Dammit…I’ll be honest i’ve made comments about chicken little and I’ve pooh poohed their sky is falling theory. Man do they have some pull because yesterday the sky did literally fall above Edmonton. Depending on your point of view, a meteorite came crashing to Earth last night blazing across the sky. I say depending on your point of view because some of you may see it as an alien mother ship that has raced across the galaxy to buy up prime Edmonton real estate, or you may have a more apocolyptic view.
I totally missed it since I was catching up with an old friend from high school. Sara missed it because she, (Lisa, one of our agents) and one of our clients are in Denver for the Cold Play concert. So far though the Real Estate sky hasn’t fallen with activity up slightly this week. Have a great weekend. Sheldon
Here is Sara’s update on the Edmonton real estate market. (Previous week’s numbers are in brackets). For the past 7 days:
New listings: 321 (356, 430, 373)
# Sales: 162 (146, 155, 149)
Ratio: 50% (41%, 36%, 40%)
# Price changes: 321 (357, 376, 375)
# Expired Listings: 231 (150, 578, 279)
# Canceled/withdrawn/terminated listings: 36 (47, 47, 33)
Net loss/gain in listings this week: -108 (13, -350, -88)
Active listings for single family homes: 3188 (3236, 3228, 3362)
Active listings for condos: 2177 (2219, 2221, 2285)
There have been 630 sales so far this month, which projected out puts us around 945 sales by the end of the month (below average). The overall residential average sale price so far for the month is $318k (the same as last month), $360 for single family homes (about the same as last month) and $230 for condos (down 3% from last month).
At this time of year we usually see a drop in new listings, sales and inventory and that is exactly what appears to be happening.
I would like to point to some very positive indicators for Edmonton housing…untill October this year the GDP growth for Edmonton is recorded at 3.8 percent, job growth in Edmonton has been to the tune of 20K people year over year, new construction has severely declined and net inmigration has picked up very strongly, a lot of people like me have rented their investment properties and my rent is comfortably covering my mortgage, I had prime minus mortgages and I am paying 3.25 percent in interest. What it means is that a lot of expired listings won’t come back, since new homes are not being built, listings from people moving to new homes will not come to the market, the migration rate into Edmonton is approximately 2.1 person per thousand and we also have the highest natural birth rate. Also the inmigration is on a serious trend up because a lot of older people were leaving and younger people were coming in, now with the decline in housing prices the older people are not moving and younger people find it attractive to move here. Also with all the infrastructure we might become a hip city, The builders have told me that they will not build to sell at a loss, at current prices the builders cant make a profit.
Interst rates are going to drop further and I am assuming that we will see the variable rate drop to 4 percent by January.
New royalty changes will ensure more capital in the market.
A serious decline in our Dollar..(Yesterday US Dollar was trading at 1.29 CDN) is very bullish for our economy.
In my previous life I had witnessed in the Countries I lived in that a serious decline in Currency is always followed by a rise in inflation and property values.
People holding Canadian Dollars have lost 35 percent in International value from just a few months ago.
My guess is tha CDN will go down to 65 cents US before all is said and done.
Shaun, that is a pretty positive outlook. I’m not a doomsdayer but I think you have to be a bit more realistic than that. Every currency in the world has retreated approx 30% against the $USD. Are all those countries going to see an uplift in exports and housing prices? A cheap dollar only works for you if you can export to other countries. Right now demand in ALL countries (even China) has pulled way back. I agree with your comment about int rates though. If you can hang onto your job through this down turn you can come out the other end in relatively good shape by locking in very low int rates. Good luck out there!
Spud,
We are the largest exporters to the US and are very strategically located, Do you think that at a discount of 40 percent more American tourists will be coming to Canada, Already the increases have been reported. More call centres and manufacturing plants will be set up.
IMF is still predicting a 0.2 percent GDP growth for Canada, China’s GDP is still projected to grow by 9 percent, although slower rate than before.
The problem is that USA will get protectionist against China, India and perhaps Europe also but since they so like getting our resources for cheap they will make sure that we keep pumping our resources for them.
The lower the Crude goes so will the cdn dollar to ensure that the cost of pumping the oil stays feasible, and poor little us can provide them with cheap labor.
I will provide you with the China Link later.
