Here is our weekly update on the Edmonton real estate market. (Previous week’s numbers are in brackets). For the past 7 days:
New listings: 566 (823, 869, 780)
# Sales: 293 (336, 272, 284)
Ratio: 52% (41%, 31%, 36%, 41%)
# Price changes: 493 (679,567, 550, 450)
# Expired Listings: 115 (181, 125, 408)
# Canceled/withdrawn/terminated listings: 39 (65, 65, 60, 39)
Net loss/gain in listings this week: 119 (241, 407, 28, 217)
Active listings for single family homes: 4088 (4063, 3888, 3694)
Active listings for condos: 2969 (2921, 2851, 2692)
Sheldon had some thoughts to share this week:
Positive changes this week for sure. The average residential selling price so far for this month is $335,683 which is up slightly from last week but still down from March, as is price per square foot. Inventory is at 10,737 and sales at 1,311. Projected out that should put us just over 1500 for the month. As you can see, new listings are definitely on the decline:
One week of lower listings that are still twice the number of sales does not turn the tide.
Thank you for posting the stats so early today.
Have a great weekend.
I don’t recall saying anything about “turning the tide”. I assume you mean pricing though.
I do believe that we are coming to the peak of the inventory cycle. May, possibly as far out as June.
As for sales they have been very steady for the year. Albeit it much lower than previous years.
“Sales are lower than previous years.”
This is only true if you compare to 2006 and 2007 which were complete anomalies in comparision to years prior. Year to date, sales this year are significantly higher than anything pre-2006. So compared to previous ‘balanced’ markets, sales in and of themselves are quite healthy. Inventory of course is another issue…
We see a pattern for home re-sales in Edmonton since November.
1. Prices have leveled out.
2. Sales are at a steady number.
3. High inventory.
4. New home starts have bottomed out.
Recently, markets have been alarmists. High prices for oil, food, etc. Recession in the USA and Ontario.
“Help Wanted” signs everywhere in alberta. Layoffs galore in Ontario.
I see more stability for Edmonton.
1.. prices are down $60,000 but holding..for now
2…sales are off 40% but holding..for now
3…inventories are..well never mind
4…new home starts have stopped..oht oh.. what about the job losses…never mind
Ontario is in a recession..maybe they will come west and fill all those min wage jobs
LOL folks..this is just a blog
“New home starts have stopped… what about job losses?”
March 2007
22,200 full time jobs created in Alberta, 7800 of which were in construction and 4500 in oil and gas.
http://www.finance.gov.ab.ca/aboutalberta/labour_force/2008/2008_03_developments.pdf
Here’s an idea… let’s base opinions on emotions and the uneducated buzz on the street rather than actual published statistic! Just a thought.
Edmonton’s a great city..the river valley is gorgeous…but under used…your summers are wonderful, you have many enjoyable summer festivals, i could go on and on.
sadly you have priced out the young families of your city. and that is your achilles heel, a correction is needed and its coming. spec-buyers will lose money,and lots of it, but that’s a small price to pay, your young families are your greatest asset…remember that.
squid
i have never posted here to be disrespectful, some have used my squidly77 log-in, cant help that
any opinions i have are posted on the bubbleblog
is it so harmful if .5% of your population lose money to benefit the other 99.5%, after all most of those people were just gambling, hoping to score easy money, while the rest of the people are working hard and just want a decent place to live, stop promoting the .5% and try representing the other 99.5% of the people, with in a year or two things will return to normal,and that’s good for Edmonton, is it not
squiddly77… why do you post here? No more traffic at the bubble blog?
No crash, so no traffic there?
I would suggest that the number of sales will increase notably in the coming week. The last week’s sales were surely atypical due to the snowstorms. While I did buy a house last weekend (I had to as I came from out-of-town for that purpose) I was often the only person at open houses at the height of the storm.
“is it so harmful if .5% of your population lose money to benefit the other 99.5%, after all most of those people were just gambling, hoping to score easy money, while the rest of the people are working hard and just want a decent place to live, stop promoting the .5% and try representing the other 99.5% of the people, with in a year or two things will return to normal,and that’s good for Edmonton, is it not”
Posted by: sea thing | April 25, 2008 at 09:33 PM
I am not the one hoping for a crash… but I think the point in this message is representative of the situation. Many young families that were not in the oil/gas industry left Alberta because they knew they could make the same salary elsewhere… and they could afford a nice house for a lower price.
I do not mind investors to take over the market… but when young families are priced out of the market, it shows how bad the problem is getting.
Cheers!
The families that left Alberta because of affordability or whatever went where? BC? Saskatchewan? As expensive.
Manitoba? Ontario? Good luck if they moved anywhere east of Winnipeg. Ontario’s in recession, etc.
There are also folks here that laugh because we are down YOY… I say to those: get your heads fixed up.
You can’t compare a crazy situation as last year, deem it normal and then compare to a normal year.
Hi!
