George dubbya hit the panic button yesterday in attempt to sell his 700 Billion dollar bail out for wall street. Here’s how I see it going down in George’s day.
“Cheny. What did the Bin Ladens say? No huh…uh oh, what about the Iraqi National Congress? No why those dirty…Oh what about our old pals at Haliburton? What do you mean they’re too busy buying fire sale stocks to return your call?”
Obviously I’m poking a little fun a George dubbya. Seriously though, Bush was quoted on his address to the nation “We’re in the midst of a serious crisis. Our entire economy is in danger” (Actual quote).
So what does the Calgary Herald do (we’re in Calgary at a conference)? They run “Housing market feels fall chill”. Way to go. What a bunch of dufuses. They’re a year late on that one and if they had a good REALTOR working for them in their real estate department they could have reported it then. However, I don’t want to be part of the herd blowing their negative noses everywhere.
You know this is why we go away in September. September always sucks for real estate. The Edmonton Journal last year reported “Prices Plunge” in September because the average price slid 1%. In December when it went up 1.4% they reported nothing.
Sales in of single family homes in Edmonton look like they’ll be up almost 70% in Edmonton over last September. However, don’t go crazy. That just shows how brutal sales were last September. People are saying it’s because of people taking advantage of the 40 year amortization and zero down before it’s not longer available. My answer to that is “Bullshit”. My expectation is that those sales are barely a blip in the overall scheme of things. It’s more likely related to people seeking safer investments than the stock market and prices being more realistic.
You see if you own a home and it goes down in value you still own it and it will come back up. Not tomorrow or the next month but eventually. If you own stocks and they go down in value, the stock can be delisted when it becomes absolutely worthless. You can keep everything in cash except that inflation eats cash like George Bush eats up ballots… Or you can stuff it under mattress only to have a relative steal it or have the house you’re renting burn down.
Surprisingly sales for September are up over August. That’s a big deal considering September sales are usually lower than August. Last word. I expect sales in October to be higher than September but don’t take my word for it.
I agree on your take on the media, however it works both ways and when things were getting totally out of hand price wise in this market the media was lending a hand to the exhuberance on the way up. My opinion, things are never as good or bad as what the media is reporting, after all they have to sell newspapers don’t they!
I’m less sure of the idea that the 0% down crowd isn’t skewing both sales numbers and price averages. I find it hard to believe it’s coincidental that July 9th CMHC announces suspension of the 0% down 40 yr ammortization and the Aug/Sept numbers go up the way they have. Also consider that on Bob Trumans site the average price of a SFH had been in a tight and stable range of between 390,000 and 400,000 for 9 straight months until the end of July. Then in Aug/Sept all of a sudden we’re down to 369,000, a 24,000 haircut in 2 months! Barring information that we’re being inundated with people from other provinces again (which I doubt), there is only 1 way to read the stats. The sales numbers are being inflated by people that are having to make the decision, do I keep renting while trying to come up with 15,000 bucks for a down payment on a house, or do I get in now for nothing down. These people would not likely be coming into the market with a 600,000 mortgage but maybe a 250,000-300,000 mortgage right. That leads to lower average price, and higher sales.
I could very well be wrong but I see a much lower sales volume after Oct 15th, but higher average prices. I guess we’ll see.
Come on itchy, average prices being down can be the result of alot of factors. Maybe the real expensive homes aren’t selling and only the cheaper homes are selling. This doesn’t mean a 24K hair cut then just a shift in the saleable product. With sales slowing down and prices still much higher than a year or two ago, people only buy what they feel they can afford. That probably means less expensive product which in turn brings down the average price. You remember this before you take stats for face value, Mark Twain once said, ther are lies, there are damn lies and then there are statistics.
