ago when I moved here from Quebec I had nothing except a hope. Today my family and I own our own home and with partners I have 3 rental properties, I don’t know… all of this accomplished during the spike in prices, etc… figure not too bad and not too dumb.
But in the same token, investors and home owners… if people don’t want to buy but want to rent, don’t get on their case as being dumb and stupid to rent and try to persuade them to get into the market before it’s too late.
That is people’s right and choice and if they don’t want the pressure of owning, that is up to them.
What’s worse is it appears both sides want to be right so they can rub it in each other’s face. The bubble bursters would be extremely happy if the market crashes and people (like myself) would be hung out to dry, where the owners/investors would be extremely happy if the market got so pricey it would price many of the bubble bursters out of the market… All so someone can say I told you so. THAT IS STUPID!
I am just tired of it and am at the point where I am ready to call this blog quits.
I just want balanced insight, news and information. For both sides, please keep your hate for one another to yourselves.
Thanks…
Hear! Hear! for REInvestor. I’m not an investor in the sense that so many people here seem to be. I’m one of those people who bought a condo with the idea of building equity so I can move into a house. Now that I just put my condo up, it’s wait and see. This blog was very helpful in deciding a price and finding out what to expect. So what do I expect? I expect to wait about 60-90 days because that seems to be about the average now in order to get close to price I want. If I don’t get it, I’m happy to save the difference between a condo mortgage and a house mortgage. I’m certainly not going to cry about it. And I’m certainly not going to go buy a house until after my condo has sold. ‘Nuff said.
Like many folks, I come here to see how the market is going over all. I don’t care if you rent or buy. I don’t care about your various axes to grind either. What would be super is a little bit more insight and a lot less name calling over the fence. It’s a waste of my bandwidth reading it. At any rate, I’m going back to lurking…
We bought our condo in Feb 2007 in order to build equity and move into a house. When we realized we were not really building equity, we decided to put the mortgage to be assumed on the market (buyer to be approved by the bank). It has been sitting there for no more than 1 month and it was sold. In the meantime, there are at least 10 units like ours in the immediate area and even if the price is lower, they do not sell. I guess prospective buyers and investors want to make control risk as much as they can and I am pretty sure that is the reason why we sold our place way before our competitors.
Any thoughts about this?
rj,
Your example is very interesting. In your case there would be a net outmigration and inventory of SFH would still drop by 2 but the condo listings would increase by 1. In your case if there were 1000 listings on the mls for SFH, there would be now be 998, so inventory drops. I wasn’t commenting on new home supply per se, but on what happens to resale inventory levels when the number of new homes being built falls way below the number of resales.
As for prices….does anyone really know for sure? I’ve been saying that with all the inventory, there isn’t much upward pressure on prices. The next chance for a bit more of a correction should be the fall slow season. However as we get into the fall and especially the winter, we will be drawing on drastically fewer homes (new home stats) being added to the total pot, so inventory will go down. At the end of the year, I’m thinking prices will end up pretty close to where they started the year. That’s only 1 man’s opinion!
I’ve been reading this blog for quite some time now and I still can’t get over the negativity. There seem to be 2 groups of upset people, the renters that can’t afford to get in and the investors that can’t get out for what they want. It seems that everyone is forgetting about the rest of us. People that own a home, don’t have too much of a mortgage, and have great jobs in Edmonton. Those of us have no problems upgrading and getting into a new house. We are building a beautiful new house in Riverbend and the price really wasnt’ an issue because we CAN afford it. That being said, we did take a look into buying a pre-owned house (or maybe that’s the wrong term, pre-purchased might be more correct) and for the price that people were asking for their basic crap spec homes with zero upgrades I could get waaaaayyyy more for my money with a new home. It seems that in SW Edmonton anyways that the good properties that are priced fairly are still selling… there are buyers. The ones that aren’t and that won’t unless they drop their prices significantly are the spec homes. Everyone seems to be forgetting that it is very easy to get a job here and that the jobs pay great. Personally I’m just happy if things stay the way they are – no crash and no boom. I think that people just need to realize that we’re in a different market than we ever have been and hoping and dreaming that things will go back just isn’t going to change things.
Christine,
Have you sold your current house yet?
Christine
Great comment and insight. But from past experience, please don’t forget with new builds there is almost always extra costs to come, ie landscaping, basement development, etc. and it can add up to a pretty penny. Hopefully you included all this in the price. Again you picked a great time to buy being that competition has finally come back into the market.