We are one of those young family, it is really sad that we cannot get a home. We bring in 96k a year but have bad credit so we only can get 300k, so we etheir buy a townhouse or a deplux. Because house prices are way to high. And we have to pay really high mortgage payments. I know our bad credit is our own problem but come on even with good credit we would only get 350k. Anyway I just think it is time the price of a houses went down so more people can buy a home. This Market is really getting out of control.
Tks for listening
“The families that left Alberta because of affordability or whatever went where? BC? Saskatchewan? As expensive.
Manitoba? Ontario? Good luck if they moved anywhere east of Winnipeg. Ontario’s in recession, etc.
There are also folks here that laugh because we are down YOY… I say to those: get your heads fixed up.
You can’t compare a crazy situation as last year, deem it normal and then compare to a normal year.”
Posted by: ray | April 26, 2008 at 08:21 AM
Ray I truly respect your opinion. However, even if there is a recession, the Maritimes, QC and Ontario still need School Teachers, Nurses and so on…. people that is a normal situation would have stayed here and that is what I think is unfortunate. Recession is not a big monster that chases everyone out of a province, but affordability is and that is my point.
Cheers!
What ever happened to people having to get NOT what they wanted or something that didn’t fit all their needs as their first house???!!! I remember my first home…NOT what I wanted, but I tolerated it because it got my foot into the door and I moved on after a few years. What’s wrong with a duplex/townhouse as your first home, Mel? Don’t put the cart before the horse.
Carllecat…I think Winnepeg is going to be the next affordability shift. Last major city in Canada that’s ridiculously cheap. When the jig is up in Saskatoon, it’s going to be Winnepeg, but you have to know when pull the plug and get out.
Just finished taking conditions off of 4 bare acres in Winnepeg.
Hey TWZ!
We live in a townhouse renting, we have no yard for our kids and we are growing out of it really fast. I do not see the point in moving from a townhouse where we pay $845 rent to paying $2000-2600 to pay for a monthy payment. I know alot of my friends that can not even get 200k for a mortage. I just think that it is out of alot of people reach to get a house and rent is just going up and up. Why throw your money away like that.
Anyway just my thoughts.
Can I make a suggestions than?
There’s a lot of enrty level homes in a subdivison called “Sherwood” in the Westend. Large 50×150 lots and there’s a large park there. It’s where I got my first house in 1999 and they’re under the 300′s. Some of the homes are in need of a little repair, some a lot…but it’s a decent area.
Do a search:
http://www.mls.ca/PropertySearch.aspx?AreaID=6649&MapURL=%3fAreaID%3d6398
Nicholas Armour – Consul General in Canada & Director of Trade & Investment – talking about impact of Oil Sands in Calgary where there are big investments by Shell & BP. Nick describes Canada as “Engergy Super Power” and seemed quite passionate about getting it especially as The North Sea Oil has peaked and production is dwindling.
The essence is, it is naïve to predict a real-estate price crash in a prosperous economy as ours especially that prosperity is of long term nature. I think that the price is taking a breather as flippers are out of the market, but this lull won’t last for long. Bear in mind, that most of the mega projects has not started yet, not sure what would happen when the capital starts to pour-in. Please see the updated sheet for the heartland projects as of March 2008. The sheet has also the expected work force, capital, etc.
http://tinyurl.com/4d3ac6
Forget to post the link for Nick’s talk:
http://www.youtube.com/watch?v=lB6_BnmRkJA
Next weeks update could be very interesting..
This market could turn on a dime. A metropolitan area of 1M+ with full employment and a herd of buyers waiting for the buy signal.
That’s the coffee shop talk.. The market is slow, so I’m going to wait for a good deal, etc. etc.
The herd mentality prevails in this day and age. We may be 60 grand off the peak, however if the pendulum swings and momentum shifts, there are plenty of credit worthy, employed, motivated buyers ready to pounce, which will pull prices up quickly.
The fact that the average in Saskatoon is 20G higher than Edmonton should be a clue that we’re now undervalued.
Renters who are sitting in those 30 year old crappy townhouses with no garage, yard, and lousy soundproofing, will eventually go stir crazy and want to get out of there. Trust me, I’ve been there myself and very glad I bought when I did. For a second property, I closed a deal in January on one of those 300K 3bdrm/2.5bath/single garage duplexes through Greenborough homes as an investment to either flip or rent out. It will be ready in about 10 months….. it’s a bit of a roll of the dice, but life is all about taking chances..
I could not agree with you more. I personally have 5 rental properties in the Edmonton area. I credit-check every tenant as well as employment income verification. I can tell you that 4 out of my 5 tenants are very qualified to buy their own homes within the 350-500K range. They all mentioned that they were waiting for the right opportunity to buy. I can also tell you that the rent I charge is not cheap and very comparable to mortgage payment.
BTW, I’m not a flipper, I’m a long term investment to secure my retirement 15 years down the road.
It is not just about house prices.
One might want to wait for the banks to pass on the BoC decrease in interest rates. The prime rate might go down a bit more.