The US dollar is flying high, because they are selling their foreign assets everywhere in Europe and other places and all the foreign currencies they receive going to the States (Euro, etc) converted into US dollar so that’s where it gets the boost from.
“The builders have told me that they will not build to sell at a loss, at current prices the builders cant make a profit.”
First any busness will not operate on a loss without some expected future gain. Now for construction we have a 2 year span between start and completion implying that there must be some “speculation” to start a project. Projects are very rarely financed by cash so they are all backed by loans. This means there is some holding cost to not moving the newly constructed units. If holding costs exceed there expected future gains then they will liquidate there properties for a loss (an example was in the US when they bumped interest rates up). Another pressure is business costs – if the company is on the verge of becoming insolvent or having trouble renewing there loans (cough
) they will do the same.
“we also have the highest natural birth rate.”
This will push prices down; consider new constraints on affordability.
“Interst rates are going to drop further and I am assuming that we will see the variable rate drop to 4 percent by January.”
They may drop it by another 0.5 however continuing to do this can be dangerous if we have inflation > interest rates for a long period of time. If you are purchasing thinking those rates will remain forever it is honestly not economically sustainable for many reasons.
“A serious decline in our Dollar..(Yesterday US Dollar was trading at 1.29 CDN) is very bullish for our economy.”
Could you possibly be mixing up cause with effect. Ie the effect of net exports falling is resulting in less demand for our dollar… another way to put it is to buy a canadian good you must have canadian dollars. Now a cause for our dollar falling is because oil is falling… You can plug that logic back into this argument and it makes complete sense.
“My guess is tha CDN will go down to 65 cents US before all is said and done.”
That would make me sad
I might have to relocate to california. I dont think it will happen… the US trade deficit is discusting and will probably eat there dollar.
Has anyone ever dealt with or had friends who’ve dealt with Bedrock Homes? I looked at their showhomes in Schonsee in North Edmonton in Sept and they were asking 425k for a 1800 sq ft home. They now have an ad out listing the same homes for 347-355k. This seems a little pre-emptive to drop prices so much so soon. I haven’t been able to find any reviews on this builder. It almost seems to good to be true. If anyone has any knowledge of builders could they please advise?
A lot of Builders are sitting on a ton of Cash, some of them in the past couple of years have made so much money that their future generations don’t have to work, Also their fixed costs are very low, I am professionally involved with the large builders and yes they will move their spec units cheap but will not start new projects untill the pricing power comes in. There are no major builders in Edmonton that is in a financial tight spot.
The builders inventory has decreased significantly.
US selling their assets abroad, I find this statement very naive, what assets, example please. Financial Gurus agree that US dollars rise is due to flight to quality..which means that they think that the US dollar is still the reserve currency and if US will do badly the world will do worse.
We have a baby boom because we are a province with the highest per capita GDP. No GST, and now no health care payments either and top it up with the highest disposable income.
Californias jobless rate is 8.2 percent, please go ahead and stand in a jobless line there. Edmontons jobless rate is 3.4 percent, which by the way came down from 3.7 percent.
Valid, educated arguments are welcome.
Buff,
Bedrock is a division of Carrington properties, this price drop is a little better than other builders but on an average same house has dropped around 18 percent since its peak. Even at these prices they are making money. The owner Ken Keorchoff owns the land also (subdivision). They are still making a ton of money on it, I am assuming as to when he bought the land his cost on the land can not be more than 40k, and to build a 1400 sq ft home at 110/ft, he is in it at less than 200k, His replacement cost on the same home would be the lot at 180k, and costruction at 130k.
Bedrock is currently offering the best deals in town.
If you post the details on the home I can let you know what I think of the value.
Or take someone like Sheldon with you, he is a mean negotiator.
The jobless rate is calculated different in the U.S. then Canada.
House wives, and homless etc are counted as unemployed here.
In the U.S. stay at home moms or anyone who says that they have given up looking for a job are not counted as unemployed. Therefore the U.S. jobless rate is actually much higher by our standards.
Our dollar is not dropping on the world markets.
The U.S. dollar is on the rise which gives us the impression of a drop. Demand for our resorces is still all that we can produce here in Alberta.
We only supply 6% of the U.S. demand for oil.
The reason for the surge in the U.S. dollar is due to economic uncertainty and mass purchases are underway of U.S. bonds.