Marat
I just wonder how may more testers like you are out there?
** Maybe Sheldon or Sara could shed some light on how may tester they think might be out there.
Christine,
Don’t confuse negativity with reality.
Resale Housing Prices Predicted to Soften in Alberta.
http://www.canada.com/calgaryherald/news/newhomes/story.html?id=ad216f95-dd85-487c-bc05-ac09f8da968e
With the way the “spring uptick” is unfolding, it looks like there won’t be one this year.
Interesting tidbit from the article is “Standard two-storey homes required 45.5 per cent in the fourth quarter.” That’s PRE-TAX income.
If HALF of your PRE-TAX household income is going towards your mortgage then prices are too high. You’re way too highly extended.
The argument that we have an awesome economy means nothing if more than half of what we make goes to our houses.
Because, in the end it’s not worth it. That’s common sense right?
And Christine, if you’re upgrading to a perceived bigger house – won’t you want prices to go down so you can afford a better house or pay less for the house you want to upgrade to?
Neil, yes we have factored in these costs and are still very happy with the price.
FreeSpeech – luckily for me, not even half of my after tax income is going to my mortgage. So really affordability is not an issue for me. And I do know a lot of people that are in the same position. I have a friend that just sold a condo downtown and upgraded to a house in SW edmonton for only $40k more. I know that if she was a first time buyer it would be a different story. But… there are a lot of people like her and I out there.
Like I said before, because of this booming economy I am in a position to make this change. And no… I still stick with my original post, I don’t want prices to go down. I was just trying to get the point across that if you have some decent equity built up and you’re buying to live in a place that you love – not buying to invest, and if you’re comfortable with what you’re paying and what you can afford, does it really matter what the prices are? That being said, I do agree that some people are overextending themselves. But sometimes that’s a lifestyle decision. I have friends that make that same amount of money that we do, but because of our lifestyle choices our net worth is much higher. Our friends choose to spend their dollars on clothes, shoes, partying etc. If they made the choice to put some of that wasted money into a mortgage (no matter how high that mortgage) how can you say that is a problem? Even if prices do drop it was wasted money to them anyways. To me having a nice house is more important to me than a lot of other things and I would have no problem spending more of my income on living in a nice house than renting an apartment (no matter how nice the apartment)
Call me obsessive compulsive, if you like, but I have a thing for spreadsheets and databases….
After watching the MLS listings for some time, last March, I printed out every house above 800K and started tracking listing prices, reductions, expirations, and relistings (easy to do when you have the picture, the house size, lot size, and year built).
I later lowered the threshold to 500K and up, and it is truly amazing to watch “history” unfold.
Some houses get relisted under a new MLS number after just 30 days on the market, at the same price. Others reduce 3 or more times, but stay with the original MLS number. This makes the “days on market” statistics pretty meaningless.
Relatively few houses compared to the inventory in that range seem to actually sell. I see lots of houses reappear after they were taken off the market in the Fall
I flagged a number of houses that I thought grossly overpriced – mind you, I am not an expert – and a bunch of others that looked reasonably priced and attractive as our potential next home. The “overpriced” ones are going nowhere fast, but most of my favorites are also still on the market, many now at a lower price.
My conclusion is that I would probably have paid too much if I had purchased one of my favorites when they first came on the market.
Given that there are lots of sizeable reductions in the 500-700K range, although fewer above that, we will probably sit tight and wait things out a bit longer.
Like Christine, we would have no problem qualifying for the kind of property we are interested in, even at today’s prices. However, I consider it risky to spend a high portion of household income on housing, although for many renters or first-time buyers there may be few alternatives.
I was a bit surprised to see a coupon for debt reduction counselling stuck to the front of the new White Pages, where you would normally find a coupon for pizza …
That, and the increase in TV shows like “All Maxed Out” and “Till Debt Do Us Part” indicates that debt reduction is becoming more of a concern for the average household.
Here is the actual report that article quote’s for anyone that’s interested.
http://www.rbc.com/economics/market/pdf/house.pdf
Hey Justone, FYI I don’t really care what you or your fellow black cloud crowd do or don’t do. I am frustrated reading about how ignorant and ill informed you negative clowns are. Fact is you don’t make even the tiniest difference in the market anyways so say what ever you want. Too bad your opinions are all based on your foolish assumptions not facts. Believe what you want, I know what I know. I have nothing to sell here but I still want to buy. Every low ball offer I have made to builders and private sellers has been rejected and the home sold to someone else. I’ll keep bargin hunting untill I find the right deal, till then you keep talking about your $130K homes and how good the Oilers used to be.
mdm awsome post!