Then young families can also worry about inflation/food crisis/commodity crisis, and wait a bit for the storm to show which direction it is heading, before jumping in for a big mortgage.
Banks tend to tighten their landing standards: they are not as found of risk as they used to be.
Buyers’ psychology is also a strong unpredictable element.
This is a “problem” with many parameters, and that’s why it is so hard to predict the near future. We do not even know if the US is in recession, and if so, how deep the recession is. So I tend to take all simplistic bull/bear arguments with caution.
Check out my summer house! I don’t beleive I’m asking to much! What do you guys think?
Copy the link.
http://www.mls.ca/PropertyDetails.aspx?vd=&SearchURL=%3fPage%3d3%26Mode%3d0%26vs%3dResidential%26ret%3d300%26sts%3d0-0%26beds%3d0-0%26baths%3d0-0%26aid%3d1048%26MapURL%3d%253fAreaID%253d1048%26mp%3d10000000-0-0%26mrt%3d0-0-4%26trt%3d2%26of%3d1%26ps%3d10%26o%3dA&Mode=0&PropertyID=6691106
Alberta housing is not affordable for new AB home owners.
I’m referring to new college graduates and those planning to move into AB now. I’m not referring to AB residents who bought their homes before 2005. For those who purchased before 2005, life is good. For long term AB home owners, short of winning the mega-lotto, things couldn’t be better.
Regardless of inventory, price will keep on deflating to reflect the current reality of affordability crisis.
Speculators are having difficulty getting mortgages on additional property (a very good thing). The biggest source for artificial price inflation is now out of the market.
With the excessive taxes and levies on wages and high cost of living, new college graduate couples with children, earning 90K ( take home around 60K) in house hold income are barely squeaking by.
As for new immigrants and blue collar workers moving in from other provinces, they’ll need to work 80+ hours a week in a hourly job just to be able to breathe in AB air.
Well paid “oil sands” workers make up a fraction of the AB work force. And they usually will buy one family house. So who is left to buy the rest of the inventory?
Things seem expensive in Edmonton, yes…but expand your horizons and imagine being a young family trying to break into Kelowna, Victoria or Vancouver…average houses $200,000 more in.
Simply put, Alberta is good value again in the low $300K’s…and as stated above, the herd mentality is going to come into play soon especially not that everyone is seeing that what happened in the US really isn’t affecting Alberta.
I mean COME ON when CBC has stuff on it like “Gas to be $2.25/L by 2012″ sounds like a bloody green light for Alberta over the next 4 years.
Thank TWZ! Finally someone who has the insight to look at this thing beyond an isolated local perspective!
Edmonton is “good value” says TWZ compared to prices in Vancouver and Victoria. There is so much wrong with that statement that it speaks on its own.
Higher gas prices a “bloody green light for Alberta”, how is higher cost of living good for anyone. Very few people are benefiting from the higher gas prices.
Record number of listings, many more new listings each week compared to sales. Edmonton has double the inflation of any other city in Canada. Another body found this morning (headline on the newspaper).
Think we all would benefit more if things slowed as compared to sped up.
Only 4 months till fall weather starts….
Enjoy the weekend, calling for snow on Thursday.
One slow week of new listings and we get this “As you can see, new listings are definitely on the decline” Aren’t you jumping the gun a bit calling this a turning point? Do you know something we don’t?
If only this pesky inventory would go away….. Isn’t that what they said in Phoenix, San Diego and Miami?
I fear for Ken and his leveraged 300k investment property. This market simply has too many “newbie” real estate investors that aren’t aware of the risks involved. There are less risky ways to obtain real estate exposure without having to leverage yourself to buy physical real estate.
The boom always feels “different” this time.
Edmonton is “good value” says TWZ
Are you for real?
I wouldn’t touch real estate right now if you made the down payment.
I was thinking of taking my son to the driving range today and whacking a few balls, we better wear our rubber boots and mits.
Buy versus Rent
I have a point that I would like to make. We have 2 30-year old, John and Jim. John chose to buy, while Jim chose to rent.
John’s mortgage is higher than what Jim pays as rent. John has to work a little bit extra. Jim is enjoying some extra cash over John, Jim goes for a brand new G150 for $50K while John settles for a 2000 used chevy truck.
Fast forward 25 years, Jim and John are now 55 years old each. Jim now owns his house, real estate was up and down through the years but after 25 years the property must have appreciated. Even if it did not appreciate, John now has a house truly of his own. Jim is still renting and paying a considerable amount every month. At 55 years old, I guess John can get some time off to enjoy life since he has no mortgage or rent, while Jim has to work hard to pay the ever-escalating rent. Jim’s F150 is now enjoying its new home at the wreckers.
Fast forward another 10 years, Jim and John are now 65 years old each, it is time for retirement. Jim has mortgage back his paid-for home to get lots of cash to enjoy retirement while poor John is still paying rent and has squat.
