The REALTORS® Association of Edmonton released their report on the Edmonton real estate market today showing the lowest residential sales since 2003. For the first time this year sales are lower than last year, and seem likely to follow the trend set in 2008:
The average residential sale price dropped 1.25% from last month to $339,314 but is still ahead of last April ($312k):
New listings and inventory are the real story though with steep increases in both categories. Unless demand increases significantly prices should come down in the near future:
As everyone knows mortgage rates have risen significantly and many buyers are trying to get into the market before their rate holds expire. One thing to keep in mind is that as of April 19 buyers have to qualify for the 5 year rate even if they are taking advantage of a lower rate; this typically means that they qualify for less than they would have on April 18 even with their rate hold. We expect sales and prices will slip once all the buyer's rate holds expire and over confident sellers will find themselves sitting on the market for a long time. The rise in inventory should also slow down once sellers realize this isn't the "second coming" of the peak.
PS...Happy Star Wars Day - May the 4th be with you!
“And we’re standing outside of this wonder land,
looking so bereaved and so berift,
like a bowry bum when he finally understands,
the bottle’s empty, and there’s nothing left”
Here it comes. There’s no emergency rate cut left to try. There’s no group of suckers left to buy.
Every great bubble always has one, final blow off top, and one great bull trap rebound, and we’ve just had it.
Thanks for the post Sheldon and Sara. I totally agree with you. The possibility of price increases makes absolutely no sense at this juncture. No real estate euphoria can compensate for the fact that people will be qualifying for less. Smart seller’s will adjust their prices to take advantage of this new reality. I am sure it must be very frustrating for realtors to market a property for sellers who have unrealistic expectations. As I have said before, a significant correction will be necessary to ensure an adequate pool of buyers going forward.
ps. I am pleased to report that no one has offered to buy my 1/2 duplex for the extraordinarily low price of $315K. People are wise to wait. In this new reality, you will get a lot more for your $315K.
New condos and townhomes prices just jump 5K as of the beginning this month.
Spence, I’m with you.
For years we had the perfect storm for higher prices – low interest rates, long amortization periods, job creation, little available inventory and even speculation.
Today the tables have turned and we have the perfect storm for lower prices going forward. With markets being so volatile these days (the stock market, real estate around the world etc.) I wouldn’t at all be surprised if we overshoot to the downside like we overshot on the upside.
The end of the housing bubble in Edmonton.
“The economy grew at the fastest pace in more than a decade between January and March, but will slow between now and 2012 as the housing market cools, the dollar trades near parity and the impact of government stimulus spending fades in Canada and the United States, the Bank of Canada said in its latest forecast. ”
http://www.theglobeandmail.com/report-on-business/economy/bank-of-canada-expects-economic-growth-to-slow/article1543131/
Even Bank of Canada has admitted..
OK now for the balancing opinion. The economy slowing from its growth in March quarter doesn’t mean the wheels are falling off the economy. It means it won’t grow as fast as it did in the March quarter. As they say the March quarter was on steroids so you would expect a slow down. They don’t say the economy will go backwards they say the growth will slow. It is still growing just not as quickly as it did in March quarter. An economy growing at normal levels and interest rates moving to normal levels doesn’t equal a 25% drop in home prices. It might mean a flat period for home prices or even a small movement backwards.
I’ve still got my eye on that round of golf Spence!
Keep dreaminig, in 6 months you’ll wake up.
I’ll wake up in my house which I own. Denial do you need the house prices to drop 25% to get into the market? I guess that is a question for all the bears out there. I’m curious why some people seem so passionate about there being a 25% drop in house prices. A slight decrease makes sense over the next 2 years. A 25% drop as flagged by some seems based on nothing but sensationalist journalism making irrelevant comparisons to isolated parts of the USA. Fess up – how many of you bears actually own homes? If you do own homes then why don’t you sell now?
“And we’re standing outside of this wonder land,
looking so bereaved and so berift,
like a bowry bum when he finally understands,
the bottle’s empty, and there’s nothing left.