I find it really rare that people do tons of research like that before signing 25-40 years of their life away on paper. Real estate always seems to be a touchy subject for anyone. People always seem to turn into 7 year olds when their arguing about it.
My opinion there are a few indicators of market heath.
1. Average household income vs average housing price. Housing is a mass market in a consumer capitalist economy. Right now there is a small gap that must close between wage/rent and re prices. In reality all of these move at the same time.
2. Sheldon/Sarah had a good post a week ago that featured a mortgage calculator. Compare the price of the home to how much someone would rent it. If i understand the market correctly they should be close?
3. Price change volume compared to inventory. Their are a lot of places out there that are over priced – I find comfree is really bad. Theres some good deals to be had though you just need to look hard enough.
I have done similar research only more into historical data downloading stats as far back as 1970 for various cities. Typical characteristics of a downward trend arn’t sudden falls like in the american market. Those are circumstances of a market failure wich work differently – ie closer to stock market dynamics. Typically overbought RE markets will gradually decline posting small year to year losses. I would imagine this would be the case because real estate is a large and slow moving market (transaction volume/yr) unlike the market for say chocolate bars.
I’m not forcasting doom and gloom however. I think if you plan on staying here for 7+ years buy a place you like and can grow in. If your an investor however RE is a global game and there are better places money can be spent.
Car27,
What got wrong…
hehehe take it easy..
Can this blog get some alberta bubble blog posters filter?
Lots of posters there post here and spread their disinformation about some coming apocalypse. It was entertaining for a while but the way they stick to their guns, aren’t those posters a bit scary by now?
Ray,
Why don’t you point out the disinformation.
Or do you just want to get rid of everyone with an opposing viewpoint?
Bob Truman is reporting average prices of SFH in Edmonton are up 1.8% (March compared to January). Looks like a good time to sell *
* Disclaimer: Please ignore that there are 15,000 other properties currently for sale in Edmonton.
Re Bob Truman,
I see SFH sales are going to be up about 20% over Feb but Condo sales are flat to down…..it makes me wonder why the geniuses are building so many new condos and there are so few building new SFH.
Just something to chew on here…out for supper last night, 3 of the wives and 1 of the husbands sell for different new home builders. One company is in the process of restarting their spec home (SFH) program and another one is hearing whispers about restarting their spec home program. I think they’re seeing the dismal SFH starts over the last few months and the sales over the same time frame and seeing an opportunity for next spring. Personally, I wish they would just leave well enough alone until the inventory situation sorts itself out…but then again you can’t just bring on new homes in a month or two.
Itchy,
When it comes to builders, just like in any other business, whether they are expanding or contracting, it’s all about profit margins. Here’s my worthless opinion:
If it costs them $300,000 to build a house they expect will bring in $450,000, they’re not going to slow down production. In fact, there is an incentive for a builder to be running at full steam until their profit margins are down to 10-15%.
Why are they building condos instead of SFH’s? Profit margins. Way more units on way less land. I would also argue that it has to do with the erosion of affordability. Builders can continue selling condos in spite of reduced affordability. Those who still want to get into the real estate market and “build their equity” are opting for the entry-level prices of condos instead.
Why are builders talking about starting up SFH’s again? Profit margins. Builders slowed down because there was uncertainty how low prices would go. If you hear them talking about starting up again, it means the builders are still making a large profit and the large inventory and threat of further price corrections do not phase them. Building materials have also come down in price which means builders have room to lower their prices while maintaining their margins.
Itchy, I’ve noticed you keep saying that prices may come down in the fall but not before then. Are you factoring in traditional seasonal effects only, or are you considering more in that analysis?
I would also encourage you to look at more than sales numbers to determine where the market is going. The price correction we saw in the middle of 2007 happened in spite of strong sales – the outpacing of sellers to buyers was the most likely cause. Though the current situation shows there is more to it than supply and demand, the imbalance continues to worsen. A crash is not going to happen, but I expect prices to soften before fall as a result of this imbalance. Thoughts?
Hey Jeff,
How precisely did you come up with 15,000 properties for sale in Edmonton?
