Spring break struck the Edmonton real estate market this week – we'd been tracking the number of MLS sales quite closely and as of Friday it looked like we'd have close to 1400 sales for March of 2009. According to the stats published by the Realtors Association of Edmonton today there were actually 1300 sales, and I can't help but think the pace slowed in part due to people (like us) who fled Edmonton for Spring Break.
UPDATE – The monthly numbers released by the Realtor's Association show 1380 sales, there must have been a glitch with the daily reporting system (it was April Fool's Day after all):
Looking at the sales a little more closely, it appears as though sales outside Edmonton slowed, while sales within the city limits increased significantly over last month:
In fact, single family home sales within Edmonton were almost as high as last year:
Looking at condos, sales weren't the story this month:
The average sale price of condos in Edmonton was the story. With the average sale price up significantly in March to $227k (from $215 in February while single family homes remained stable:
On a price pe square foot basis, condos were also up:
Lastly, the list price to sale price ratio increased for both condos and single family homes:
When the REALTOR'S Association of Edmonton releases the numbers for the MLS as a whole we'll discuss the monthly numbers in more detail.
It looks like the first-time buyers are starting to take advantage of the extremely low interest rate environment.
Quite frankly I’m a bit surprised that the sales data are not stronger given the rate cuts since the beginning of the year.
It’s think it’s either credit constriction affecting number of available buyers, or buyers being bearish and waiting, or both.
Looking at the stats, I am not seeing what the bulls that frequent this blog are getting so excited about. It’s like Flames fans cheering madly when they are down 4-2 with 2 minutes on the clock and about to pull the goalie. Just a lot of noise.
Sellers had better HOPE there are buyers waiting in the wings… especially those who are selling out of necessity. $/sq foot is still dropping and ‘% of asking’ still points towards a buyers market.
Cheers,
E-town
I’ve also heard of a few deals falling through due to bank appraisals being lower than the price agreed on between the seller and buyer.
It’s interesting isn’t it. I think everyone will look back in 5 years time and be in disbelief that interest rates were as low as they are today. The unknown is whether in 5 years time those that didn’t take advantage of the interest rate situation and purchase today will be kicking themselves for passing up the opportunity or patting themselves on the back for avoiding a further decline in house values.
I don’t think you should be surprised sales didn’t top 1400. At findcalgary.ca they give the daily sales and weekends are almost always a mere fraction of weekday sales. I’d think Edmonton was much the same, and with less then a week left in the month there was a disproportional amount of weekend left, so sales most likely would be a bit below pace.
Oh, and you said condo sales are up to 227K from 215K last month, but according to ereb.com the condo price in Feb was already about 227k (226,857 to be exact).
Condo purchasers want to know if they can “walk away” and simply forfeit deposits. But condo developers in Vancouver have other ideas:
http://www.vancouversun.com/Business/Condo+buyer+plans+battle+back+developer+lawsuit/1258234/story.html
Ah, yes. The faces of opportunity gone bad. So the flippers that got in too late want out of the contracts they signed hey? I wonder if they found that lawyer yet…
Cheers,
E-town
i’m tipping whoever their lawyer turns out to be won’t be work pro bono!
I think this article highlights that it isn’t just flippers and speculators getting hurt in this correction. No 79 year old should have a mortgage let alone be opening a new one.
Interesting stats indeed… On Bob’s site, SFH resale prices were down almost $3K from February. Bob’s resale numbers for both SFH and condos are similar YOY, which could be integral to the correction. Once again when sales go down in the summer we’ll see a better picture.
Anybody been to Garth “crazy” Turner’s site lately?
No wonder that lunatic got kicked out of politics. In order to sell his questionable books, he posts some outright fear articles…
He takes small snippets of what’s out there and turns it into mainstream news bits to promote his sales. When you see his 30 odd loyal goofy commentators, the guy’s a huge discredit to himself…
Seems like the same old story with stats.
Hard to say where things will go from here until we see the economy sink deeper or finally start to recover.
Edmonton Expat,
Dont discount Garth Turner he knows what he is talking about. We just dont wanna believe, I was just like you a few months ago, but Im starting to realize we were mislead about ” buy now or be priced out forever”, He will look like a genius, be patient give it till summer and then you’ll know we were duped. I hope Im wrong but I dont think so.
