As fears of a housing bubble rise again in Canada The Edmonton Journal set us straight the other day in an article commented about by "RoadRager" on this blog. The author, Gary Lampier took stats from a number of different reports and concluded that there is no bubble in Edmonton, although there very well may be one in Toronto, Vancouver and Victoria.
Here are a few of the most telling stats he posted:
- Average prices: In Toronto, the average bungalow price in the first quarter jumped 13.3% to $459,000, and condo prices rose 10 per cent to $317,500 compared to a year earlier. In Edmonton, the average residential price is $12,000 below the national average at $330,000
- Trends: Toronto's average house prices continued to climb through 2008 and 2009, even as prices in Alberta's major cities declined from the all-time highs set in 2007. In Edmonton, the average price of a single-detached home spiked to a record high of more than $420,000 in mid-2007. Last month, it sat at $388,500.
- Afffordability: 32.9% of median pre-tax household income was needed to service the mortgage on a typical detached bungalow in Edmonton (Calgary 37.1%, National 40.6% - Ottawa and Montreal the same, Toronto 49.1%, Vancouver 69%). For 2-stories Calgary and Edmonton were below 40 per cent, while Toronto and Vancouver were at 58% and 77% respectively.
- Average household incomes: Calgary $113,000, Edmonton $90,000, Vancouver $82,300 (about $2000 higher than Windsor), Toronto $101,400.
- In the U.S. at the peak the ratio of average household income levels to average local house prices got to 10 times or more in overheated markets like Los Angeles and Phoenix. In Vancouver, the average detached bungalow now costs roughly 11 times the typical average local household income level. Yikes!
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The fact that there are bigger bubbles in Vancouver and Toronto does not preclude the possibility of a bubble existing in Edmonton as well.
I have to wonder whether comparing Vancouver and Edmonton “household” incomes is really that valid. Vancouver is more densely populated than Edmonton, and in my experience has far more varied living arrangements that may not be accurately captured by the notion of “household” that Lamphier referes to. For example, a professional friend of mine lives in a Victorian-style walkup with two roommates (also both professionals). The upper floor is rented to a different (also professional) couple, and there is an additional separate structure (instead of a garage) that is rented out separately. One lot, 7 occupants, total annual income almost certainly north of $500000. But how many “households” is this? For tax purposes, at least 5. By contrast, a similar place in Edmonton would probably be a SFH, with a household income somewhat above the $90000 average mentioned above, but nowhere near $500000.
Note that I’m not saying that Vancouver isn’t in a bubble – it clearly is. But one should temper “straight-across” comparisons like Lamphier is making, with an understanding of the significant demographic differences between the cities.
I read Gary’s article and totally agree with him. That is why I am calling for a 50% correction for Vancouver and only a 25% correction for Edmonton. Fantastic work Gary!
It would be interesting to know what the average debtload per household is when comparing city to city. Has anyone seen any stats on this?
Spence is waiting for a 25% correction (downward I presume) in Edmonton!?? I’m expecting that prices will be higher by double digits (probably 10-12%)for two years in a row, at least. They will absolutely not go down, but it could level out to 5 or 7 % increases per year after that.
People are very sensible about how they buy houses in this city and the speculators are few and far between.
One caveat: prices may go up much more if some of the rumours about the upgrader work start to come true. If we get 20% increases again, we are on our way to a bubble for sure. I hope that does not transpire, but it very well could.
This article is proof enough why Gary is a columnist and does not work in finance. You simply can’t compare Edmonton’s market to Toronto and Vancouver.
Housingman,
Now is definitely the time to get all of your family and friends to invest in real estate. I will give you a smoking deal on my house. It is in a great location and I will let you have it for 10K less than the identical property a few doors down. This could be the chance of a lifetime. Where else will you get 10-12%/year? My loss is your gain. Please let me know soon. Things are getting snapped up like crazy in our neighbourhood.
OK, how much are you asking for?
Edmonton isn’t Toronto or Vancouver and never will be. People don’t move to Edmonton unless they work in one industry. Also 80% of all immigrants that come to Canada stay in Toronto or Vancouver, they don’t come to Edmonton. More young people leave Edmonton then come to Edmonton.
I left Edmonton to find a job!
We have seen this kind of discussion before that we are different. Oh Real Estate price can go down only in MI, AZ, FL, CA but MN, NY, NJ,PA, MA, WA, GA are different. After 3-4 months AZ, FL, CA, CO, NJ, PA, GA Real Estate crash makes sense but NY, MN, MA, WA is different. Now whole country can see Real Estate crash because financial sector is central.