car27,
Maybe you misread my post, but you just said what I said. The reason Avg prices are down so much is because the less expensive houses are selling, because that’s what people with 0 down can afford, or in your words a shift in the saleable product! If you had in a normal Sept sales of lets say 600 SFH and the sales split was 250 above 500,000 and 350 below you get x for avg price. Now if you get 850 sales (Sheldon’s 70% increase) and you still get your 250 sales above 500,000 you get 600 below which does what to x for avg price? As for your assertion that sales are slowing down, they’re not. They’re supposed to be, because Sept, according to Sheldon’s posts of the past, is supposed to be a real slow month. What we’re going to have is a sales month higher than Aug and about 150 units short of the high for the year! Now I ask you, what would you say is the likely cause…..all the rosy headlines in the newspapers regarding falling prices, high inventory and economic turmoil inspiring great confidence in the market, or maybe all of a sudden a great ramping up of inter provincial migration…..or more likely a surge of people who want to buy a house at some point but don’t want to wait 3-5 years to save up their 5% down, being forced to choose between renting during that time or getting their own place now? It’s easy to find out. If I’m right sales will drop off markedly in Nov (after the Oct 15th deadline), but the avg and median price will miraculously rise back to the 390,000-400,000 mark again.
itchy,
get a good book on economics and read it. What you’re saying doesn’t make sense economically. If the first time buyer is gone, who is going to buy these entry level houses and condos from those willing to move up the ladder? If they cant sell the starter house then those in the middle won’t be able to move up the food chain and the market may ground to a halt. And put the spec homes into the equation and the picture doesn’t look nice. Cash flow investors won’t get in to buy the starter homes as these are cash flow negative at the current rents.
So I bet the market will shrink significantly by the year end, and this will cause even mid-range houses to sell at a huge discount.
R, Who said the 1st time homebuyers are gone? I simply said the reason there hasn’t been the normal fall sales slowdown is because a large number of people that were interested in owning their own home have been forced to make a decision as to whether they want to keep renting until they have a 5% downpayment, or get in now. I was simply connecting increased sales and lower avg price to the increase in buyers coming on at the lower end due to CMHC’s announcement. In effect that announcement created an urgency for a certain percentage of the population…..what you can have on Oct 14th, you can’t have on Oct 15th.
In my opinion the 1st time homebuyer will still be out there, but they will be putting 5% down won’t they! There are still 1st time homebuyers out there right now that are putting 5% down or more. This will continue to be the case.
I’m not at all buying your argument that the market is going to grind to a halt…not everyone is getting 0 down mortgages. By the way inventory has been falling since May….it was still rising at this time last year. We’ve been averaging 500 less new listings a month compared to last year since June.
From Bob Trumans site and Comfree:
Sept 2007 SFH 5030
Condo 3174
Comfree 3423
Total 11,627
Don’t have the exact numbers for Sept 2008 yet but they’ll look something like this,
SFH 4300
Condo 2650
Comfree 2500
Total 9450
The best news for next spring is that the rampant speculation by both investors and the builders in the new home market ended in late spring/early summer of 2007 and those came on the market in late spring/early summer this year. We’re not going to be drawing on all that product when the comparitively high sales season roles around next spring. We are definitely on the downhill side of the inventory bubble now.
I 100% agree with you itchy in your reasoning of the sudden upswing of sales and your forecast for the short term,
I also would say, that now, that RE prices a bit lower and according to the newspapers, rents keep climbing ( $ 195-200 for 2008 on average )many more people willing to buy as it is more affordable.
Itchy,
I agree with you on pretty much everything you said in your comments on this topic.
Where I have doubts is whether we are really on the downhill side of the inventory bubble, at least for houses above 600K.
I keep watching those listings every week, and a lot of them seem to have expired rather than sold, going by the number of days they were on the market.
I have recently seen listings reappear that had expired in 2007. I expect to see a similar trend next spring, with listings that expired in 2008 making a comeback.
Below 600K, it might be a whole different story…..
mdm,
Yup, I agree. I was talking inventory in general. The builders are seeing the same thing in general. One of our friends sells townhouses for a builder and is going gangbusters, another one sells for a higher end builder (cheapest house you can get is around 575,000)…they build in 3 areas and have sold a grand total of 1 house this year. So I think you’re bang on. It looks to me like the hottest segment is the 300,000-425,000 price range.
