Inventory continued its climb in Edmonton in June, reaching the second highest level for June on record. Last month we thought we were close to the peak of inventory, but we didn’t know sales would slow as much as they did this month. The REALTORS® Association of Edmonton released the June sales stats today calling the market "normal."
“External influences pulled sales activity into the first four months of the year which reduced the demand in May and June. Overall there were 680 less residential sales in the first half of the year as compared to 2009,” said Larry Westergard, president of the REALTORS® Association of Edmonton. “Consumers still seem interested in getting into the housing market or moving up but seem to be resting after a confusing period of uncertainty and change in the conditions that surround a property purchase.”
The number of new listings slowed substantially, almost back to normal levels:
So the jump in inventory is mostly due to low sales. Based on the sales reported each month, I was surprised to see that so far this year we are only 680 sales behind the same period last year. The numbers I have recorded from the monthly stats show we are 1141 sales behind last year which is a large discrepancy in my books. How can this be?
The association modified the way they report the stats at the beginning of this year in order to be more accurate. In the past, once the monthly numbers were reported they were final. The problem with this was that many sales are reported to the association after the end of the month (REALTORS have two business days to report a sale), so the final number was not a true representation of the market.
This year the association is updating the numbers as they go, so last month they reported 1682 sales for May and the reports now show 1799 sales, a discrepancy of 117 sales. Over the first six months of the year this has adds up to 520 sales. In the past, any late sales not included in one month’s report were added on to the next month’s report. In other words, since I am using the officially reported numbers on my chart, I actually don’t have 520 sales accounted for so far this year.
The issue with the new system as I see it, is that although it is more accurate, we are not comparing apples to apples. Based on the numbers so far this year, this month we will likely actually see somewhere around 1640 sales as opposed to the 1539 we are reporting right now. What’s not fair is comparing this month’s reported sales of 1539 to last month’s adjusted sales of 1799 (reported sales were 1682).
The other issue is that we also compare the current month’s reported sales to previous year’s sales. So earlier this year we were actually ahead of 2008 numbers, when I was reporting record low sales. Suggestions on how to deal with this are welcome. On the chart below I’ve plotted the adjusted sales in green, and the reported sales in red:
As for prices, we saw the average sale price dip in June from $340k in May to $335,937 but are still ahead of last June ($328k), the median sale price went from $321,500 to $315,000.
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Hi Sara:
“Suggestions on how to deal with this are welcome.”
Since you asked, I think the only way to continue to compare apples to apples is to either use your unofficial raw data, or to request the association to provide reconciled data for previous years. (Reminds me of the ShadowStats for U.S. unemployment which show much higher rates compared with the official rate using the new formulas)
Request:
Would it be possible to add another line to your charts which would show the averages for the displayed years? Your blog mentions being above or below average, but it’s hard to see by guessimating on the charts.
Love this blog!
MO.
Hi,
I must confess to being somewhat confused, looking at the chart for sales over the past 5 years I would call the Edmonton housing market anything but ‘normal’, even taking into account this ‘discrepancy’ of accounting.
It’s been interesting to follow this blog over the past few months from both camps, however, this information and how it is being represented appears to be wishfull thinking on the part of certain interested parties.
That’s why I put “normal” in quotes…i thought it was strange to call it normal as well but that’s how the association described it.
Hi Sara,
I apologise for any confusion in what I wrote ,I wasn’t implying you were an interested party, clearly your blog is presenting the information for our benefit and you need to present it ‘as is’. That way we can reach our own conclusions.
Many thanks for all the effort you put in.
Charles
This pattern is quite similar to how things cascaded in the US once the top was in.
Housing Collapse Cascade Pattern
Volume drops precipitously
Prices soften a bit
Inventory levels rise slowly
High-end home prices remain relatively steady for a brief while longer
The real estate industry tries to convince everyone it’s “business as usual” and homes are affordable because rates are low
Bubble denial kicks in with media articles everywhere touting the “fundamentals”
Stubborn sellers hold out for last year’s prices as volume continues to shrink
Inventory levels reach new highs
Builders start offering huge incentives to clear inventory
Some sellers finally realize (too late) what is happening
Price declines hit the high-end
Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc
Gimmicks do not work
Price declines escalate sharply at all price levels
The Central Bank issues statements that housing is fundamentally sound
Prices collapse, inventory skyrockets, and builders holding inventory go bankrupt
Some of those may happen simultaneously or in a different order, but the whole mess starts with a huge plunge in volume.