Jeff,
I don’t think your opinion is worthless at all. It is always about margins. I know for a fact that some builders renegotiated with their trades this spring so they could lower their prices so the gap between new and resale homes closed to almost negligible now. However it’s margins on the build, but it’s also about how long they will have to hang onto it before they sell it. Builders do not pay cash for their spec homes…they usually have a line of credit that they access. They still have to pay the interest, just like they do on the lot when they go to the lot draws for a new development. The longer a lot sits the more money it costs the builder. So keeping all this in mind, it’s my belief that the builders are seeing a potential opportunity of markedly lower SFH inventory a year out from now.
AS far as condo’s go…they certainly are more affordable but the ratio of condo sales to new SFD sales has been remarkably constant (1.7-2 SFH sales to 1 condo)over the last year at least. Yet the starts of condo’s are way outpacing starts of SFH’s.
I am not certain prices will go down this fall, I just said it’s the next best chance for it. I look at the history and both Edmonton and Calgary were weak price wise during the traditional slow season when we had a lot of inventory and yet seem resilient during the historically busier time with the same inventory issues. Maybe history repeats and maybe not, but I’ve always said the market will end up not much changed from start to finish for the year.
3 months ago I had a house for rent had trouble renting it vacant for a month. just got notice from another tennant put it on rentfaster for more money getting lots of calls even a month in advance the rental market seems to be better now. I was kind of worried after reading your negative comments all the time. This house had for 2 years bought for $230 000 now rent for over 1600 should I sell.
PS pierre you are a joke even though I agree with your predictions
RJ, you make a very good point there is no need to bash eachother no matter what sid eof the fence your on ( …Im talking about renters vs. owners) Lets all sit back and get real. It is unrealistic to anticipate that prices are going to keep going up and up..BUT its also unrealistic to say that things are going to crash the economics of this just dont add up, Im sorry to dissapoint people but the market this year is really going to bre quite boring, it will see saw back and forth (ex. 1% up (Mar) 2% down (Apr.)etc, any educated thoughts??
REinvestor and Marat,
Neither of you have to come to this blog. It is 100% voluntary to read, to post, and it is also 100% voluntary for Sheldon and Sara to maintain.
Yes there is mud being slung back and forth, but that is part of the entertainment! Every now and then some insightful and intelligent comments and arguments are presented.
But to complain about a Blog…come on guys, it’s just a Blog.
Do you watch your favorite reality TV show and complain about it afterwards?
John,
“BUT its also unrealistic to say that things are going to crash the economics of this just dont add up”
This depends on how you define “crash”. One definition I’ve heard is a 20% drop in average prices, peak to trough. This seems entirely possible to me, given that we’ve already seen the SFH average drop 12% from $455k last May to $397k (Condo prices have not dropped nearly as much, but with the large inventory and anemic sales it seems that something is going to give), and that:
- rents are not justified by sales prices
- inventory is high (notably, there is significant unoccupied inventory which means highly motivated sellers)
Its also worth noting that there has likely been a “shift to quality” in the sales mix over the last few months. Last year, “everything” (over 75% sales/new listing ratio) was selling, while this year properties are selling at less than half the rate (36% SFH, 27% condo) is. In other words, the average property sold this year is “better” than the average sold last year and the actual decrease in the value of a given Edmonton home is actually greater than what the mean/median decrease suggests.
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“You hear that trickling sound?
No, it’s not a leaky pipe, and you didn’t leave your kitchen faucet running. It’s the sound of people trickling out of Alberta, mainly for neighbouring Saskatchewan and British Columbia.
(…)
Alberta’s gains mainly reflect continued growth in international immigration, especially among temporary foreign workers. The latter category accounted for almost 16,200 net newcomers last year, up from less than 7,000 in 2006, and just 3,200 in 2005.
Since temporary workers don’t buy houses, however, that — along with the big downturn in interprovincial migration — are two key reasons why Alberta’s housing market has flattened since last June. So what’s ahead? In all likelihood, more weakness for the rest of 2008 and into the first half of 2009, says Richard Goatcher, senior market analyst with Canada Mortgage & Housing Corp. in Edmonton.
“We’ll see a continuation of the adjustment that occurred last year, and it will linger into next year for the multi-family (condo-apartment) market,” he says.”
http://www.canada.com/edmontonjournal/news/business/story.html?id=5bf24290-456a-42d3-8ee5-cf14671ff5f6
Isn’t that what some bloggers on here wanted? Move out of the province if you don’t want or can’t buy a property.
