Here is our update on the Edmonton real estate market. (Previous week’s numbers are in brackets). For the past 7 days:
New listings: 476 (599, 617, 550)
# Sales: 286 (293, 254, 273)
Ratio: 60% (49%, 41%, 50%)
# Price changes: 480 (554, 511, 522)
# Expired Listings: 162 (270, 261, 787)
# Canceled/withdrawn/terminated listings: 63 (65, 55, 158)
Net loss/gain in listings this week: -35 (-29, 47, -668)
Active listings for single family homes: 4206 (4236, 4242, 4183)
Active listings for condos: 2914 (2910, 2901, 2882)
Summer holidays have officially gone into full swing! For the past few weeks we thought the buyers were on holidays, but the sellers seems to have gone on holidays too (and maybe the Realtors as well?)! Not only are new listings at the lowest level we’ve seen all year, but it seems a lot of sellers have unofficially taken their properties off the market. At our little office we do have a number of buyers who want to see properties, and we are having a heck of a time getting appointments. It seems half the properties showing active on the MLS are "off the market" this week. I don’t know what kind of strategy that is, but with over 11,000 listings on the MLS if I had a buyer who wanted to see my home I’d be throwing down the red carpet!
Ok, enough about that. This week is the first week all year we’ve squeaked into "seller’s market" territory with a 60% sales to new listings ratio (anything over 60 is considered a seller’s market). I don’t expect it to stay there though…. Inventory, sales, and average prices are pretty steady – average price for the month so far is $337,858 (down slightly from June), projected sales should be around 1700 (also down slighty) and inventory should close out the month around 11,000.
I was fiddling with the charts today, and figured it was time to knock another month off – I think 6 months is a good trend line. Anyway, here is the chart from the beginning of the year:
And here it is with January removed:
What a difference!
One thing has taken a real hit this month, and that is the price per square foot for condos, we’ve been expecting to see this for sometime now, with the level of new condo construction in Edmonton:
Ouch!
Link Karma:
Lastly, I’d like to point out a few articles I found on other blogs this week that I thought were very interestng:
- Chris Davies analysed the average prices in Edmonton since 1962, I found his analysis very interesting, pointing out that only 7 years since 1962 have shown negative price growth, and no matter when, as long as you held onto your real estate for 9 years you made money (on average you doubled your money!). There are some other gems in there too…
- Todd & Danielle Millar summarized a report from the Canadian Conference Board showing that Alberta may have had a tough 2008 but is expected to lead the country for the next four years in economic growth and population growth and already boasts the lowest unemployment and highest personal income.
- The Green Edmonton blog will teach you how to save concrete and metal during renovations, and shares some other environmental tips like how to cook weeds and whether geothermal heating is worth it in Edmonton.
Have a great weekend!
Thanx for the putting stats. It seems to me that market is getting stable. However, I would like to see more price down.
Cheers!!1
Doubling your money over 9 years is an 8% return. Subtract costs and you’re probably looking at close to 5-6%.
Could probably make an educated guess at how much of a correction we can expect as the price index moves back towards inflation.
Nate, your 8% return assumes that you pay cash for your house. The beauty of real estate is leverage. If you’re only putting 5-25% down, your rate of return if much much higher.
Rook is right Nate. You are considering 100% down payment, just calculate for 5% to 25%, how much we are getting?
Very intelligent guess.
eeeeeeh!
Rook and tery: Aren’t you guys assuming a mortgage with 0% interest?
and no taxes, utilities or maintenance?
In a normal appreciating market, I think you break even in the end. Kind of like forced savings.
Example: buying a $250000 condo with 25% down and $250 condo fees. Your mortgage would be approximately $1300 (about 37.5% or $500 of that goes towards the principle and the rest is interest over the first 5 years). Assume renting a place like that would cost you around $1100 which means you are spending $450 more than rent plus any extra maintenance ($250 a month). That’s $700 more per month than renting, but we should disregard $500 because that goes towards the principle which you get back when you sell (forced saving). Hemorrhaging $200 per month, plus split extra costs over 5 years: moving costs ($1000) + lawyer fees ($2000) + realestate agent fees and lawyer fees when you sell ($10000+$2000) because you can’t actually realize any profit until you do sell = $5400 per year more than renting. If we assume a reasonably slowly appreciating market of 5% per year, that’s an average of $13800 over the first 5 years. Meaning rate of return is ($13800-$5400)/$62500 = 0.134 or 13.4%. Not terrible.
Assume 5% down and $7000 CMHC fees and the rate of return jumps to ($13800-$11600)/$12500 = 0.176 or 17.6%. Of course those rates will only get better after the first 5 years.
Hey Guys, thanks for the link. I enjoy reading your blog too. I’m going to be doing some more playing with numbers over the next couple weeks.