Spring has sprung as we look into a snowy blizzard,
nobody is coming and I’m not that selling house wizard”
Spud,
I have yet to find one “sensationalist” article written by a journalist that states that house prices will fall 25%. Most of the articles I read in the mainstream media seem to say the opposite. Like this for example:
http://www.metronews.ca/edmonton/live/article/509048–city-a-promised-land-for-homes
Let’s be honest, there seems to be a lot of sensationalistic journalism on the bull side. My argument comes from my own experience with real estate. I purchased my first home with around a $160K mortgage in ’04. I purchased it with a line of credit at prime (around 5.5%) Over the next few years my home increased in “value” by over 100%. What allowed this to happen was a total relaxation of lending standards; rates dropped and amortization periods were extended. The result of this was that the doors to home ownership (aka: renting from the bank) were opened up to people who would not have qualified under normal circumstances. As I am in my twenties, I know many people who took advantage of this “opportunity of a lifetime.” They helped drive prices up, and they can only afford to be in their homes because they pay very low rates (some as low as 1.75%).
As Sheldon has mentioned, when the lending standards are tightened, buyers do not qualify for the same amount of financing. For example, someone grossing $60K/year would qualify for a $260K mortgage at 5% (with $20K down), and only a $234K at 6% (with $20K down). This amounts to 10% less financing due to a rate increase of only 1%. If rates go up 2%….you guessed it, about a 20% drop in financing. This is not rocket science. Who knows, maybe average incomes will go up 20% to compensate, but I doubt it. As one who has seen home prices go up 100% in a few years, I believe a 25% drop is not out of the question. It is not just the “bitter renters” who believe this anymore. People who can do math are also starting to come around.
I think there needs to be a middle ground between the bubble people and the bulls. First thing that should be noted is that a bubble is driven by speculation…in 2007 we had a bubble, price fluctuations based on financing rules do not constitute a bubble bursting as the reasons are grounded in actual circumstances vs. just speculation.
If you want to guesstimate the impact on price you simply take into consideration that 60% of homebuyers primary concern is the monthly payment. We know the average edmonton house price and impact, so we simply need to calculate how much less that monthly payment can buy with a 1% hike in interest rates…based on the average residential price of roughly 340,000 the impact is is about 10% – dampen that number as not all homebuyers buy on payment (or need mortgages)and you probably have a 5% impact for each percentage point mortgages rise. Hard to say the impact of the rule changes as I have no stats on variable versus fixed mortgages…but if we assume rates go up 2% we are probably looking at a 10% decrease which offset for inflation will likely be closer to 7%-8%.
The wild card is inventory as if demand exceeded supply basic economics is out the window…but that doesn’t look likely right now.
While middle ground and balancing opinions sound good, they are not always right. Sometimes extreme things do happen. I think prices going up would be extreme but then again I also signing a 35 year mortgage is extreme. My first mortgage won’t be over 25 and if that means I never have a mortgage then so be it.
My house sold. The bears may think it means the peak occurred. Really, it was a matter of waiting for a buyer that wanted my home. It’s a different approach than chasing the market to the bottom. The market corrected from May 2007 until last year. Also, you really have to ask how many people bought at the top. Our new house was assessed at $25 thousand more than we paid so the correction was underway in 2007. The bears don’t want to admit that the market correction happened and they missed it.
Spence are your friends earning the same amount they did when they purchased their homes? Most people have an increase in salary which is higher than what the average salary increase is. This is because there are always younger people coming into the workforce and experienced people move up the ladder.
I’m not sure if my math is as good as yours. Bear math has never been my strong point.
What is clear is that there are some opposing views which means that whatever happens this year it will be a shock to some which makes for an interesting year.
That is my hypothesis as well sell side – most Bears don’t own homes (Spence is the exception).
There seems to be some deep confusion about what sets prices. Prices are set at the margin, not by the people who will continue to own their home.