JOHN,
He’s been forecasting for 20 years that RE will be worthless as baby boomers sell their houses, so 2 million homes on the market all at once and no buyers!
So I have listened to him,
I’ve been waiting for 20 years to see RE prices going to near “0″
and finally I can buy a flat or something- and -what happened?
A $100,000 house cost $300,000,
20 years later.
So I wasted my money to pay expensive rents in cockroach infested apartments all these years.
And I’m planning to sue him:
Here I am with no house or condo in my possession, no ownership over anything, got no money in the bank as I spent it on rents and we now have horribly expensive house prices, all because I was waiting for the right time on his advise.
What should I do now?
Wait another 20 years?
I’m kind of old and poor now.
The least I can do is to not listen to this guy anymore.
Agree…
Mr. Turner is nothing more than a good salesman. The epiphany of free market economy – a self-made man who made a fortune “educating” his followers.
Dear JOHN…
May I recommend that you read one of Garth Turner’s gem:
It is titled “2020:New rules for the new age”.
Have a good read of it. Then you’ll never support that clown again. 2/3 of what’s written was proven false. An example? He predicted that the TSX would be at 50,000 right now…
He tells folks not to buy real estate now but he DID buy a property last month…
Don’t be fooled by his dialogue: Garth is a salesman. He needs to sell books.
…and I forgot: he will NOT publish any post that does not agree with him and his blog.
How do I know?
He never published me and other folks that pointed this out on Bob’s blog…
I think the latter. If I miss the low rates today (and they’ll be around for at least another year), it’s not a big deal. Don’t forget, you’re not locking in 4% for the next 25-35 years. Even the ones who buy today have to re-negotiate in the future. The buyers who jump in now will likely save some interest dough, but they’ll be taking it on the chin when the higher mortgage rates bring prices down further.
If we could lock in at 4% for 25 years, I would buy a house today. Unfortunately, we can’t – so if low rates are temporary for everyone, the threat of higher rates in the future shouldn’t make buyers panic/purchase today.
Look at these numbers from an Edmonton REINers site. (Historical Edmonton housing prices):
http://spreadsheets.google.com/pub?key=pKhf_Qhx1jfrbTbcuR-dHSw
1970 $21,446
1980 $84,367
1990 $101,014
2000 $124,203
2001 $133,441
2002 $150,258
2003 $165,541
2004 $179,610
2005 $193,934
2006 $250,915
2007 $338,009
1970 – 1980 +393% (+39.3%/yr avg.)
1980 – 1990 +120% (+12.0%/yr avg.)
1990 – 2000 +123% (+12.3%/yr avg.)
2000 – 2008 +280% (+35.0%/yr avg.)
After the *quadruple* in housing prices from 70 to 80, a house in 1988 was slightly cheaper than in 1980, 8 years later. Factor in inflation, and wow – you’re looking at quite a drop in prices in 8 years after the last boom.
Theoretically, one might be able to buy a house 8 years from now for less than it costs today. It happened 20 years ago, it could happen again. But most would say (me included) “Doubt it!”
After the 2005-07 boom, we’re not just seeing prices “freeze” like 80-88, we’re seeing prices drop, so prices are going down even faster if you factor in inflation.
If you multiply 2000 prices by 393% (like what happened in 70-80) you get $488K for an average E-town house (not far off from the peak really). This would take about $120K household income per year to afford with an 80% mortgage. Quite a spread from the $75K estimated average that Kenucho believes can get you into a $312K home. (I argued and demonstrated this would be very tight if not impossible).
Interesting stuff.
Cheers,
E-town
Sorry E-town, your posts are usually pretty good, but I have to correct one thing here. Prices did not ‘freeze’ in the 80′s, they dipped after the peak about 20%. They then recovered to the previous peak about 3 or 4 years after bottom (around 1990 or so).
(the rest isn’t so much a response to E-town, more just general comment)
Prices so far have dropped about 13% this time. The model my colleagues and I are working on is actually indicating that prices will level off and bottom out this year (in terms of seasonal adjusted average). This is primarily due to much lower inventory. Inventory is increasing this spring much slower than last year and as it sits now we project a peak near 25% less than last year.