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Meanwhile…
“Credit market turmoil poses the most severe crisis for banks in 30 years, surpassing Black Monday in 1987, the Asia currency crisis and the bursting of the dot-com bubble, Morgan Stanley and Oliver Wyman said in a joint report.”
http://www.bloomberg.com/apps/news?pid=20601082&sid=ag6x7hY0GLFo&refer=canada
And on the domestic front…
“Canada is in growing danger of being pushed into a serious recession by the domestic credit crunch, a major investment bank warned Monday.
The warning by JP Morgan Securities Canada was issued despite news the Canadian economy rebounded at the start of this year from a slump at the end of last year.
(…)
“Financial conditions have tightened to or beyond levels seen ahead of past recessions.””
http://www.canada.com/edmontonjournal/news/business/story.html?id=32bb7265-e54a-4c93-adac-9b11f53275d0
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BAD
First: You should try getting the facts from the source instead of thought the Media.
Here is the report they are quoting.
http://www.finance.gov.ab.ca/aboutalberta/population_reports/2007_4thquarter.pdf
Look on the 3rd page where it shows net temporary emigrants (not immigrants), not as many as the Journal article in eluding too. You should send a email to that author with a link to the meaning of immigrant and emigrant, big difference.
Second: Negative Inter-provincial migration was a given. People always think that the grass is greener on the other side of the fence. Try reading other blogs from other provinces where real people write about their experiences. More and more people are now realizing they made a big mistake leaving. The lower costs they left for, no longer exist. The only thing that they gained was lower wages and higher taxes, not a good trade. So how many more people do you think will leave now that they are starting to figure this out.
Third: When JP is talking banks they are talking Investment Banks, you know those Wall Street entities that invented deriviatives.. Plus even after that story came out the stocks of these same banks went up, go figure.
Four: Recession in Canada! Eastern Canada is not Canada, I repeat Eastern Canada is not Canada. So with a possible eastern Canada recession how do think that may affect Alberta inter-provincial migration in the future, mmmm I wonder????.
Plus: Negative Inter-provincial migration has slowing from 3,300 in the 3rd quarter to just 880 in the 4th. And by the way wasn’t the 2nd quarter that peak of this market.
This CORRECTION and yes we are having a CORRECTION and not a CRASH, is what Alberta needs. House prices can’t go up at hyperinflated prices forever, everyone knows this and when they do they have to correct.
There has to be a time for balance and it looks like that time has come for negative inter-provincial migration. I would say it was the second half of 2007. For housing it now looks like late 2008 to find a base for SFH. With condo’s, like CMHC stated, that could be extend into 2009. After that who knows, but I hope it’s just substainable growth.
With what I’m seeing, it looks like Alberta is the place to be for the forseeable future.
PS: By the time the media gets a hold of anything, it’s already old news. Same thing with data it only shows what happened in the past and you can only guess at the possiblities in the future, well like I am. So what I’m trying to say is, quit using the media’s opinions and flawed data and try doing a little research on your own for once.
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Neil,
The Journal’s article states:
“Alberta’s gains mainly reflect continued growth in international immigration, especially among temporary foreign workers. The latter category accounted for almost 16,200 net newcomers last year, up from less than 7,000 in 2006, and just 3,200 in 2005.”
The report lists:
Net Non-Permanent Residents 2007: 16,194
Net Non-Permanent Residents 2006: 6,957
Net Non-Permanent Residents 2007: 3,187
Where’s the discrepancy?
Also the report states:
Net International Migration: 16,423
And that is NET after counting ‘emigrants’, ‘immigrants’ and ‘returning emigrants’.
Read again the report and try to understand it this time.
I have been saying for quite a while that the RE prices have to return to (inflation adjusted) justifiable level through price reductions and inflation. I have been also pointing out the credit crunch affecting the financial world which is leading to more stringent lending standards, deteriorating economic conditions in the U.S. and around the world that may dampen Alberta growth, already high cost business environment in Alberta, and low affordability levels as factors putting downward pressure on the RE sales and prices.
I am not sure what your definition of ‘CRASH’ versus ‘CORRECTION’ is but those are merely words describing a drop in the value of and asset. For stock markets the ‘CORRECTION’ word is commonly used when the equity value drops 10% or more from the peak (before that it is just a fluctuation) and the ‘CRASH’ is used when the value drops 20% or more from the peak. There also are many other definitions.