I am now confident the peak in Canadian housing insanity is finally in.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com/2010/07/vancouver-home-sales-drop-30-percent.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Then the people finally look at the housing prices in the other Canadian cities only to find out all the prices are now higher as only Alberta collapsed in price. What to do? They do what they always do gripe and cry housing prices are too high in Edmonton. I just completed your circle bringing the Edmontonians back to your first step.
Ron S the only thing you convinced me of was that another bear with over simplistic views of ‘patterns’ of demise has joined the blog. Real estate moves in cycles like investment markets. However each cycle is not punctuated by a dramatic drop in prices. Perhaps, perhaps what we are seeing is very normal in the ‘cycle’ of real estate and that a slow down in prices or even flat price growth is normal in a cycle.
There are people on this blog who have been forecasting a 20-30% price reduction for over 6 months now and guess what – it hasn’t happened yet. And guess what – we are out of the worst economic correction for over a decade, maybe more.
We see this so often when real estate price slow (which is a normal occurence)What happened in each instance, “this time is different” was the rallying cry. It would be worst than the last one. In each instance, the bears appeared to be all wise and prescient and the bulls were peddling pies in the sky.
In each instance, the market got over it, the bull market resumed.
All aboard!
Sarah, Sheldon; First, sorry I will miss you guys at INSF. Would have been fun to swap war stories.
I apologize in advance if this missive is off topic.
The following is not meant as a perma-bear comment but more of an observation of what is going on in Vancouver and one that may offer some parallels to Edmonton.
We here also wonder at the high inventory. Yes, like yours, our sales have tanked and yet, average prices have in a couple of market segments climbed. “Normally”, to use your word, high inventory and few sales suggest an expected drop in prices. Odd is that while there are many price reductions filed with the board each day, their effect has not reconciled the discrepancy between prices and inventory. Curiously, nor have these reductions acted as an impetus to increase the number of sales. The observation is that things have changed and the dynamic we have become comfortable with in the past number of years is no more. Simply stated – it’s a new ball game.
The game afoot may be one of confidence. If you were to ask any number of people who searched their souls for the true answer, they may tell you that they are not as certain of the years ahead as they might have been. Baby boomers who thought 55 was the magic number are now finding that they are working longer and harder than ever before. As one of them, I can attest to this. Over all, many others have been shaken by the inability to find work that provides an income sufficient to purchase a home. Consider all the young brilliant minds who graduate from our universities only to work as a barista – not an encouraging outlook. To them, a mortgage, as a single entity in their budgets may be possible but, when that mortgage implies the encroachment of travel, a car and a laissez faire life style, the picture and willingness to change their home address evaporates.
Fellow Realtors are getting more than just a bit nervous about this odd bit of RE economics. Speaking for myself, it would seem there is more going on here either of us may know. Suspect, is that real employment numbers amongst many other statistical projections, are not as suggested by our leaders. Even Flaherty in today’s Globe and Mail doesn’t trust economists. Perhaps, as you are experiencing with your board’s system modifications, he too was hoping to compare “apples to apples”. By way of inference, can we and are we able to count on our leaders to guide us. Can we trust them? For that matter can we trust anyone or anything?
Perhaps I have confused the issue by suggesting that it is one of confidence. Maybe it really is a matter of trust.
We are no longer able to trust that things will be ok. How can we in light of the ongoing global financial issues or that many of our neighbours to the south are about to have their states default. Additionally, consider the many mixed messages that slip through the cracks of CREA, RE/Max, Royal Lepage, our provincial associations, the news papers and dare I include them, the economists – none of whom seem to deliver the same apple.
Without trust things quickly fall apart. It is integral to all we do and who we are and it may be one reason we could be in for a long haul of watching RE slowly recede in volume and value until we once again trust.
Not being able to trust is not ‘normal’ and in time, we will pass through this cycle and trust once more. Personally, I can’t wait!
**My apologies to your readers I could not figure out how to include the link to Flaherty.
Good comments here – I believe that there is a down leg ahead for a few reasons.
1. Global melt down – U.S. now running without a 2011 budget on track to have a
$2.5T deficit, $1T+ deficits as far as the eye can see, and states like IL simply not paying bills. Look across the pond to problems in Europe and the cooling in China. So many issues that the BP oil spill is almost a footnote. None of this melt down will help Edmonton in any way, especially if commodities prices cool.