Short any more economic shocks I personally don’t think we’re far from a (hopefully modest) recovery.
Not sure what credentials you have or what your model ‘models’ BUT listening to joey come latelys about what will and won’t happen in the future is partly why we are in the bother we are in today. No model predicted this situation and as such I think any one who comes out and says their ‘model’ is predicting a ‘level off’ must be prepared for the cynical laughter they hear. Give up trying to predict the future or atleast give up telling other people about your models. Opinions are one thing but don’t try and elevate your opions by claiming they are based on models.
I didn’t mean to sound ‘god-like’. My opinion IS based on a model we’re developing, but it is just that, an opinion. Sorry if you interpreted different intentions.
As for credentials, at the moment I’m a graduate student at U of A and have held a real estate agent’s licence for a number of years—take them for what they are. I’m probably as skeptical or more so than anyone else about what our models predict because it is a very complicated, almost chaotic thing to analyze. We obviously don’t take into account everything that could have an effect, but with what we do use it’s seeming like this year will be more like the scenario I described above than the bearish conditions we’ve seen over the last year and a half.
I’m not a quant, nor a prophet, but I do think we might be on to something here with what we’re doing. Time will tell; it may take more refinement yet.
E-Town
Talk about cherry picking the numbers. And you forgot to substract 100% from some of those numbers.
Here are the numbers that REIN person used.
http://www.ereb.com/pdf/QuarterStats.pdf on Page #4
2007 $338,009
2008 $332,853
2009 $311,683 to March.
1962 – 1970 +71%
1970 – 1980 +393%
1980 – 1990 +20%
1990 – 2000 +23%
Peak
2000 – 2007 +272%
2000 – 2008 +266%
2000 – 2009 +251%
I don’t know were you get the 448k from because the average price never got that high. The highest it got was 354K in May 2007.
After relentless hours [not really] of spread sheet work I came up with Alberta Real Estate peaking 30% less than it did in the 70-80′s run up. WOW we still have higher to go… well if we are comparing to 70-80′s
So lets use your logic. From 1970 – 1981 the increase was 429%, So if we take 2000 prices of $124,203 and multiply it by 426% we get $529,556. So by the year 2011 average house price will be $529,556. Think so…. Nah.. probably not.
From the period 1970 to the low point in 1985 Alberta house prices increased 346%. So lets extrapolate that to this decade.
2000 – $124,203 * 346% = $429,579. So I guess the market is over-sold….better buy buy buy!!! Well that’s if we are comparing this run up to the 70-80′s run up.
So something is not right. Could it be from 1982 to 2002 we were living on borrowed inflation from cheap energy prices. I do.
Just for fun, superimpose the crude prices on those housing average prices and the correlation is unbelievable. How come every time oil deviates to the high side for any period of time. Alberta house prices seem to follow right along and then only to find a higher base. I think some how the Alberta economy is closely related to Energy???? I wonder why that is????
Cheers
Okay, fair comment. There was indeed a dip. I guess looking at today’s numbers a 17K dip is negligible but back then it went down 23% from 91,438 to 74,175 -> so that’s indeed a real dip, my bad. That’s whopping $14/sq. ft difference from about $76 to $62/sq. ft. It really messes with ones mind. 20 years later in 2008 we’re talking about a post boom drop of closer to 38% (on a square foot basis) from $330 to $240/sq. ft. This is $90/sq foot -> the SAME 1200 square foot house allegedly dropped about $100K since the peak, despite *average* prices not falling as much due to the lower end of the inventory being consumed (higher prices have tilted the sales numbers towards the 250K-400K region due to decreased affordability).
Yeah, that sounds about right. An average bungalow in area “x” that might have gotten $400K at the peak could likely be had for $300K today. If it’s off, it’s not off by much. Again, that constantly improving definition of what constitutes an “average” house has resulted in a ‘smaller looking correction’ – if one only looks at average price rather than $/sq. ft.
Wild.
Cheers,
E-town
Um, why do you think I am comparing the last big boom to this big boom?
http://www.wtrg.com/oil_graphs/oilprice1947.gif
Looking at 80-90 and 90-00 again.
1980 – 1990 +20% -> 2.0% yoy avg. inc.