Guys and Gals, home ownership is a very important venue for hard times when you get old. In 25 years, the home value would have to go up. Even if it does not go up, 400K paid-for asset is better than renting and having squat.
With all this talk about higher living costs. It made me think about higher building costs. Perhaps the higher cost of materials and labor over the last 4 years have a bit more to do with the “high prices” than inflation, and spec buyers. I dont see the cost of materials dropping anytime soon, in fact i believe the opposite to be true. So I feel stability or modest price increases are a heck of allot more likely based on this fact alone, than the ever so popular bubble theory. Secondly for all you Edmonton haters. If you believe that there are “better” cities to live in that are “more affordable” and have “nicer” weather. Why dont you just high tail it outta here?????? Ill tell you why; Edmonton is the goose that has laid all your golden eggs, and without this beauty of a city you would be a very happy manager at Macdonald’s in Houston, kelowna, Phoenix, or any one of the other so called “better” cities as some of you have said. Dont hate on this Goose. This city provides you with opportunity like no place else in the world. Be proud and feel lucky to be here.
Fred…
I take you haven’t been to a lumber yard lately. Lumber and gyproc prices are down significantly compared to last year.
Pete….
If all houses were made of was lumber and gyproc…….. I think there are a few more components to a house than that. I dont recall seing and Gypsum driveways or 2×4 wood floor tiles. I think you get the point…… I take it you havent built a house……..EVER. But ill give you a call if i need a good deal on a tree house.
Hey lets not get “Fred” and “Fredmonton” mixed up
Matter of fact I have seen lumber prices decline at the reno stores.
April monthly price/stats will be out end of week. Think many people are in great anticipation to what the average price will be, I know that I am.
P.S. I’ve said before that I’ve lived in Edmonton all my life and always will (love it here).
Wanting things to change back to the way it was isn’t of course realistic but nothing wrong with yearning for days when you could live comfortably on a resonable salary, when traffic was managable, when people were not nick naming your home town “Deadmononton” or “Stabmonton”. When there seems to be more going wrong the right.
People survived just fine before Alberta was squeezing $120 a barrel oil, much better actually.
Enjoy your Sunday (excuse the spelling mistakes please).
***comment removed for personal attack – Marvin please review code of conduct – Sheldon***
Mike,
Your parable is about money management, not buy vs rent. What if Jim invested his extra money instead of buying a new truck?
Mike,
What if Jim decided not to follow the sheep and jump in at stratosphere prices but invested his money elsewhere for good returns and waited till prices came back down to earth and bought the same house as John 2 years later for 150 grand cheaper.
“What if Jim decided not to follow the sheep and jump in at stratosphere prices but invested his money elsewhere for good returns and waited till prices came back down to earth and bought the same house as John 2 years later for 150 grand cheaper.”
Brent, you are describing a non-realistic fairy tale scenario. Supposedly that my rent is $500 per month cheaper than my mortgage at best cases, where can I invest $6000 per year and get a really good return on investment?? Also, historically, in a strong economy, there was never 50% correction. In a strong economy, you can get a correction up to 10% followed by a rebound. Honestly Brent, your scenario is a kind of dream.
“Your parable is about money management, not buy vs rent.”
You are correct, real estate is a money management game. You are forced to save and you reap your reward 25 years later.
“What if Jim invested his extra money instead of buying a new truck?”
Assuming that the truck payment is $600 per month, what kind of investment you can get for this kind of tiny capital?
Going back about my point for rent versus buy, I would like to stress that from investment perspective for your home, considering the tiny down payment and the trivial amount you put against the principal every month, should an appreciation occurs at low rate, this is a very high return on investment. With 10% down and an appreciation of 5% per year and interest rate of 6%, you’d find that you lived for free should you sell the house at any point as you would be able to recoup all the interest you paid at any point in the amount the house appreciated by.
Pessimists will counter back that houses may crash, etc. Historically, over 25 years, at any market in North America, the worst least appreciation for real estate was at 4% and the best was at 20% annually. The essence is if you buy a home, pay if off in 25 years, you have lived for free for the whole time assuming the worst case real estate appreciation ration.
Adding to that that all the gain would be tax free. My principal residence is my true retirement funds.
Mike,
Your basing your theory on Alberta real estate can never fall because Alberta has oil and a ton of minimum wage jobs. Real estate in Alberta more then doubled in a short 2.5 years and it will stay up here at this stratosphere level and continue to increase or at worst drop a mere 10%. Well your first 10% drop is already a by gone, stick around for more. I think your living in fairy tale land.
“What if Jim… waited till prices came back down to earth and bought the same house as John 2 years later for 150 grand cheaper.”
Kinda like when prices tripled between 1974 and 1982 right? Except, one problem… prices only retraced twenty percent after that. The only way we’re gonna see average price drop back to 200k is if we wake up tomorrow in a world that doesn’t need hydrocarbons!