Once Obama gets that printing press screaming producing $700B or more, then watch where the U.S. dollar ends up.
Then we may have a huge problem with exports to the U.S. Why do you think the Harper Government is building agreements with European countries right now as fast as they can.
Just watch.
Itchy is completely wrong about the unemployment rate calculation. Housewives and homeless are not counted as unemployed unless they fit the criteria of being part of the labour force:
Excerpt from http://www.statcan.ca/english/freepub/71-543-GIE/71-543-GIE2008001.pdf
“Unemployed persons are those who, during reference
week:
(a) were on temporary layoff during the reference
week with an expectation of recall and were
available for work, or
(b) were without work, had actively looked for work in
the past four weeks, and were available for work,
or
(c) had a new job to start within four weeks from
reference week, and were available for work.”
If you were not actively looking for a job, you were not part of the labour force and therefore not included in the employed or the unemployed figures.
Sorry, not Itchy, it was actually car27. It sure sounded like Itchy.
So what profit margin are typeical builders running now? 10%, 15% please only a response from somebody who really knows. Me I’m guessing $125 per sqft for a descent two storey around the 2000 sqft range???
Travis,
The mark up now is at historical lows, a lot of builders will record a loss in 2009..the mark up currently ranges from break even to 7 percent..ANHWP recommends that the builders should try to maintain a mark up of over 15 percent.
On top of the cost of construction the builder has fixed costs, financing costs and marketing costs.
You are right on the construction cost.
On a 2000sq ft home the lot is 180k, 250K to build, fixed costs, marketing and financial costs should be around 15 percent, than add gst on it..which will make the builders cost on it at 488k, if it has to sit in the market for 6 mons the builder will loose money.
Beattie homes is charging $180 a foot to build the home.
Shawn,
It appears that you are well researched and know what you are talking about. A typcial 400K house in May 2007 lost a 100K an is listed at 300K..now. Do you think it is going another 70k down. Just comment with your reasons…will be happy to hear from you.
…I respect sheldon’s efforts for running this blog…but his views…man o man…the people who he might have advised in 2007 would have been crying loud nowadays.
Travis, I am not completely wrong. The U.S. and Canada calculate unemployment with totally differnt methods and the point is they cannot be accurately compared. Don’t get distracted from the point I am making which is unemployment is very low in Alberta and considerably higher elsewhere.
car27, thanks for the clarification. It’s true that the US and Canada calculate unemployment differently. I would argue, however, that they are reasonably comparable (if the US used Canada’s method, it might move their unemployment from 6.7% to 7.4%).
http://www.cours.ecn.ulaval.ca/cours/ECN-13543/protege/7-RiddellCdn-US.pdf
It’s also true that, by any measure, Alberta has had very low unemployment for several years. We’re a hard-working bunch. I am still confused as to just what point you’re trying to make: “Alberta has low unemployment, therefore…”??
Hey Sheldon and Sara,
Do the 161 sales for the past week include condos, or is it just for SFH? I am a little confused on the numbers. You say there have been 630 sales so far this month, but the past 3 weeks only add up to about 460 and include the entire month so far (as of Nov 21st). I must be missing something here. If you can clarify the numbers I would appreciate it.
Thanks
If condos are not included in the sales numbers, then 460 SFHs + about 170 condos would givet the 630. Is that where the 630 comes from?
Builder’s can’t build even if they wanted to because no bank will give them a loan.
Also, what changed in 2 years that a similar house model costing 280K in 2006 is now being listed over 400K?
Got this in an email this week….CRAZY!!
Quote of the Week
‘I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.’
Thomas Jefferson 1802
John,
I think that in around 6 months we will have an 8 to 10 percent increase in the home prices. Not average home price, but the same home…In USA they use Case Schiller index which tracks repeated sales of the same home.
Reasons, inmigration has picked up. between April and July Alberta population grew by 25k people.
Inventory is coming down.
Builders are not bringing in a lot of inventory.
Although we have a lot of inventory but if you sift thru a lot of it, the real good properties are selling very fast.
Interest rates are poised to go down.
With the spending spree Obama is promising, and will force the G 20 to spend also..will stabilize the commodity market. He has just promised to create 2.5 million jobs, and a lot of new infrastructure. Hope this answers your questions, also the real estate gurus think that if average home price is at 4 to 6 times average earnings, it means that Real Estate is cheap.