1990 – 2000 +23% -> 2.3% yoy avg. inc.
In 2000 an avg house was $124K and WAS definately undervalued compared to other major Canadian centers. If you add, say, a 35% correction you get $165K – the price in 2003. In my mind, that WAS the correction E-town needed to get on par with the rest of Canada. Then all hell broke loose – right about the same time oil prices started to rocket skyward in 2003. There is your energy link, indeed.
The difference “this boom” is I believe prices approximately doubled (from 165K to 351K)in 4 years instead of quadrupling in 10. If you consider the price gains in 2000-2003 to be a correction (unrelated to energy) this can be seen – it’s one way to look at it. Although we don’t know the depth of the correction yet, we do know (using my reference points of course) that energy only caused a 212% jump this go around – not 393% like the last one.
Don’t shoot. I’m just playing with numbers here. I suddenly find historical financial data to be fascinating. I hope this is curable…
Cheers,
E-town
It would be interesting to see the price/sq.ft change from peak to trough during the 80s wouldn’t it? Unfortunately I don’t know anywhere one can find that data. You can’t really compare percent change in $/sq.ft now to average price then, it’s not the same thing.
How did you calculate your $/sq.ft in the 80s anyways? Did you just use 1200 sq ft on those prices?
It’s interesting to look at the average selling sq.ft over the last few years… it hovered around 1300 pre-2006 and then tanked to 1200 or so during those two boom years. Now it’s back just over 1300 on average.
There’s way too much data to look at than can be summarized here… and I’m falling asleep…
The 2003 to 2007 run up is childs play compared to the run up from 1972 to 1976, which both take into account 4 years.
1963 12,925 +2.94%
1964 12,662 -2.03%
1965 13,291 +4.97%
1966 13,752 +3.47%
1967 15,442 +12.29%
1968 17,434 +12.90%
1969 20,526 +17.74%
1970 21,446 +4.48%
1971 22,227 +3.64%
1972 23,681 +6.54%
1973 27,146 +14.63% -
1974 34,809 +28.23% -
1975 43,995 +26.39% -
1976 58,064 +31.98% -214%
1977 62,884 +8.30%
1978 71,679 +13.99%
1979 78,719 +9.82%
1980 84,367 +7.17%
1981 91,438 +8.38%
1982 91,405 -0.04%
1983 85,667 -6.28%
1984 79,246 -7.50%
1985 74,175 -6.40%
1986 74,306 +0.18%
1987 76,878 +3.46%
1988 81,841 +6.46%
1989 89,017 +8.77%
1990 101,014 +13.48%
1991 107,076 +6.00%
1992 109,594 +2.35%
1993 111,796 +2.01%
1994 112,501 +0.63%
1995 110,577 -1.71%
1996 109,042 -1.39%
1997 111,545 +2.30%
1998 114,536 +2.68%
1999 118,871 +3.78%
2000 124,203 +4.49%
2001 133,441 +7.44%
2002 150,258 +12.60%
2003 165,541 +10.17%
2004 179,610 +8.50% -
2005 193,934 +7.98% -
2006 250,915 +29.38% -
2007 338,009 +34.71% 188%
2008 332,853 -1.53%
The 2000 – 2003 run up was a combinaton of;
1. Alberta Housing was undervalued by at least 60%.
2, Ralph Klein policies finally taking effect.
3. Natural gas price increases due to depletion rates higher than production. Thus rig counts went through the roof and more and more rigs had to be built.(Shale gas seem to have turned the treadmill speed down a bit for the forseeable future)
The 2004-2007 run up was caused by;
1. Oil prices trending high enough to make Oil Sands Viable thus the reason for all those people.
2. A massive influx of people.
3. Short term Supply and Demand out of wack because of those influx of people.
4. Speculation.
So in the future, housing in Alberta will be 2 highest of all the provinces. BC will stillb e first. It’s where all the retired want to live.
So Why the great future for Alberta?
1. We are resource based economoy and only resource based economies will do well for the forseeable future, next 10 years at least. Ontario will have to rebuild their manufacturing based economy and that takes time and moeny. They have time but not the money.