Keep renting and wishing for the days of a 200k average pal. When the average price of a home is million bucks thirty years from now you’ll be kicking yourself. And if you think that’s unrealistic, it has nothing to do with Edmonton, average prices all over North America were 20, 30, 50 grand thirty years ago. You think people then could comprehend the day of a 200 or 300k average? Follow the logic thirty years into the future. Of course, logic tends to escape a lot of the population, but I digress…
Marvin,
I’m not saying that prices will fall back to a 200k average where they were just 3 short years ago, they might though. But what I am saying is that prices will continue to fall from todays levels and i’m betting on it by not buying now.
Mike,
“Assuming that the truck payment is $600 per month, what kind of investment you can get for this kind of tiny capital?”
$600/mo would go a long ways towards maxing most people’s RRSP contributions for the year. Its trivial to set up an automatic monthly payment plan for an index fund. There are plenty of other stock/bond/mutual fund options, either inside or outside an RRSP, of course.
Comment deleted – name calling. See code of conduct.
“considering the tiny down payment and the trivial amount you put against the principal every month, should an appreciation occurs at low rate, this is a very high return on investment. ”
This is true, its called leverage. Of course, there’s a nasty downside to leverage. Ask someone who put 10% down at the peak who now has to sell… he’s lost over 100% of his initial investment before considering the cost of buying and selling, and probably 200% after those costs are included.
“With 10% down and an appreciation of 5% per year and interest rate of 6%, you’d find that you lived for free should you sell the house at any point as you would be able to recoup all the interest you paid at any point in the amount the house appreciated by.”
You’re making some awfully big assumptions here. Is 5% the long-run average historical rate of appreciation? Is 6% the average historical interest rate? Have you considered the other expenses of home ownership, and the cost of buying and selling the home?
And, of course you have to balance this against the opportunity cost on the additional cost of owning. How much would you have at the end of 25 years if you took that initial 10% down plus the monthly savings of renting and invested it in a balanced portfolio?
“Pessimists will counter back that houses may crash, etc. ”
Pessimism has nothing to do with it – its simple fact that there are prolonged downturns in the housing market. Calgary took nearly 20 years for real values to recover after the crash in ~’81 (sorry, can’t find the chart right now but its been posted plenty of times on the various Alberta RE boards). IIRC, Vancouver took even longer. That’s a massive, life-altering opportunity cost.
“Historically, over 25 years, at any market in North America, the worst least appreciation for real estate was at 4% and the best was at 20% annually.”
I’m not sure what you’re saying here… that the poorest performing market appreciated annually at 4% and the best at 20%? I’d love to know where the average annual rate of appreciation was 20% for 25 years…. that’s a factor of 100. Do you have sources for these numbers?
“Adding to that that all the gain would be tax free. My principal residence is my true retirement funds.”
The tax free aspect is of course a big plus, but the tax deferment that an RRSP provides is pretty good too. And the $5000/year tax-free savings plan that was part of the last budget is another option too.
graph..tinyurl.com/yku9aq
graph tinyurl.com/yku9aq
Great article in the Sun. http://www.edmontonsun.com/Business/News/2008/04/27/5400406-sun.html
Anyone have any thoughts?
***Yogi, you posted this article 4 times. Once is enough. This is not a new concept in this market place. In the end it is up to the consumer to do their own research in order to make sure they are getting what they want and expect.
Sheldon
“graph tinyurl.com/yku9aq”
Glad you brought it up. While I disagree with the way the graph was completed, I find that the graph proves my point. Gents/Gals, the graph is based on “inflation adjusted value” and not actual value. From 1981 to 2000 we had nasty inflation. esepcially in the eighties and early nineties. Assuming that real estate has its value appreciates to balance inflation over 21 years and through deep crash in the eighties and bad recession then real estate again proved to be the long term finacial vehicle. I cannot see a $5000 savings account or $600 per month RRSP to come close. EVERY penny you put towards a house in interest or pricipal, you’ll get it back or more if you hang on for long term. No other investment vehicle can match that. Also, the tax free status for gains is quite valuable and puts a topping of 20%. you pay taxes when you get RRSP out when you are retired and you need every dollar.
“graph tinyurl.com/yku9aq”
The graph proves my point that Real Estate is the best long term investment vehicle. Since the graph is inflation adjusted and not actual, it proves that houses have appreciated according to inflation over 21 years through recessions and bad times. I disagree with how the graph was compiled as it has some twisted data, however, according to the graph’s pessimist view, if I bought my house at the top in 1981, it would have appreciated by at least “consumer price index” until 2001.
Looking into the future, Albetra is poised to much better times then the 1981-2000 era, hence real estate should appreciate in a much faster pace than inflation.
“How much would you have at the end of 25 years if you took that initial 10% down plus the monthly savings of renting and invested it in a balanced portfolio?”
Not sure if 40K + 6K per year will translate into 400K in 25 years. I’d go for a maximum of 150K final value if all the stars are lined up and you do not get caught in a market turmoil.
Also, after 25 years, do you think that you would be able to buy a house for $400K??? I doubt it and you would as well.