Are you kidding me? That’s completely ridiculous. Try backing up your statements with some stats. How’s this:
Metro Edmonton, Population vs. Year
2000 658,400
2002 677,430
2004 700,660
2006 730,372
2008 752,412
Do you see a trend there? Sure looks lime more people are leaving, huh? All it took was a quick google search for me to prove how silly and wrong your statement was.
Average Joe,
The identical unit is listed @ $330K. I will let mine go for $320K…..maybe even a bit less to the right buyer. This could be the best deal ever!!!!! Well, at least the best deal since the Century Park condos went up for sale a few years ago. It’s like I am giving away money. Act now!
ps….please no camping out on my lawn. The neighbours won’t like it.
I’ll concede there isn’t a bubble, but I don’t think you can say the price correction based on affordability and increasing mortgage rates is going to side step Edmonton. The fact is someone who qualified for a 400,000 home at 4% earlier this year will only qualify for a $350,000 home if the mortgage rates move to 6%.
The only circumstances under which such a correction could be avoided would be if:
-Everyone got a 10%+ raise this year
-Edmonton are comfortable increasing their indebtedness ratio substantially
-Housing demand surpasses inventory.
I am guessing in a couple of days when you post the April monthly stats we will see that pricing has already come down as a result of mortgage rule changes and interest rates rising…so long as rates continue to rise there is no reason to believe that trend will change.
Now I am not saying we have a bubble, or are going to have a massive crash…I am saying we’re going to have a moderate price correction based on affordability (can’t call it a bubble, as affordability isn’t a driver in a bubble per se).
Hey Fred… Got any post oil boom stats for Edmonton?
Re: Sasquatch
Do the new mortgage rules cancel out all those that applied for mortgages and “reserved”(sorry, I can’t think of what that is called) guaranteed the mortgage terms before the rules came into effect? Or do all those get cancelled out with the new terms?
If they aren’t cancelled out – I think this would create a buffer period of price increases as people rush to use their “guaranteed” mortgage terms while they can.
But obviously, I have no idea how that all works. Just my thoughts.
The rate is reserved for a certain period of time (usually 30-90 days) but they have to qualify under the new rules. So for some people even though they have a rate reserved, the amount of money they can borrow will have decreased because they have to qualify at the current rates.
25% depreciation eh?…….Conference board of Canada just forecasted +7% for 2010.
You need to call them and tell them they are wrong Spence!…they are miles away from the obvious truth of -25%…..based on your tireless, in-depth research and fact building.
Sure thing. Now you could argue that 2008 stats were “post boom” since the oil boom ended in mid 2008, so if the 2008 number is as of December 2008, the oil boom was definately over by then. But digging around a little more, I found this information from the city of Edmonton municipal census for 2009:
Edmonton’s official population was 782,439 on April 1, 2009, an increase of 30,027 over the previous year.
Note that the numbers match exactly, since my previous numbers were also reported by the city of Edmonton.
So the end of the oil boom doesn’t seem to be having any effect on migration into Edmonton. At least, not as of April 2009. If anything, migration increased from 2008-2009, as an increase of 30,000 people is almost a 4% increase in a single year, compared to an average of less than 2% in previous years.
So… what’s your point? Yes population has been increasing. Why weren’t prices jumping in early 2000′s as population grew.
Please fill us in.
A better measure would be jobs, and the employment rate as that’s you need to buy real estate (a job) not a family bringing 5 kids over from india.
James – My point was in response to Ben’s original claim at the start of this thread. Obviously you failed to read it, so I’ll repeat. He claimed more young people are leaving this city than coming here. He didn’t back it up with any stats. He seemed to imply it was another reason why prices must fall.
I wasn’t making any particular comment on whether prices would rise or fall. I was just refuting Ben’s claim that more people are leaving than coming to this city. I’m sorry I have offended you so terribly by using real facts and statistics rather than pure speculation.
That is a very interesting article by Mr. Lamphier, with plenty of room for analysis. Here is more coverage I recently read on another real estate blog:
link to tinyurl.com
I cannot believe that people are still insisting that housing prices will continue to go up. Obviously, heads have not been completely pulled out of the sand. Prices remain too high, incomes did not increase accordingly, and Canadians are sitting with more debt than ever.