Comment deleted. see code of conduct
frnk
The bigger builders in Alberta don’t use banks to finance projects they use private money, ie peoples self directed RRSP’s, personal saving, etc., Common folk invest, like you and me. In return you get 12-14% on your money payable semi-annual. The money is secured by way of a mortgage registered against the land at Alberta land titles. Your equity is the land.
When the project is complete you have the option of having all your principal returned plus interest owing or to re-invest in a new project,(if they have one) again @ 12-14%.
Builders have always shied away from the banks. The banks lending rules are way to restrictive for them, ie. 50% mortgage to equity ratio on land.
If a project happens to fail, you are first in line to claim the land. ***I’ve been investing for a long time and never had one fail***.
Right now there are not a lot of projects to invest in. So it’s the builders that don’t want to build and not any thing to do with the banks.
As to their reasons for not building, I don’t know.
Comment deleted. see code of conduct
NEIL…
“As to their reasons for not building, I don’t know”
A lot of the builders didn’t time things right. We got our house built in 2006. By the time we moved in we had made over $150K on it. We went through Daytona Homes, my hubby contracted for them for a while. Daytona stopped doing presales right after this in late 2006/ early 2007 and built “SPEC” only. By the time their specs were done the market started to collapse in mid 2007 and they were left with hundreds of spec homes with no buyers…paying taxes and interest while they sat empty. A lot of the other builders did this too. So until that inventory is gone, they’re not going to build anymore specs…only presales. The problem with presales, is that the market is slow and more and more people are failing to qualify with the credit crunch out there.
Canadian Press
When oil prices started climbing in the past few years, it sparked a frenzy of construction activity in the oilsands. Energy companies scrambled to get enough workers to push their massive projects ahead.
Exhausting the Alberta market, companies brought in labourers from other parts of Canada and abroad.
“The boom that we’ve been experiencing here in Alberta isn’t really an energy boom, it’s a construction boom. So when the construction projects dry up, the work will dry up as well, not just in Fort McMurray, but across the province,” said Gil McGowan, president of the Alberta Federation of Labour.
“Without those construction jobs, it’s inevitable that we’ll see a huge drop in people coming from other parts of the country to find work here.”
So much for in-migration to suck up that excess inventory…
Enbridge Energy is seeking permits to build the pipeline from Alberta to Superior, Wisconsin.
There goes the $80 Billion worth of upgrader construction and related jobs from Edmonton region, right down the pipeline.
So much for in-migration of to suck up the excess housing inventory….
@Josh – Where did we expect to find those people work work on these projects? The delay in these projects will help the severe labour shortage and reduce the rampant price inflations related to labour, material, etc, etc. The previous years were not sustainable in any manner.
Now is the time for our province and municipal leaders to review the past 10 years and establish a course of action to prepare for the next ‘boom’. Plan it now, versus trying to react when it happens.
comment deleted: only possible answer is one i’d give in person
sheldon
Shawn,
Your points are valid though you are not considreing the lack of work in oil sector. Ask any oil company or an EPC company as to what they got for the next year….nothin..everything is delayed.
If there is no work in oil patch then what do you think about your predictions….
Thanks.
“I think that in around 6 months we will have an 8 to 10 percent increase in the home prices.”
is there any reasons/calculations as to why you picked those specific numbers?
“between April and July Alberta population grew by 25k people.”
Also where did you get this number… this report says otherwise (9.4k).
http://www.finance.alberta.ca/aboutalberta/population_reports/2008_2ndquarter.pdf
i don’t think that .. the is real estate market falling . because the land prices are growing.. rapidly.
Check out this Luxurious inner city contemporary CALGARY townhome project with modern sophisticated interiors. There are two 2 bedroom units with 2588 sq. ft. on three levels, one 3 bedroom unit with over 3300 sq. ft. on 4 levels and one 3 bedroom unit with over 2800 sq. ft. on 4 levels. Designed and built by the Baboushkin Design Group this unique development offers attention to quality & details. This is the best of inner city living.
Hey Gladstone:
Nice pretend post to shill your website there.
Look up tact in the dictionary… then go out and get some.
Sheldon – I figured you would be forced to be more cordial than that, so I took the liberty. You always say to speak on here as if we were talking in person, but in my case – let’s not and say we did…
Cheers,
E-town