When the incremental seller, who because of
1. Need to cash in their house to pay for retirement expenses
2. Loses their job
3. Divorce
4. Move to another City
5. Decides to sell their second, or third house
Has to sell, and CAN’T FIND ANYONE LEFT TO BUY, then they start to drop the price. That price drop causes more people in category five to sell, and down we go.
For a housing bubble, like the one we have now, to collapse, we don’t need the majority to no longer be able to afford their mortgage.
We need the marginal seller to no longer be able to find a buyer, and have to start the price drop spiral.
That’s why bull and bear markets have such predictable cycles, with one leading to the next.
We’re coming out of the greatest bull market in housing in world history, and we’ll head into the worst housing bear market in history.
I have to agree with you that it will be an interesting year Spud. I also agree that coming down from the 2007 high was a step in the right direction. The fact that we bounced back in ’09 due to emergency rates tells me that our current price level is unsustainable when as the low rates are phased out. Time will tell.
ps Spud,
My friends are still quite low on the totem pole in their respective careers. Like I said, most of my friends are in their twenties. They have mostly average household incomes (60-80K). Some of their professions include: Banker, landscaper, Car rental manager, correctional officer, school teacher, etc. The school teacher and the correctional officer make a few thousand more dollars a year now than they did a few years ago. I don’t think the banker’s salary has increased much. He has enrolled in part time classes and has put his house up for sale. The landscaper has started up another job on the side (mostly in the winter), but he is already under about 20K on his mortgage (owes $400, house worth about $380). I could go on and on. Most of my friends are asset light and debt heavy. They are typical first time buyers who got sucked in in the last few years. $400K is no problem at 1.75%. It is variable though. We’ll have to see where prime goes. These mortgages will also have to be refinanced eventually. The $400K is an extreme example. I’d say most owe (275-325K).
Ironically, only the banker is bearish on real estate. Most of my friends think everything will be fine. I have some friendly bets going with a couple of them as well. I may be getting in over my head with these bets
How’s this to dispel all those housing bulls that say Canada is different, that our banks are different, that are mortgage underwriting standards and controls are different, and that all is well with the canadian housing market. Where there is smoke there is fire. I wonder how much also got done at the other banks and mortgage providers. Bubble markets bring out all sorts of schemes.
http://www.cbc.ca/canada/calgary/story/2010/05/04/mortgage-fraud-bank.html
OK Bears – who of you believes there is about to be a drop so much that you are selling your house? Surely if you believe that there is to be a big correction you would want to get out now right?
Have you looked at inventory levels lately?
But house prices are maintaining their levels so there are as many buyers as sellers. I want to know from the prophets of doom on this site who is selling and not rebuying into the market.
Spud,
. There has never been a better time to buy my property. The neighbour is trying to sell their unit for $330K. Let me know what you think.
As I have mentioned before, I would sell in a heart beat. I have even offered to sell it at a rock bottom price to anyone who wants it. If I were you, I would contact your parents, or anyone else with some dough, and have them get in on this deal of a lifetime. Maybe you could get in on the deal with them. You could split the financing. I will even stay in the home and pay rent. Just think about it….in a couple of years you could be sitting on a gigantic pile of cash. It really is an incredible opportunity
ps. The $315K price is a special price for Spud. For anyone else it is $320K.
Spud, when the sales to new listings ratio is less then 50% and inventory is already very high it’s a leading indicator of a price decrease, if you don’t believe me simply look at the times inventory has spiked on Sheldon and Sara’s graph and see what’s happened to prices a month or two later. There are only two other times we’ve seen sharp inventory increases, one in spring 07, the other in 08.
I am not trying to be a prophet of doom, rather the merchant of truth
. I am not selling because my inventments (forgein exchange, stocks etc.) are my investments and my house is where I live – one’s primary residence should never be viewed as an investment…mortgage interest these days is 10′s of thousands a year, there is maintenance and property taxes…so you need a pretty hefty annual increase in home value to recoup these – and aside from the generational boom year Edmonton real estate typically increases, or lags slightly behind, inflation.
Where is your house location!
