As you know, I posted the stats on Tuesday using the new "daily stats" the Edmonton real estate board is putting out. I indicated in my post that I was concerned these "daily stats" won’t match up with the monthly stats and we’d have to wait and see. Well guess what….they don’t match up. I don’t know why they don’t match up, and I don’t have time to find out since I’m in Vancouver at a conference. Some of the numbers are different, some are the same – the corrected charts are below. I sincerely apologize for the error, I should have known better!
Sales were higher than previously reported at 1557.
Inventory is a little lower at 9464:
Average price for a single family home was $387,632, condo $263,023 and row house/duplex $308,908.
From the press release:
Single family home prices rose for the second month in a row to an average* sale price of $387,632 in March. After two months of price increases condo prices dropped back slightly (-0.48%) to $263,023 and duplex and rowhouse prices ($308,908) recovered from a five month slide to increase 4.8% over the previous month. The average residential price (which includes SFD, condo, duplex, mobile homes and other types of residential property) was up another 1.6% to $343,760. The average residential price is 5.66% higher than March 2007.
"Total MLS® sales are off as compared to a year ago. Total sales of $610 million in March were down 31% from the record setting pace in March 2007," said Perras. In the first quarter REALTORS® sold over $1.5 billion worth of real estate in Edmonton and area.
Housing prices rise in Q1 in every major market except Edmonton: Royal Lepage
April 3, 2008 – 16:51
By: Eric Shackleton, THE CANADIAN PRESS
TORONTO – Homeowners and homebuyers can expect prices to keep on rising in the months ahead, but at a slower pace, the head of Royal LePage Real Estate Services says.
Phil Soper, president and CEO of the Toronto-based realtor, said Thursday the firm’s housing price survey for the first quarter of 2008 found prices rose in all major Canadian markets except Edmonton.
The country is returning to “an environment characterized by moderate house price increases,” said Soper, pointing to slowing economies in Canada and the U.S. coupled with lower interest and mortgage rates.
Prices for detached bungalows increased the most in the first three months of the year, rising by 8.3 per cent from a year earlier to $336,834. Two-storey homes rose by 7.1 per cent to $400,647 and standard condo units jumped by 6.9 per cent to $240,423.
On the one hand, the drop in the cost of money and the anticipated further fall in the cost of money and mortgages in Canada and the U.S. in response to the worldwide liquidity crisis are having a positive impact on the Canadian housing market as governments try to avoid a recession by stimulating demand, said Soper.
Meanwhile, “rising home prices themselves are mitigating the ability of people to get into homes,” he said.
The Canadian housing market “is being cooled” by a slowing economy and “it’s being stimulated” by cheaper mortgages, said Soper.
But the “overall the pressure is on the downside so this market will continue to cool, however not at the rapid rate that has occurred south of border thanks to things like strong employment and cheaper mortgages.”
In Edmonton, prices dropped for all the various forms of housing covered by the study.
The sale prices for standard condo units tumbled 7.7 per cent to $235,000, while the cost of an average bungalow fell 4.9 per cent to $330,000 and a two-storey by 3.7 per cent to $363,707.
While “the underlying strength of the Alberta economy continues to be there and there’s no lack of jobs or consumer confidence,” the province experienced some of the lowest housing price increases this quarter, Soper said.
“This is simply the reaction to runaway price inflation over the last couple of years,” he said. “People … have sticker shock and they’re having to adjust to prices that rose at up to 50 per cent a year over the last couple of years.”
In Calgary, home prices rose at a more moderate pace as the city’s highest-ever inventory levels turned the market in favour of buyers.
Smaller cities, like Halifax, St. John, Saint John’s, Regina and Saskatoon, are experiencing the greatest price appreciation right now, Soper said.
The driver is a combination of strong, resource-based economies and affordable housing, he said.
“As places like Saskatoon take care of that affordable housing part of the picture, the rate of price appreciation will come down quite dramatically.”
The largest year-over-year price increases were in Regina and Saskatoon for all three types of housing measured in the report.
In Saskatoon, the price of a bungalow rose by 50.3 per cent to $340,000, a two-storey rose by 53.4 per cent to $395,000 and a standard condo unit by 41.9 per cent to $220,000.
While the overall housing market “is stable,” said Sopher, “it is obviously a regional story.”