If you own a home, sure it may come back up to where you purchased. It could take another 50 years, but eventually inflation will bring the price up.
But an astute buyer would take into account the rental vs. owning spread.
If you rented in may 2007 and bought today, you would have saved close to 80K.
If you bought in may 2007, not only are you sitting on a loss, You are paying a mortgage that is much higher than what you could be paying in either rent or buying now.
now calculate, if you are paying 30% above market prices, every month, for the next 50 years, how much of your hard work is essentially going down the drain.
Frnk,
you are wrong, we have a boom in about every 25 years in Alberta ( 1980, 2005 ) so, if you consider this one over, you only have to wait 25 years and not 50 to catch up in prices. eh-eh-ha-ha-heh
“I find it hard to believe it’s coincidental that July 9th CMHC announces suspension of the 0% down 40 yr ammortization and the Aug/Sept numbers go up the way they have. Also consider that on Bob Trumans site the average price of a SFH had been in a tight and stable range of between 390,000 and 400,000 for 9 straight months until the end of July.”
If its true that an influx of “low end” buyers is driving volumes up and shifting the sales mix to the low end, why isn’t there a burst of activity in the condo market?
rj,
There has been an uptick in condos as well. It looks like Sept will finish ahead of Aug, same as SFH. It’s also pretty widely advertised that there may well be a glut of condos coming on to the market over the next year or two, so I think people are a little more leary of that.
Finally I find it interesting that condo prices, both median and average are up while SFH avg and median are down. That makes sense if you think that if people want a SFH at 0 down, you’re getting in at the very low end….thereby dragging down the avg and median price of that catagory. For the same money, you’re buying a condo that is at or higher than the avg and median thereby pulling the avg and median higher or having little effect at all.
Or alternatively, it’s all bullshit as Sheldon says and I’ll be proved wrong.
**** Steve, your comment which had some valuable points is deleted. See our code of conduct for comments
p.s. you need to do some research because your inaccurate in a lot of areas. ****
Sheldon
I have some questions, that I’m not sure I can find the answers for:
* Will anyone like EREB, etc, be able to show statistics before/after Oct 15th that can show how many people actually *did* use the 0% down option, or is that something they even track? If so, I imagine they could tell us that for the Jul-Sep time as well.
***Response – There is no way for EREB to track that. That information is personal and not supplied to them. However, CMHC would have that and will probably analyze that information. They are after all an insurance company and we know how they love stats. As for its impact I’ll be posting on this today or tomorrow. Negligble. The increase seems in sales seems to be coming from the military and people who feel the market is affordable and sustainable. If there were some people taking advantage of the deadline it is most likely for the 40 year amortization which is not that different from the soon to be new but really is an old maximum of 35 years. -
Sheldon ***
* People comment on how the first time home buyer can’t afford to save for 5% down on 300-400K houses for 15-20K down. Though, I know people who had to save that much I dunno, not much before 99 that had to save 25% even on 80-120K houses, and they still got into the market. Why does now, when salaries are higher, there’s more work in the province, is it suddenly impossible?
*** Response – Contrary to the fear mongering going on the first time buyer is alive and doing very well. They are sustaining this market and will likely continue to do so for some time. – Sheldon ***
* While 0% is still gone, aren’t cash back mortgages still being offered as a different product? Also, I know at least one bank told me that they allow borrowed down payments, as long as the total payments still fit in TDSR guidelines. This seems to indicate there’s still ways to get in without saving for years and years if one wants to…
***Interestingly enough the 0% down has never been a big ticket item mainly because organized real estate, never truly adopted it. It was problematic for a number of reasons and even though you legally can have an offer without a deposit, most sellers agents doing their due diligence for their sellers would advise against no deposit or buyers with limited ability. Just because someone wants to buy a property doesn’t mean they are the best buyer. I hope this helps. Sheldon***
I agree they are a year late. This Bailout is not very “popular” in the USA. I think it must happen or else we in the US are in for some serious times. I wrote a detailed post on my blog about how we got into this situation.
Sheldon, congrats on the censorship. Keep on removing every post you can that disagrees with your childish “investment” knowledge.