2. The MLS Average Sales Price chart provided in the blog above says it all, there’s a lower band at around $150k-$200k for 2003-2005, then in 2006 there’s a massive $100k leap to the $300k-$350k band for 2007-2010. That $100k leap in 2006 does not represent a new normal. It’s the result of a housing boom that has yet to cool.
I’d be more optimistic if the global economy was doing fine and we are free and clear of a recession, but that is far from the case.
So why haven’t prices tanked as some predict? No one likes to take a loss on their house, so we are trending in that upper band of $300k-$350k even with the huge inventory of houses. If the global recession continues and the price of oil does not hold up, people will have no choice but to start lowering prices into that no-man’s land of 2006.
All things considered, it’s tough to be bullish in this market.
Larry,
I hope you don’t mind if I save your post for future reference. I have been lurking on a few blogs lately and that’s the most thoughtful and accurate analysis of the situation that I have read to date. If the journalists that comment on RE in the MSM had even a fraction of your wisdom……..well I guess they wouldn’t have jobs. Thanks
Makoto Ohki,
Totally agree. We will not remain an island of prosperity in this economic mess.
Spud,
My home will be worth at least 25% less in 2 years. That is my prediction. It will take longer than a few months. I could list it for $320k today. I don’t plan on listing it for more than $240k when I sell in 2 years. It is a 1/2 duplex for goodness sakes. It is not normal for a 1/2 duplex in Edmonton to be worth $320k. This is not a normal cycle. Buyers are starting to realize this en masse. The general sentiment is changing.
@Spence,
Those are kinds words. Thank you. As for saving the post it’s up to Sara and Sheldon it’s their blog.
Sorry Larry you sound like Mulder from X Files. Every time there is a correction, a disaster or whatever some people cry that this time it is different. Your arguement is that it is different because you can’t trust??!! Oh boy.
Spence if you are so sure that you can sell your house for 20% more today than what you will be able to in 2 years then why don’t you? Then you could buy back in in two years time and you’ll be hailed a genius. Right now your actions and thoughts make you look foolish because they aren’t consistent.
In 2007 I bought an older bungalow for 280 and now i would like to move out of Edmonton to raise a family. I have been following this blog for some time, with minimal knowledge of real estate. I read a lot of conflicting entries from knowledgeable writers. I personally figure that long term, my house will increase back to the 2007 values. It may take 5 years, but it will eventually get there. Historically, real estate is a good investment that WILL increase, it just may have some bumps along the way. With the world oil supply dwindling, our oil sands are not going anywhere, regardless of the environmental impact. I believe Edmonton will eventually become a ghost city, but not as long as Fort Mac is pumping out billions in oil. My 280 investment may only be worth 250 now, but i am confident i will get my money back in the near future regardless of all the negative outlooks.
TH
@spud
No need to be sorry. Remember millions of people watched an apple fall from the tree but only Newton asked why. My view is just an idea, not a line in concrete. Maybe it’s not different, maybe the real reason has always been trust or maybe it’s nothing more than an apple falling from a tree – I don’t know, do you? If so, let’s hear it.
If you look at historical Edmonton pricing you’ll find there is the occasional boom followed by years of flat price growth or slight price decreases, Perhaps this is the “normal” EREB is referring to.
Like many other investment markets the best characterization of the present market is “volatile” I wouldn’t be surprised if the bears were right and we suddenly lost 20% in value nor would I be surprised to see a slight increase. Based on history (as you can see in the charts) I’d say prices will go down a bit through the winter (as they typically do under light sales) and we’ll see what happens next spring…will the market all of a sudden pick up steam like it did this spring (and most other springs) and see price increases or will they continue to fall? I don’t think anyone really knows.
Oh my gosh, this conversation is scaring me beyond belief. I am tempted to just let foreclosure take place if I can’t sell – am in so much debt it is not even funny, and it was well-intended debt (from renovations & school). So far all I have done is self-sabotage myself because of this economy…Does anyone think that there is something good that will come of this?
@Scared
I think the best thing that could come out of this situation (the downward pressures on housing prices) is that housing prices could realign with rents and incomes. I doubt buyers would be nervous about losing a large amount of money in real estate if the purchase price of a house was 15x the annual rent or if the average house price was 3x the average household income in Edmonton.