“How much would you have at the end of 25 years if you took that initial 10% down plus the monthly savings of renting and invested it in a balanced portfolio?”
Not sure if 40K + 6K per year will translate into 400K in 25 years. I’d go for a maximum of 150K if all the stars are lined up.
Also, after 25 years, do you think that you would be able to buy a house for $400K??? I doubt it and you would as well.
“The graph proves my point that Real Estate is the best long term investment vehicle.”
Pardon me, but WTF?! How can you possibly reach that conclusion? It doesn’t compare real estate to anything else!
how about if you bought in 1980 ?
at the peak of the bubble, you would have been underwater for the life of your mortgage
btw you do know that unlike the states you can not walk away from a mortgage in canada as they are “recourse” you can only be dis-charged through a bankruptcy
they take every dime you have and then place you on a re-payment program
“Pardon me, but WTF?! How can you possibly reach that conclusion? It doesn’t compare real estate to anything else”
Please read the graph, it is an inflation adjusted value and not an actual value. It takes the prices and appreciates it by the consumer price index. For example, a pen cost $1 in 1980, it should cost $2 in 2000 if counting the consumer price index.
“btw you do know that unlike the states you can not walk away from a mortgage in canada as they are “recourse” you can only be dis-charged through a bankruptcy
they take every dime you have and then place you on a re-payment program”
This is if you take an insured mortgage (less than 20% down). Please take to your banker to further get an understanding of the difference.
” How can you possibly reach that conclusion? It doesn’t compare real estate to anything else! ”
Again the graph is based on “Inflation adjusted value” and not the actual value hence it show a price appreciation inline with the inflation. Please talk to your accountant to get an understanding of the difference.
mike…you need to talk to a financial planner or maybe a lawyer..perhaps you will believe them
“Not sure if 40K + 6K per year will translate into 400K in 25 years. I’d go for a maximum of 150K final value if all the stars are lined up and you do not get caught in a market turmoil.”
Why guess? There are plenty of calculators for this on the web. In the scenario you outlined above, with a (conservative) rate of return of 7%, you end up with over $600K.
If you assume the average rate of return of the S&P 500 over the past ~40 years (with re-invested dividends) of about 10%, you end up with over $1 million.
(I use your numbers for the purposes of illustrating opportunity cost only… I don’t think they’re actually indicative of market conditions, and I realize they don’t fully capture all aspects of buy vs rent)
All due respect, but compound interest is really basic stuff. If you don’t have a grasp on this (and clearly you don’t), you can’t possibly begin to a rent vs buy analysis.
The great thing about this blog is that those who contribute clearly “feel” strongly that real estate in Edmonton is either 1) a great thing or 2) not worthy of investment at this time (or perhaps ever). Occasionally, a post will contain a balanced analysis. While the strongly polarized opinions presented do suggest that the market is a moving target, the opinions presented are not always well grounded in reason. To make matters worse, predicting real estate is a bit like trying to predict the weather… good luck.
The amusing thing about this blog is that people will say just about anything to justify their positions (Don`t we all when we feel strongly about something). While the occasional fact or figure is presented, it is amazing to me how much people will confabulate to justify their position.
Just a word of caution.
mike i am not looking to argue here..but after the banks took a pasting in 1982 the laws were quickly changed. you buy a house for $400,000 now, you bought it with your money, not the banks
if you can not for fill your obligation your only “recourse” is bankruptcy, once their they will strip you of all your financial assets including rrsps
“Again the graph is based on “Inflation adjusted value” and not the actual value hence it show a price appreciation inline with the inflation. Please talk to your accountant to get an understanding of the difference.”
Thanks, but I think have a pretty good grasp on the difference between real and nominal prices. And if I wanted further clarification, I’d get it from an economist, not an acccountant.
You said that “the graph proves my point that Real Estate is the best long term investment vehicle”…. but the graph provides no comparison with any other long term investment vehicle (let alone all of them). Thus your assertion is trivially false.
Prelude to crisis?
April 27th, 2008
Four days ago the Bank of Canada torpedoed its estimate for economic growth. The bank boss, Mark Carney, has changed his tune dramatically. The US will not recover for two years, he says.
Others aren’t so cheerful. Yake economist and real estate guru Robert Shiller says the American housing disaster is only half done. In fact, late last week the Canadian Real Estate Association shocked the industry by reporting house sales in Canada this year have fallen off a cliff. Around the entire world, there is nothing so devastating, far-reaching or destructive to wealth as a real estate meltdown. I can only imagine the effect on my street.
No wonder a new poll Sunday shows a majority of Canadians – for the first time in more than a decade – now worry we are sliding into recession. Over half of those surveyed say the Canadian government does not offer confidence or inspiration.
It’s hard to understate the importance of this, since the current government came to power promising competent economic management, lower taxes, trustworthy government, a better deal for families, and hope. Some two years later, families struggle with an identical personal income tax load, pay the highest energy prices in history, see job losses thanks to a runaway dollar and now worry about the value of their homes, where 80% of all net worth resides.