My house is in the Southwest (the jewel of Edmonton). The neighbourhood is called Southbrook. The new LRT extension serves our neighbourhood well. It is an exceptional property that has been well maintained. The basement was professionally finished. This is a great deal! Imagine me, Spence, paying your mortgage for you, making you rich. It makes sense people. Let the bidding war begin!!!
Why are you advertising your house here, this is not the place to sell your house or what do u want to prove ?
Everyone, better sell your homes quick, because the end is nigh! After all, the wheels are completely falling off the economy! Just look at the terrible news in the latest job report:
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20100507/jobs-canada-100507/20100507?hub=Canada
Apparantly Canada only managed to create 109,000 jobs in a single month (10,000 of which are in Alberta). Clearly, that’s just terrible (no higher job creation number has been ever recorded since at least the 70′s). Obviously the bears are right, and at least a 25% correction in home prices is imminent, because people are definately going to leave this city and this country when so few jobs are being created.
Ok, so on the flip side, interest rates rising and inventory climbing are not such a good signs for future real estate prices. So we may see price stagnation, or perhaps even a slight decline. But 25% or more? Get serious. The people predicting this are the same ones who predicted the same thing last year too, and look how that turned out.
I love everyones comments – I have been following this site for 4+ years and it is interesting how the more things change – the more they stay the same.
I think we could go back to other threads on this website from 2006-09 and we would find the same arguements between “the bears and the bulls”. For the last 4 years people have been talking about prices returning to “normal levels” typically citing “normal” as pre 2005.
Maybe what we are seeing today is the new norm – stop clinging to the past. Edmonton is becoming an economic metropolis – these indicators lead to more migration and more demand for housing.
I’m not saying that we are going to have another year of 15+% growth, but I think we have to realize that for the most part prices have stabilized and that normal growth (2-3%) moving forward can be expected.
That doens’t mean that there will not be buying opportunities – there is always someone getting divorced, bought more than they can afford, got laid off, or otherwise is in duress. That is when you can “make your money” in ANY economy – when you buy – not what the “market” is doing.
Anyway, just my $.02
If you are to delete the comments here then delete this comment too:
there is no relevance to the topic:
”
. There has never been a better time to buy my property. The neighbour is trying to sell their unit for $330K. Let me know what you think.
Spud,
As I have mentioned before, I would sell in a heart beat. I have even offered to sell it at a rock bottom price to anyone who wants it. If I were you, I would contact your parents, or anyone else with some dough, and have them get in on this deal of a lifetime. Maybe you could get in on the deal with them. You could split the financing. I will even stay in the home and pay rent. Just think about it….in a couple of years you could be sitting on a gigantic pile of cash. It really is an incredible opportunity
ps. The $315K price is a special price for Spud. For anyone else it is $320K.
Read more: Edmonton Real Estate: Edmonton Real Estate Inventory on the Rise
“
Ok spence, this was funny at first but it’s gone a little too far. Lets move on ok? Thanks
Couple of things….
1. Job data are somewhat of a “lagging indicator” as opposed to a predictor of the future.
2. While the headline number appears strong, 31,600 of the national jobs created were in the retail and wholesale sector – not the most highly paid sector. Still a big number overall, but I wouldn’t necessarily bring out the party ballons just yet.
More importantly, look at what happened to stock markets yesterday. Look at what happened to commodities. Heaven forbid if the commodity bubble were to burst. These are a leading indicators and therefore a sign of perhaps what is to come.
Go strap on those big mortgages boys and girls…after all, everybody’s job is guaranteed not to disappear and commodites will go up for ever.
Interesting point about jobs data being a lagging indicator. I understand that job creation is usually a lagging indicator of the state of the economy, but why would it be a lagging indicator with respect to the housing market? Are you suggesting that when the economy starts to strengthen, people go out buying houses in anticipation of getting a job? That doesn’t make sense to me. I’d like to hear an explanation of how job creation would be a lagging indicator of housing activity. Intuitively it seems more like a leading indicator. If more people are getting jobs now, you would expect it to lead to more people buying houses down the road, not in the past.