Nate, Ken makes a good point with is numbers. I agree with you that raw appreciation numbers need to be tempered with an appreciation of inflation, however you also need to look at hard analysis of any investment. My proforma’s look pretty decent, even at 5%. The numbers that my team’s properties and some of the properties we’ve managed over the last 20 years show the serious value of real estate and the power of leverage.
Don’t forget Capital Gains Tax in the equation…..
Buying a house is the best investment for the “average” person. In the long run the return from owning a home, and leveraging home equity, is better than any other financial instrument.
As with any financial vehicle, buying well and timing the entry can make the difference between phenomenal returns and normal returns. That’s why for a home buyer, it’s best to find a good realtor.
Hey Guys,
So weird thing happened last week and i was wondering if Sara or any of you have had this happen. I was going to purchase another revenue property and as usual the lender required an appraisal. The appraisal came in $80,000 under my offer. The funny thing is my offer was $30k below their asking price which was $50-70K under what similar homes were listed at. WTF? so i had the Realtor do a CMA and they sent another appraiser who came in $5k under the first one . When i contacted the lender they told me that the price was determined by homes sold and that they (the appraisers) are certain that the prices they gave reflected true market value. Again im still bewildered by this B.S but if im buying a property where no one moves and the last sale was 2 years ago that means the price is the same as 2 years ago? Just to give a few more facts the home i was looking at buying was a 3200sq foot, 5+2 bedroom, 4 full bathroom fully developed two story in a affluent west end location . Apparently homes like these are only selling for $455,000 according to the appraiser. I wish . With everyone in a 10 block radius asking closer to the $600k price point i wonder whos out to lunch? So now unless the sellers accept my wonderful offer of 455k or 110k under their asking price, that is significantly lower than any other comparable home. I’m out of a great property because according to 2 appraisers I’m not willing to pay what i offered. what a bunch of clowns .
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Hmmm…. So you are for real fred?
I wasn’t sure if it was a joke post or not, my sincere apoligies.
So the appraisers and banks have clued in that the pyramid game is over but the sellers and the odd buyer haven’t yet. From your post were not talking the appraisals coming in 10 G’s less either but nearly 100 G’s less. Wow!
P.S. Who in their right mind with a family (I assume he’s a family man with 6 kids needing 3200 sq ft of space) could afford to pay $3,500 a month rent for a house? Were not talking a penthouse with a fantastic view over looking the Caribbean ocean or anything. Were talking west Edmonton over looking WEM parking lot.
“buying well and timing the entry can make the difference between phenomenal returns and normal returns. That’s why for a home buyer, it’s best to find a good realtor.”
I think these two statements are contradicting. You can’t time your entry if you will rely on your “good” realtor. Even the “best” realtor will tell you that the best time to buy is now! Same goes with brokers. In the end, all they want is to seal a deal, soon! =)
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Chris Davies’ analysis is very interesting. I would suggest he take his analysis a step further and consider the Edmonton real estate market in real dollars instead of nominal dollars. According to Statistics Canada, $1.00 in 2002 is equivalent to $0.40 in 1979 and $1.091 in 2006. So looking at the information in terms of real dollars, the average person who bought in 1979 lost money if they sold before 2006.
To make a statement of whether or not real estate has historically been a good investment, we would also have to consider rental costs and other investment opportunities over the period. However, without that information and strictly looking at house prices in Edmonton (in real dollars), real estate was a bad investment between 1979-1987, a mediocre investment in 1987-2001, a healthy investment in 2001-2005 and (as we all know) 2006-2007 was a boom. Comparing current prices against any long-term trend line (nominal or real dollars) suggest today’s prices have a lot of room to move down.
So the debate over rent vs. buy goes on. As an expert on human nature I can tell you never will one side convince the other of thier own argument. That being said though, someone please show me a finacially successful renter. No one ever got ahead in life renting over the long haul. Now that said, I too was a renter at one time and it was the right thing to do then. If you do want to buy I don’t think you can find a much better time as incomes are high and so is inventories. This means good deals are out there, you just have to look.
Fredmonton,
just out of curiosity, how much above the City’s market value assessment was the asking price on the property you had evaluated?
I have recently seen several properties in the 600K range sell around 80% of their market assessment, which means a drop of about 120K. Most of them had an initial asking price well above the market assessment, which means that the sellers accepted a reduction of a lot more than 120K…..
http://maps.edmonton.ca/ is the URL for the City’s website
car27,
You don’t think the deals will get even better if you wait? I mean the trend is down as we all know and I don’t see anything amazing happening to change it that.
The city’s assessment is not an appraisal, and it’s not “market value.” It is completely irrelevant in determine the value of a property. You could have 5 houses in a row with the same assessment that will sell $100k apart.