The fear is fear. Mounting fear of the times to come already has people second-guessing real estate purchases, which is why sales are down 22% in Toronto and 36% in Calgary. As sales drop off and sellers outnumber buyers, prices follow. And as housing values decline, so does the equity owners have – a serious issue with mortgage debt at the highest level in history, and the national savings rate at zero. After all, it was a real estate bust which made middle-class Americans feel stressed, which soon sank car sales, Bear Stearns and Home Depot earnings.
Does the Canadian minister of finance understand this?
Apparently not. If he did, he’d have cut income taxes, not consumption taxes. He’d not have approved 40-year mortgages, our own subprimes, in his first budget. He wouldn’t have talked up the dollar like a cheap sideshow barker. He would not have jacked federal spending to an unheard-of level, or squandered a $14 billion annual surplus.
I’ve said it here for months. The nuke waiting to go off is the housing market. The finger on the button’s attached to the minister.
Whoops.
Prices should be rock bottom and cheap just because you couldn’t wear shorts to the driving range?
I recall 2007 – the first really nice day in Edmonton last year was June 1st. So keep those boots and mitts handy and quit the weather complaining OR go get a place in Kelowna and see how much value Edmonton has in it again.
Some of the most expensive real estate is not only in warm places, but colder places as well. Take a trip to Finland or something.
You can all have your little tantrums and hope for real estate to be back in the $150,000 for houses again. Do MLS searches in small rural towns in various places around Canada…in places you expect to be cheap cheap (Like Botha, Alberta) they’re in the $280K’s. There’s been too many mortgages written previously high and people are only willing to loose so much, especially now that the whole “OH MY GOD the US is falling down and I’m going to be out a job!” to “Oh wait, nothing happened in Alberta and they still need gas plus I still have my job” is starting to happen.
I agree that the current inventory will drop prices more…but there’s a lot of people desensitized to prices like people are desensitized to gas prices. I remember when prices jumped from $0.63/L to $0.75/L in 1999 there was many people complaining that they would not be able to drive soon! LOL How many of you would go out with 10 jerry cans plus your car to fill with gas if prices were $0.75/L again. Cheap gas!!! Right??? Not according to everyone in 1999.
“In the scenario you outlined above, with a (conservative) rate of return of 7%, you end up with over $600K”
This is truly unrealistic and biased assuming a consistent rate of return of 7% which is not feasible as well as assuming that your rent is $500 cheaper than mortgage, and this is not true taking into account that rent will only go one way up.
How many renters do you see have a good life after retirement? Looking at many people I know, I still to meet a person who made money saving from rent. Honestly everyone that kept renting is having a difficult time having a comfortable retirement. Renters end up in subsidized 300 sf bacherlor suite Senior homes at retirement paying 35% of their small pension as a rent. Is this the life you wish for?
“if you can not for fill your obligation your only “recourse” is bankruptcy, once their they will strip you of all your financial assets including rrsps”
Totally untrue if you have a conventional mortgage with at least 20% down.
“This is truly unrealistic and biased assuming a consistent rate of return of 7%”
As I already said, the 40 year average return of the S&P 500 (with re-invested dividends) is 10%. 7% is a conservative estimate for a 25 year horizon. Again, if you don’t know basic stuff like this, you simply don’t have the foundation to to perform a buy vs rent analysis.
“as well as assuming that your rent is $500 cheaper than mortgage”
Good numbers on rents are hard to find, but the anecdotal numbers I see suggest that it probably is at least that much right now. Regardless, the mortgage payment is only part of the total cost of home ownership. Property taxes, insurance, maintenance, and depreciation of capital items are additional home ownership expenses that must be included in the value that is compared to rent.
“not true taking into account that rent will only go one way up”
In my disclaimer, I pointed out that those numbers (which were yours, btw) were used to demonstrate the notion of opportunity cost – something you don’t appear to acknowledge. I was not presenting a full rent vs buy comparison.
Of course rent goes up, and at some point in the future it will exceed monthly home ownership costs (although one should keep in mind that the above-mentioned ownership expenses also increase with inflation). This is essentially the crux of rent vs buy: opportunity cost on “ownership premium” vs time it takes for rents to catch up to ownership costs.
“Looking at many people I know, I still to meet a person who made money saving from rent”
I find it remarkable that you are privy to the financial details of everyone you meet.
“Renters end up in subsidized 300 sf bacherlor suite Senior homes at retirement paying 35% of their small pension as a rent. Is this the life you wish for?”
Pointless, irrelevant, and incorrect generalization.
“I’ve said it here for months. The nuke waiting to go off is the housing market. The finger on the button’s attached to the minister.”
This is a total untrue. If the real estate crashes in the US or Ontario then it does not mean that it would crash in Alberta. Totally false assumption. The writer of the quoted post is not from Albert or Canada so he would not know what’s going on here.
I’ve been reading this blog for a while and is very good. I’d like to maka a suggestion.