2. Alberta has no debt and the lowest tax rate in Canada. Plus excess cash on hand.
3. Finally the balls to the wall growth has come to a halt. This is great. Gives everyone a wake up call and time to think. And “YES” Oil sands projects will still go ahead, just not at the same pace as previously thought.
4. Growth in Alberta will be more stable this time around. We are just coming off a boom/bust cycle so the memories are still fresh.
Even though some think the end has come and we are heading to a the 80′s part deuce. Alberta is actually sitting in the drivers seat of Canada. This recession is just a slightly longer stop light than normal on that long long road to prosperity.
Another comparsion to the 80′s that won’t pan out.
In the 80′s there was still billions and billions of barrels of cheap oil in the ground waiting to be sucked out. This time around there isn’t.
Ha ha. You caught me. I used 1200 Sq feet as a “ballpark” avg. sq. footage. This might be a bit high – although existing bungalows have not “grown”, the size of new homes does. We could shave 100 or 200 sq. ft off the avg. to get back to 1980 “sizes” – but again, I’m just playing with numbers here looking for corollary that might have been lost on me before.
Cheers,
E-town
Just a small note, the increase from 1970 to 1980 is 293%, not 393%. Although prices may be 3.93 time higher, the percentage increase is 293%.
That being said, looking at % changes without adjusting for inflation is not going to yield very useful results. House prices may have jumped by 293% between 1970 and 1980, but the CPI also jumped by 116% during the same time period, meaning the real increase in sales price was 81%, not 293%. By comparison the inflation adjusted increase from 1997 to 2007 was 146%. Not adjusting for inflation is going to give the impression that the 70s boom was significantly larger when it was clearly not.
Another way to look at it is to compare inflation adjusted prices to inflation adjusted family income. In 1979 the average after tax family income for Alberta was $57,500 (in 2006 dollars), according to Stats Can. This yields a ratio of 3.91 by my calculation. By comparison the average after tax family income in 2006 was $70,000. I don’t know what it is today but I’d guess it’s only a bit higher. That means that the 2007 peak price:income ratio was way above the 1979 peak and even today the ratio is still higher (4+).
What all this means I’m not sure. The 80s were a period of high inflation, high interest rates, and low energy prices. Those factors haven’t happened yet and may not. But I’m still trying to understand what it is that’s suddenly made Edmonton such a desirable place that it now commands a historically above average price to income ratio. I bought before the boom so I’m fine from that standpoint, but at some point I’d like to upgrade and these numbers make me nervous.
Good post LongTimeEtowner. The numbers look good (although I would not call the 188% gain now ‘childsplay’ exactly compared to the 214% back then.) But I do think removing the “correction” between 2000 and 2003 and looking at it separately was a good idea. It makes sense to me, anyways.
I agree that Alberta is poised to come out of the recession with a lot of good momentum and do very well once the demand for commodities and energy (especially energy) returns to normal levels. (If you want to call what China is going to need for their continued industrialization “normal”.)
As far as the “peak oil” theories go, I am not 100% convinced. Part of the psychology of the “cartel” is to constantly have people believing we’re almost out of oil. There are still undiscovered fields out there, and some fields are supposedly “filling up again” from even deeper fields that are estimated at being even larger in size (like the one in the
Gulf of Mexico).
http://www.rense.com/general63/refil.htm
Truth? Or “anti-peak-oil propaganda”? You have to decide that one for yourself – because I’m no geologist. One thing is for certain; there will be a few more boom/bust cycles before our dependency on oil changes. What people do not realize is that hybrid cars and walking to work is actually only a small part of oil consumption. Oil is used to make plastics, pharmaceuticals – every inorganic product in our lives is made from oil derivatives. The list of base chemicals that come from oil is staggering – as is our dependency on plastics.
I think buying green cars and using less gasoline is not as influential on our overall oil dependency as people think. The impact of oil-derived chemicals and aviation fuels is also a major part of the equation.
Cheers,
E-town
What I was trying to point to was that average size changes over time too. For example if you just use 1300 sq.ft over the last few years, then the price correction in $/sq.ft looks EXACTLY like the correction in average price. What we’d have to do is somehow find data on average size back in the 80s to be able to really make the right comparison. It’d be interesting to see if when prices retraced people started buying bigger homes like they are this time.
If anyone finds data on this by the way, please post the source.