The city considers this info in their assessments:
Style of house (examples: bungalow, bi-level)
Size of lot Size of house (outside measurements)
Year built
Basement or lower level finish
Garage (examples: size, detached or attached building)
Exterior finish Building condition
Type of roof
Fireplaces, air conditioning or other special features
Site or location influences (examples: golf course, lake, park, ravine, river valley, commercial, institutional, multi-family, traffic)
Swimming pools and associated buildings
This doesn’t include anything like floor plan or layout, type of flooring or quality of fixtures and renovations all of which have a huge impact on salability and value.
I’d buy soon. Once mdm and Fredmonton buy up everything in sight, prices are sure to go up.
DREM
what gave you the impression that I am going to buy up everything in sight?
I believe prices will continue to go down, for some time to come, at least in the range I am interested in, for my next personal residence.
As for rentals, you won’t see me buy anything, anytime soon.
Here is why:
In my opinion, prices shot up quickly based on expectations of future demand (i.e. population growth through in-migration).
When homes sold with multiple offers, they drove asking prices up quickly, with every successful sale.
Now we are on the other side of that hill. As many higher-priced houses sell much more slowly and below the asking price, each house will set a lower precedent, but at longer intervals.
Hard to predict when we will see the bottom (although the “bottom” will probably be higher than the prices we saw at the start of the boom).
In the entry-level range, on the other hand, where one might purchase a rental property, the dynamics should be different.
Our economy is good, and as soon as prices get back to where entry-level buyers can qualify for a mortgage (under the new rules), sales should continue to be steady.
But those prices won’t be as low as they may have been pre-2005. This would force me to charge rents that can’t make for happy tenants… happy tenants create a lot less headaches for the landlord… I don’t like headaches…. hence, no further purchases, for the time being.
Now, if personal spending during this economic boom results in escalating consumer debt, and if that debt starts to negatively impact the amount of mortgage buyers can qualify for, then we have a whole new ballgame, across Canada. A crystal ball would be nice.
What does it mean when the property’s asking price is much less than the city’s assessment?
hmx5,
Nothing because the city’s “assessment” was based on the market in July 2007 – which is about 10% lower today.
Plus it is a blanket assessment – there are many variables that were mentioned earlier.
Actually I found city’s assesment quite realistic. Old junk close to downtown gets asking price of $200k while their assesment is $270k, homes assesed at $330k ask $300-3320k. However in the $500k+ range the assesment tends to be way higher than the homes sell for.
mdm,
I quite like your thinking, what do you think of prime rate changes in future as what I see with new condos, with low condo fee and .6 less than prime, you can support the rentals where tenants are happy, but if prime goes up then it is problem, I believe in building equity with tenants money rather than market forces, even something I buy at today’s price and sell at the same price five years later and if I have tenant pay me rent all full five years I still have equity in the house, with new condos there is less maintenance and less condo fee. I also like duplexes as some don’t have any condo fee, tenant pays utilities, they give you positive cash flow with current mtg rates.
I have couple new properties where tenants don’t give me problem and rent sustains the mtg payment. At the present prime rate it is all sustainable but I am worried for future.
hb,
being a landlord is not my full-time occupation. It’s a way to diversify my overall portfolio.
I hold single-family detached homes because I know how to maintain and upgrade them, and they probably sell fastest, should I need to sell unexpectedly.
I stay away from apartment and townhouse condos because of the potential restrictions on the ability to rent them out again when a tenant moves out.
Some complexes limit the percentage of units that can be used for rentals, and that percentage could change over time, leaving me with a unit I don’t want to hold for personal use.
I look at my rentals as long-term holdings. This means that a steep increase in mortgage rates could cause problems at renewal time. I still remember paying 14% interest in 1989…. So, I factor that in, before I purchase.
Given that rates are still low, but prices are relatively high, there is a good chance that rate hikes will push my rents out of my comfort zone, if I continue to purchase rentals now.
mdm,
thanks for sharing your knowledge, when buying single family do you buy 20-30 years old houses or you prefer to buy new build?
So according to some people the market is going to be spirally down, then some people say its just leveling off.
I’m in a situation that I will have to move very soon, so which is better. Is it better to pay $1350 a month for rent (have a disabled child no need 1st floor condo or bungalow, still close to their school) or is it better to spend $1450 on a mortgage (condo)? (I will need to find a place by Nov)
To help address the comment earlier about the relative return of real estate investments compared to other investments, I had a post drafted about presenting numbers. I just posted it.
It’s got an analysis of one of my properties in it, which might be educational. Leverage is the reason why real estate can outperform other investments.
I’ll do what I can do index the prices. Anyone have a good link to some CPI-type numbers?