“It’s not very stable in Saskatchewan where a booming local economy combined with affordable housing is causing prices to escalate wildly,” he said
The Saskatchewan market “will take care of itself the same way the Edmonton market did last year by simply pricing people out of the market. The unsustainable price increases we saw in the first quarter won’t last.”
In Toronto, where a new land transfer tax came into effect Feb 1., price gains were near the national average. Bungalows were up 11.3 per cent to $432,679, two-storey homes up eight per cent to $544,150 and condos up 6.9 per cent to $298,662.
In February, “the market slowed, prices did not drop, but the number of sales did, down eight to 12 per cent in overall sales,” said Darryl Mitchell, area manager for central Toronto for Royal LePage Real Estate Services Ltd.
The weather in February also affected sales, said Mitchell. “You couldn’t make it down Toronto streets” because of snow. “That made people stop buying or not list their properties.”
But prices “still didn’t drop and we were still seeing multiple offers on any really well priced good listings, so demand remained strong.”
Vancouver remained the priciest city in the country to own a home, with bungalows up 12.5 per cent from last year at an average of $852,750.
Royal LePage Real Estate Services is a unit of the Brookfield Real Estate Services Fund (TSX:BRE.UN).
Royal Lepage numbers are different from Bob’s and EREB’s. Those YOY actually could work in Edmonton’s favour because of that apparent affordability factor.
Of course some bubble folks will yell victory, that it is the first sign of that crash. I doubt that!!!
So – correct me if I am wrong, we are seeing the prices pretty much flat line. Hmm….where is that @#$@#$ 30% drop that was forcasted? Its kind of funy looking back over the last year and all the doomsayers who are on this site – looking at a span of a full year. I said it 8 months ago and I will say it again – yes there will be a price drop – yes it is going to be 10% – 20% – no you will not see your 300,000 home be worth 200,000 – yes the prices will stabilize – yes the rising prices of commodity’s and gas as well as a robust and secure job market will mean there is a stable environment, it will cost more to produce a home, the prices will catch up in 3 years to what they are now and until then they will drop slightly flat line, and rise again (probably like the normal statistical value of 3% – 4%)…..
That is my two cents. Yet again, will talk to you all in 8 months after this post will be ripped to shreds by some…..trust me dont invest in homes because they will fall to 1995 levels again…really …really they will……
))..
Ahh…one more thing…where are the dips who had a huge discussion on how great the Stock market is doing!! …remeber that one….watched a rep yesterday on how some investors lost 20 – 40 % of their portfolios ….THERE is no sure thing in this life ladies!!! ….
While the US is in anguish, Canada’s doing well.
An example:
Kelowna just had a record setting $7,200,000 sale for a house that was NOT on Lake Okanagan and was only on 1/2 an acre of land.
I Loved this RJ post and it had to be said again. Quote and quote.
1. Average/median sales price does not take sales mix into account. Last year, over 75% of properties were selling. This year, its about half that. So although the average _sales_ price is holding roughly steady, only higher quality properties are selling – meaning the average value of all homes in Edmonton has likely decreased. From what I understand, this is what occurred in many US markets – sales volumes dropped and inventory jumped (but prices held as sales mix experienced a “shift to quality”), _then_ prices started to decline.
2. Real estate isn’t very liquid, so a “crash and burn” will take time. Unlike stocks, which can be liquidated in a fraction of a second very cheaply, houses take time and cost money to sell. It will take months and likely years for the bubble to fully deflate – anyone who expects a “Black Monday” is likely to be disappointed (same goes for anyone who thinks the absence of a “Black Monday” means that there isn’t going to be a crash).
3. My experience is that a lot of real estate “investors” can’t actually evaluate their investments. Common problems include:
- no comprehension of opportunity cost
- failure to understand the downside of leverage (or, for that matter, what leverage is)
- inability to enumerate all expenses when calculating rental cash flow (eg taxes, insurance, maintenance, sinking fund for capital costs, vacancies)
- failure to include all transaction costs when calculating their “profits” from a flip
The meme that “real estate always goes up” is so pervasive and the stories of quick riches are so commonplace (many true, no doubt), that it will take some time for the collective Alberta consciousness to adjust. In the meantime, some investors will continue to subsidize bad investments without actually understanding what they’re doing.
4. I don’t think anyone is under the illusion that all sellers _need_ to sell. But numbers I’ve seen suggest 35% of the listings on MLS are vacant/unoccupied. Assuming this is even close to accurate, that’s a whole lot of seriously cash flow negative properties, and thus a whole lot of highly motivated sellers. I suspect some of these sellers are willing to hold out for a while instead of crystallizing their losses, but unless something quite dramatic happens (eg massive immigration) – the much hoped for spring bump doesn’t look likely to materialize, and they’ll have to bite the bullet sooner or later.