So would I be right to say that our consensus is basically that:
1) The run up from 2000 to 2004 was primarily due to undervalued prices and favorable economic fundamentals.
2) The run up from 2004 to 2007 was primairily due to massive migratory influx and overheated speculation.
Would it be right to think that prices will retrace back to where the 2000 to 2004 run up should have placed them?
If so, what if we simply remove the data from 2004 onward and use previous data to project a trend to today. I don’t have the work in front of me at the moment, but if I recall correctly, this projects an average price of around $300,000 by the end of this year. We’re at about $310,000 now.
(Yes this is oversimplified, but interesting nonetheless)
To get a grasp on how much oil contributes to our society, read this article.
Pedal Power Measured in Oil
http://anz.theoildrum.com/node/5248
Well over a hundred teams spent a week pedalling over a dozen bikes to generate 50kWh (kilo Watt-hours) for the Earth Hour concert. Five litres (~1.3 gallons) of fossil fuel stores the same amount of energy, an amount most people would burn in their cars almost every day without thinking about it.
12 bikes * 8 hrs/day * 7 days * $15/hr/bike = $10,080 spent to produce the energy that 1.3 gallons produced for $3.00 or @ 30% effiecency of a gas engine = 4 gallons = $8.00.
So now do you see the energy deficit that petroleum provides us.
You mean erase the 2003-2007 run and project from 2003 at some nominal inflationary rate? Sure and then we can draw a family of lines with high/nom/low guesses for prices in the next 12-18 months and see where they intersect. Trouble is, when you combine the accuracy (error bars) of the “what should have been” price gains with the “what might be” price correction, you get quiet a large margin for error. I think this sort of graphical extrapolation can very soon it’s value when assumptions are piling on top of assumptions.
Cheers,
E-town
*Duh*. Sorry guys. Like long-time pointed out: my percentage increases were multiples (a/b) not percent (a-b)/b. So my percentages should have been:
292% for 80′s boom (not 393)
112% for this boom* (not 212)
*if you only look at 2003-2007 and consider 00-03 to be a correction unrelated to energy, but relative to housing prices in other parts of the country.
Of course, the comments about normalizing all this data to present day prices (inflation adjusted) are valid as well.
Cheers,
E-town
You’re preaching to the converted Long-Time E. If anything, I think the “average” person is quite naive about how much further oil goes into our manufacturing processes than simply getting converted into fuel and crankcase oil. I may have been bearish on RE in the last few years, but I know full well how deep our dependence on oil and oil derived products goes. What is a “consumer” revolution going to do in China? Yes, the vehicles are one thing, but the manufacturing processes require oil and the plastics every consumer good is made out of come from chemicals derived from oil as well.
Unless they start coming out with bamboo frame HDTV sets…
I may be a bear, but having worked in manufacturing, engineering and contruction I know oil dependency is more complex than filling gas tanks and crank cases.
Cheers,
E-town
Well… ya. Last thing I want to do on a blog like this is start talking error analysis and stochastics, though this would obviously be necessary.
A couple of points in the last few posts.
(1) I don’t think correlating boom and bust cycles to house prices is entirely applicable to the most recent boom. In this case Alberta isn’t an island and indeed house prices from Newfoundland to Vancouver (to Phoenix and Las Vegas) were all simultaneously going up – so the resource link isn’t as applicable as it was in the ’80s.
Interestingly I just got back from the Eastern Caribbean where there is still a real estate boom going on. Mind you Banana prices were unaffected by the economic meltdown and nearly double what they were in ’04 – and we say banana republic like it’s a bad thing.
(2) I think the future impact of alternative energy has been underestimated. There are big dollars being invested in energy this year, most of it going to hydro-electric and batteries. I agree that hybrids won’t significantly change market fundamentals but power plants most certainly will. Remember the history of petroleum based power is about a century old – there was a time people wondered what they’d do without whale blubber and its era in the scope of broader history was also very short lived. I’d say by 2050 most of the worlds energy is generated by non-petrol means – much of the US stimulus money has gone toward ensuring this as the perception is oil money either props up dodge regimes (middle east) or is “dirty” (Oil Sands and other methods being used to tap the reserves of harder to reach oil supplies).