The inventory analysys shows a ineventory breakdown between SFH and condos, but the sales are summarized. So we’re not seeing a aples to aples comparisson.
Also will be nice to have a inventory/sales ratio for SFH and condo.
Thanks
“Pointless, irrelevant, and incorrect generalization”
RJ, it is true that home owners retire in a much finacial better shape than renters. It is a different mentality and mind set in-life between renters and home owners. You can keep renting and I’ll see you in 30 years.
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Mike wrote:
“RJ, it is true that home owners retire in a much finacial better shape than renters.”
Well, Mike it is also true in general that home owners of homes on 0.5+ acre ravine lot are retiring in better financial shape yet. Moreover, I have noticed that male owners of Kiton, Brioni or Anderson & Sheppard suits tend to have really good retirement.
Do you want to buy Constantin Brancusi’s “Oiseau dans l’espace”? Owners of these type of things are in the best financial shape at retirement.
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Mike,
“You can keep renting and I’ll see you in 30 years.”
All this, and you _still_ don’t get it. Nowhere did I claim renting was _always_ a better choice than buying. I merely pointed out that your methodology for comparing the two was lacking. Look, if you’re not interesting in understanding what opportunity cost is, or in investments other than real estate, or the ramifications of leverage, that’s your choice. But please refrain from making silly categorical claims like “real estate is the best long term investment vehicle”, particularly when you clearly lack the basic financial foundation to back them up.
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For those who thought investing in Canadian banks now is a good idea:
http://www.financialpost.com/story.html?id=477855
http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/04/28/royal-bank-and-scotiabank-downgraded.aspx
The ‘credit crunch’ is far from over and we can expect some more lending restrictions implemented by banks.
http://www.financialpost.com/story.html?id=477829
All this is going to put some weight on the RE market even in Alberta.
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HA HA – the reference to 1999 gas prices – I remember those days… Myself and a coworker laughed at the people who lined up for 3 hours to save $50. You just had to do the math to figure out how worthless people thought their time was…
House prices and gas prices are very similar – it reminds me of smokers when a new tax is introduced – “Oh man, this sucks – okay I’ll pay it…”
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Neither Edmonton nor Calgary made it to the top.
Canada’s best places to live
http://list.canadianbusiness.com/rankings/bestplacestolive/2008/article.aspx?id=20080417_104435_10272&page=1&df=overview
It is sad but not surprising. Seems people will not be moving here in droves after all.
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Mike,
What is it that you don’t understand about choosing not to buy right now? Maybe you could understand better if I gave a comparison to buying stock in GOOGLE. Was it not a better buy in March at $420 a share then 3 months earlier at $720 a share to hold long term?
Real estate is not always buy buy buy no matter what the price or what the trend is!!! You can pick an entry point the same way you would playing a stock. The trend in real estate right now is clearly DOWN !! Get it ? It is YOY and MOM down !! So why would one want to buy any real estate now when clearly it will be cheaper in the future? Watch the inventory numbers dude, it just keeps going up, what miracle from God is going to make everyone rush out and buy real estate right now to chew through that ocean of inventory? Nothing that I can see!
With respect to the report on business list… Interesting that Kelowna was 98th on the list while Calgary was 35th and Edmonton was 29th.
“How many renters do you see have a good life after retirement? Looking at many people I know, I still to meet a person who made money saving from rent. Honestly everyone that kept renting is having a difficult time having a comfortable retirement. Renters end up in subsidized 300 sf bacherlor suite Senior homes at retirement paying 35% of their small pension as a rent. Is this the life you wish for?”
Is it possible that it is now a completely different game, a different economy? where choices made now will have different outcomes than they did previously, say 50 years ago?
Brent et el,
The comparisons you provided are not relevant. real estate in Alberta cannot be comapred to Google stock or US bound real estate.
“where choices made now will have different outcomes than they did previously, say 50 years ago?”
Be my guest, invest in stocks and I’ll invest in my home. I wish that the government would stil have the subsidized seniors lodge when you are 65.
so your answer to my question is “no” then…
Okay Mike, I get it now. From all your responses to everybody’s posts, your just playing dumb!
I’ll give it one last shot and make it really simple and easy to understand, I’ll even use caps for you.
I DON’T WANT TO BUY REAL ESTATE IN ALBERTA TODAY BECAUSE IT WILL BE CHEAPER TOMORROW.
I can’t get my message across any simpler then that, I didn’t use any comparisons or trends to confuse you.
Well all this rent vs owning discussion has been fascinating however a little off topic.
It is a worthy debate but most people have to understand their are broad categories of renters.
There isn’t a one shoe fits all approach when it comes to renting vs owning.
Long term I certainly believe in ownership vs rent but again don’t want to get caught a recurring discussion on this particular arguement.
For that reason we are giving everyone the rest of the day off on this thread. Go enjoy your family and enjoy some time away from this discussion since we are closing this thread to comments.
I think both sides of the arguement have been represented and there’s no need to draw it out further.