“Ahh…one more thing…where are the dips who had a huge discussion on how great the Stock market is doing!! …remeber that one….watched a rep yesterday on how some investors lost 20 – 40 % of their portfolios ….THERE is no sure thing in this life ladies!!! ….
Posted by: Greg ”
20-40% ?
Sounds like you bought at a peak. I don’t see how that’s any different than someone that buys real estate at a peak and then sells low, right?
The biggest loss I saw on a mutual fund was about 5% which has more than recovered in March. I also put my stashed home down payment into the Visa IPO and can’t complain there either.
I guess it’s all in how you WANT to see things. The impending doom crowd are always trying to hang on to something. Back in December it was don’t look at avg price because it had stopped falling) as it’s skewed by a few high priced sales. Look at the median. Then the median started to go up, so no don’t look at that, look at the price per sq. ft.. Now it’s gone up also, so let’s invent a new “prices are probably falling” scenario that can’t be measured…Bravo. Doesn’t the fact that the highest quality homes are going first, make sense? I mean if you’re out looking, are you saying no, that brand new house is too nice, we’ll take the 40 year old bungalow that needs work? However at some point, and fairly soon, the number of new SFH’s coming onto the market will drop quickly because it was this time last year that 95% of the investors got out of that segment. Then people will be choosing from best of the next level of houses, and so on.
Prices dropped so much at the end of last year because it was a backward year inventory wise. We had the perfect storm. Inventory reached it’s yearly high in Sept/Oct when sales take a big dip, not the normal Apr/May period when sales are at their highest. This year who’s to say…but if I was a betting man, I would say we’ll be reaching our inventory high over the next couple of months. Condo’s of course are another matter.
The final point I want to make is there seems to be a lot of reference by various posters of massive amounts of buyers priced out of the market over the last year or two. Maybe so, but they should realize that their scenario is the greatest guarantee that prices won’t crash. The farther we fall…the more people you price back into the market, increasing sales and decreasing inventory. The cup is all empty crowd had better hope for economic hard times because that could truly screw us all!
Greg,
I’m right there with you (certainly not going to trash you.) Prices aren’t affordable, so a correction needs to happen, but certainly not some big crash. Prices aren’t that unaffordable to cause a crash nor are lending standards tightening that much. I
TWZ,
I think you have the wrong idea about a housing market that is doing well. Seeing record setting sales in BC where the prices are severely unaffordable is bad news. They could quite well be heading for a crash.
Here is my response to RJ’s comment on the other thread.
RJ
Your statement about a flight to quality is right, there are only a limited number of real buyers out there right now, so they aren’t going to buy crap, no matter what the price. Investors/Specs will, real buyers won’t. You also assume that most people actually have to sell, I, like Investor don’t and this has every thing to do with economic climate in Alberta. When poeple realize that their propoerty is not selling even after dropping their price they will pull their listing and put it on the rental market. Hell they may even leave it on the market, don’t forget it doesn’t cost them anything. So short term all you renters out there you will not be getting much of a rental increases this year.
If all has to do with human nature, most will rent their property out at a loss rather than lose 20% off the top. It’s easier to take losses slowly, especially during strong economic times. Don’t forget Alberta’s economy is still great, ie no foreclosures, no easy credit, no free money, so there is no panic like in some markets in the US. Yes some will have to sell at discount but not enough to effect the Average/Median price. With the average/median price holding up like it has, it just goes to show what the average person/family in Alberta can afford. If they couldn’t afford it the aveage/median price would show it.
So I would say that for the next year the only properties the will make up the Average/Median in Alberta will be the quality properties. Like I said before: the Ask price has come down, but the Sale price hasn’t. So to me this means a flight to quality, it has nothing to do with affordability.
I just want to see Sheldon’s reaction to syed’s post regarding his mentions of Royal Lepage.
Other than that fellows, everything looks good.
Neil,
” You also assume that most people actually have to sell”
I didn’t say “most”, but I do think there are quite a few who either absolutely must sell, or else really should (even though they don’t realize it yet). I think a big chunk of the 2005 to mid 2007 run-up was due to speculative buying by people who didn’t fully understand what they were getting into – and now that big leveraged boulder is about to roll back on them.