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Bad
I recend that First: comment. I mis-read that article. I thought they he was writing about immigrants and emigrants, not NPR’s. My mistake.
But as for the rest of my comment goes, it holds, even the last part about the media.
PS: When I wrote
So what I’m trying to say is, quit using the media’s opinions and flawed data and try doing a little research on your own for once.
I know you can because I read your response to posters on Alberta’s Capital Gain. Now that was a very good informative response, Thanks.
BAD
You should re-read your meaning of a CRASH. 20% over a short period of time is a CRASH. 20% of a year or two is a CORRECTION. So unless prices drop 20% over a month or two, I would be using the word CORRECTON instead of CRASH.
As far as Alberta’s economy goes, I don’t think we have much to worry about there. We have the one commodity that makes the world go round. Without OIL nothing happens on the scale that is required to keep this modern world running. Without OIL all other commidities would not be able to be produced at the rate they are. Without OIL the plastics just about everything in this world is made of would not exist. So OIL is a pretty important commodity in this modern world.
Even with high investment cost associatied with Alberta, Oil and OIL sands projects are still a very viable business and will go ahead regardless of roadblocks. The only thing that will change this is if somehow the price of OIL drops to $40 for an extended period of time (3 years). Then, yes, I would agree, Alberta is toast. But in a world were we have more or less hit a production peak and demand is still increasing, I wouldn’t be to worried. So places like Alberta that have this commodity are going to be the investment and economic powerhouses of the world.
Things have changed since the last OIL price run-up (1970). This time the US can’t cut consumption enought and the world can’t incease supply to effect the price of OIL. Also being that oil is a world commodity, Alberta will stick out it’s big OIL SAND teat for the rest of the world to suck on and all will be good.☺
(Note: Alberta’s OIL will still be sold only to US, the US will just not buy as much from other importers. It’s a world market don’t forget)
PS: The NG industry in Canada look like it going to making a big comeback this year.☺
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Neil,
You can use whatever wording you like. As I have written before and write again, THESE ARE MERELY WORDS DESCRIBING A DROP IN THE VALUE OF AN ASSET. Personally I prefer using numbers e.g. “the housing prices increased by 20%” instead of “housing prices skyrocketed” or “SFD prices dropped by 20%” instead of “SFD prices collapsed (or crashed).” While the “correction”, “crash”, “skyrocketing” and similar words are sensational albeit meaningless the actual numbers are important.
As for Alberta economy I agree that it is strong. However the rate of growth which has been phenomenal in the past will slow to still quite respectable mid three percent range.
http://www.rbc.com/economics/market/pdf/provfcst.pdf
Slower rate of growth means less demand for RE as compared to previous years. From the RBC outlook:
“Automatic stabilizers have helped restrain growth across many sectors. First, a rapid run-up in house prices quickly pushed the market into overvalued territory and priced out prospective homeowners.
(…)
Stabilization is also under way in the business sector as a higher cost of doing business through rising wages, higher input costs and royalty rate hikes has diminished the attractiveness of several proposed capital expansion plans. Multi-billion-dollar cost overruns have become commonplace and have forced many companies to scale-back and/or cancel potential projects.”
As I have written countless times before the high prices in RE, high inventory, low affordability and decelerating economic growth are putting downward pressure on sales and prices. As in any market the value of RE in Edmonton will eventually return to fundamentally justifiable levels trough price reductions and inflation.
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BAD
From the same report
This is by no means slow growth — especially compared to the sub-1% growth expected in Ontario — but is sharply weaker than the pace of the last few years. Nonetheless, with oil still hovering in the $100/barrel range and natural gas prices picking up, the key fundamental supports are still intact to keep the province on the high-end of the provincial growth charts.
(…)
Slower demand helped take some of the upward pressure off house prices, with growth rates now expected to sit in the mid single-digit range compared to the 30% gains witnessed in 2006 and 2007.
(…)
Inflation is still running at twice the national rate but is forecast to slow from 5% in 2007 to below 3% in 2008 as the economy settles down into a more comfortable cruising speed.
Looks like house prices are just going to stabilize and grow at the rate of inflation for the next year or so. Edmonton is finally showing signs of stabilization through above average economic growth and job/wage growth.