“If all has to do with human nature, most will rent their property out at a loss rather than lose 20% off the top”
This may be true… although because real estate is generally leveraged and has significant carrying and transaction costs, the percentage loss on the initial investment is almost always larger than the drop in property value (and indeed can exceed the amount of the initial investment). I suspect a fair number of “investors” didn’t understand this at purchase time, and are only now beginning to grasp the concept.
As far as I can tell, most investment properties bought since at least late 2006/early 2007 are in significant net loss positions – that is, their current values are almost certainly lower than the purchase price + transaction costs + carrying costs. And they are cash flow negative – they were purchased at speculative prices, and cannot be supported by rents. Now you may be right, the owners of these properties may continue to hold and hope for the return of rapid appreciation or a big jump in rents – but of course the longer you hold out, the farther behind you get.
“So I would say that for the next year the only properties the will make up the Average/Median in Alberta will be the quality properties. ”
I’m not sure… all that inventory has to go somewhere after all. But if it is true, that might mean a small decrease in the much-publicized nominal average sales price but a significantly larger decline in real home values due to inflation and the change in sales mix.
“So I would say that for the next year the only properties the will make up the Average/Median in Alberta will be the quality properties. ”
It does raise a question in my mind. How many buyers have a high sensitivity to quality? My current home was in less than stellar condition when I bought it, but the price was right and renovations can be an enjoyable hobby. On the other hand, many people want move in condition and nothing less. Does anyone have any idea what percent of potential buyers fall into each category (move in vs fix up).
Also for Neil, you’re suggesting that the crap property held by investors won’t sell (makes sense), so they’ll switch to renting. I do have to question whether the crap will rent any better than it would sell, or if so it’ll be to people who will further degrade the condition of the property. They’ll either have to fix it up (increasing the number of quality listings) or drop prices even further I’m thinking.
Itchy,
“The impending doom crowd are always trying to hang on to something.”
Yes, its called “fundamentals”.
BTW, predicting a big drop is real home values no more makes one part of the “impending doom crowd” than does predicting a big increase. Its a zero-sum game, dude.
“Doesn’t the fact that the highest quality homes are going first, make sense? I mean if you’re out looking, are you saying no, that brand new house is too nice, we’ll take the 40 year old bungalow that needs work? ”
So we are in agreement that due to changes in sales mix, home values can decrease even though the average sales price remains constant.
“However at some point, and fairly soon, the number of new SFH’s coming onto the market will drop quickly because it was this time last year that 95% of the investors got out of that segment. Then people will be choosing from best of the next level of houses, and so on.”
How is that nearly record high SFH inventory going to vanish all of a sudden? And if “95% of the investors got out” a year ago, why are there so many homes on the market right now? I’m all ears for evidence that SFH builders aren’t going to meet demand due to net population increase, but your flawed argument that involves subtracting resales from projected SFH completions doesn’t cut it.
rj,
O.K. I stand corrected…you’re a tremendous optomist. I never said inventory was going to vanish all of a sudden. I said the supply of brand new investor/spec bought homes will be a lot lower as we go forward. I’m sure if you look at the mls and comfree you’ll notice a very large number of listings are these new homes. We’ll have higher than normal inventory for the remainder of the year. I also stand by my assertion that if you sell 500 more homes a month than you build, and you increase your population…eventually inventory will come down. It won’t be by 500 a month because people who already own homes and move up are a wash…1 home taken off the market, 1 home added on. But there are certainly new people coming, renters buying and condo owners moving up.
As for agreeing that values are going down due to sales mix….no I don’t. How do you measure it….gut feeling. Sales are what is measured and by every catagory prices have trended up slightly. Compare apples to apples.
You may be closer on the idea that investors who bought in late 06 up until Nov/07 may be in a loss position…but not all. For new home speccers(new word…I made it up) there are a good number that I know that bought in early 07 but built it on lots that were left over from land that was released back in the spring of 06…..hence they paid about 60,000 less for the lot. They are still O.K. as long as prices don’t slip another 25,000.
RJ
“3. My experience is that a lot of real estate “investors” can’t actually evaluate their investments. Common problems include:
- no comprehension of opportunity cost
- failure to understand the downside of leverage (or, for that matter, what leverage is)
- inability to enumerate all expenses when calculating rental cash flow (eg taxes, insurance, maintenance, sinking fund for capital costs, vacancies)
- failure to include all transaction costs when calculating their “profits” from a flip
The meme that “real estate always goes up” is so pervasive and the stories of quick riches are so commonplace (many true, no doubt), that it will take some time for the collective Alberta consciousness to adjust. In the meantime, some investors will continue to subsidize bad investments without actually understanding what they’re doing.”
I agree with you on that point. The investors that are left in this market are definitely not the sharpest knifes in the drawer. But then again that’s why they won’t sell at a discount. How many of these investors do you think would be willing to take a $40,000 haircut all at once, not many. So the thought of only losing maybe up to $500 a month renting it out is a lot more appealing. It’s human nature to have hope and like you wrote, most of these people believe “real estate always goes up”. So they will wait it out and rent at a loss until the market balances and try again.
And as far as the type of investor out there, don’t forget in Canada you have to have great credit, lots of equity or a least plenty of assets to be able to borrow to buy investment properties. So I would say most of these investors that are in the market now can hang on for a long long time, if not for ever.
Canada is not like the US where if you had a heart beat you could borrow money. Canada has a lot more stringent lending standards. You are comparing apples to oranges when you try and compare these two markets.
You may wonder where I get my slant on the Average Real-Estate Investor. Well I was one in the mid-80′s, so I know a lot about the not so smart real-estate investor. Back then I brought properties for $1 down and assumed the existing mortgage, it was easy back then. I then rented them for what I could get,usually under the mortgage payment. I was under the same assumption that prices always go up so that’s why I kept this up. But back then guess what they didn’t really go up until the mid-90′s. So in the long run I actually ended up renting at a loss, but at that time I had hope and didn’t look at it as a loss. I look only at the future value I thought they would provide. And I’ll admit it was not the best investment decision I ever made, but I was young and full of it. So if you think the average investor is going to sell at a loss, your mistaken. You have to understand the mentality of the Average Real-Estate Investor and I was one, so I know. Those exact reasons you pointed out are the exact reasons that there will be no fire sale in real-estate in Alberta.
Al
Crap always rents. Anyone in the rental business knows this. The people you rent to don’t have the same respect for the property that you have. In a market where the vacancy rate is only %1.7 renters don’t have much choice.
Also you can do all the pre-qualifications you want on your new renters, but that doesn’t guaratee your going to get a good respectful renter. From experience I can tell you it’s very very rare.
The majority of the rental market is crap, so returning the crap back to rental market is the best place for it.
And as far as people buying crap and renovating it, well it doesn’t seem to be happening. In this type of market the difference between crap and primo is not enough to make it viable. And if you think people are going to drop the price on their crap, re-read my previous post.
I think Royal Lepage screwed up on the Edmonton stats or EREB is lying about the numbers in this city.
From their archives, I see two telling stats…
YOY Q1 2007 to Q1 2008 averages are as follows for all sales:
2007: $316,822
2008: $338,052
% diff: +6.7%
If you only factor in SFD’s, the numbers show:
2007: $377,071
2008: $383,054
% diff: +1.6%
The interesting number is the 2007 SFD average, this comes within dollars of the Royal Lepage amount of $377,XXX except they have $330,000 for 2008 Q1. Nowhere near Bob Truman’s stats or EREB’s.
I guess if Royal Lepage is correct, everyone can stop talking about high real estate prices in Edmonton since we’re now well below the national average!!!
But something tells me we should be up +1.6 this year and not down.
Hey DREM, I noticed the same thing yesterday… something is clearly wrong with the Royal LePage stat.
Here is the actual press release:
http://www.royallepage.ca/CMSTemplates/AboutUs/Company/CompanyTemplate.aspx?id=1746
Compare:
Royal LePage Q1 Average prices:
Bungalows $330k; 2 Story $363k
Condos $235K
EREB avg for Q1:
SFD $383k (379+382+387)
Condos $261k (257+264+263)
Check out the Royal LePage “National Price Chart”:
http://docs.rlpnetwork.com/hps/2008Q1HPSChartEN.pdf
Even their own numbers don’t seem to match those on their press release.
As I posted previously:
“According to my off hand calculations, the end of Q1 prices should be (based on Q1 avg for Castledowns, Clairview, Riverbend/Tewilliger areas reported in the National Price Chart):
Bungalows: $356K
2 Story: 373K
Condos: 257K
First, this is way way closer to EREB. Second, this survey doesn’t seem to even include all regions of Edmonton. Third, don’t believe the hype folks.”