In the long term I believe it’s likely housing prices will realign closer to those ratios. Rents and incomes will rise, or house prices will fall.
To speak about my own situation, I moved to Edmonton almost a year ago and I’m currently renting a (nice) 2 year old house. Very similar houses in my neighborhood are listed for over $500k on MLS. I should be paying $2700-$2800 for a house of this price, but I’m not. I’m paying $1900 which seems to be the market rate based on similar houses near me.
I’m very happy with the low-risk lifestyle of renting but if my rent were to rise to $2800, I would consider purchasing a similar house instead. With price ratios like we have in Edmonton today I’d be better continuing to rent for the next decade, but I’m keeping tabs on the market simply because I think a correction is likely when interest rates go back to normal levels.
(I’m assuming “normal” interest rates is the average interest rate we’ve had in Canada in the past 20 years)
Like it currently is?. Run the numbers
Some good has already come from this. Banks have never been more profitable and are handing out record bonuses. Anyone who went bankrupt was able to spend money they won’t ever have to earn. The only possible downside is an increase in government debt; and how could that hurt anyone?
Me too! I listed my house at the beg. of June. We have family issues and need to relocate. Nothing is happening and I’m scared too! We renovated and made improvements to the house with our equity 3 years ago. We still have some equity but not enough to take a 20% hit!
I have looked into just letting the bank take it too, but dont want my credit ruined. Scary times indeed!
Aw @ Me too! I wish you the best of luck. Well if we are all in the same boat, then it sure makes it seem not as bad (I don’t know why, maybe because we know we are not alone?)…I know, all the improvements and thousands of dollars we put into the place won’t make any difference…we’ll be taking a big hit already at our price! Oh well…I see debt in my life for a long time! I even took out a large RRSP loan back then and they’ve only been going down since! So its like, I did all this stuff that they say is a good idea to help your future, and every single thing is working the opposite way for me! Maybe there is a silver lining in all of this somewhere.
@ Me Too and @ Scared
You have options. Explore them before letting the bank take it. In the worst case scenario, I’ve adviced people to become landlord themselves so that the house is continued to be paid for as the rental rate can be much higher than the mortgage. If you have equity left in the house, stretch out your amortization. Then relocate yourselves to a smaller apartment which you can find in the $700-900 range. In tough times, you take tough measures and make some personal sacrifices to ride through the high waves, but you do not allow your boat to fill with water. Ride out the storm and then move back into your houses (or sell) when the market stabilizes.
@DaBull
I’m confused. Like what current is?
You can’t mean that interest rates are at normal levels since they are obviously not. Houses aren’t priced at 15x the annual rent. Statscan says that in 2008 (latest data available) that the average household income in Edmonton was $84k, multiplied by 3 is $252k, which is significantly less than the residential average price of $335,397. So you can’t mean that the income/house price ratio is 3x.
http://www.statcan.gc.ca/bsolc/olc-cel/olc-cel?catno=75F0011X&lang=eng
So, what then do you mean?
Spud,
We love the house and the neighbourhood. We are financially secure. There is no urgency for us to sell. I have offered to sell the place on this blog, but there were no takers. My pride wants to sell so that I can say that I sold at the right time and pocketed 80K. My wife could care less about the $80k. Easy come, easy go with equity. We have had a lot of easy come and now it is time for some easy go.
Should read pocketed an extra $80K. I would definitely sell now if I owed $240k.
Thanks everyone for your helpful answers…I will try to be less scared – although easier said than done. But alas life is like that I suppose! I think I have learned more lessons in the past 5 years than I have learned my whole life – but that can be a good thing I suppose!
No-one is paying MSRP or sticker price these days. Those days are gone. 10-15% is already off. Try to give offer, buyer will take it.
May be 20% if you can wait and negotiate.
RE SUGGESTIONS ON HOW TO DEAL WITH THIS PROBLEM
You write:
——————————————————————————————
The association modified the way they report the stats at the beginning of this year in order to be more accurate. In the past, once the monthly numbers were reported they were final. The problem with this was that many sales are reported to the association after the end of the month (REALTORS have two business days to report a sale), so the final number was not a true representation of the market.
This year the association is updating the numbers as they go, so last month they reported 1682 sales for May and the reports now show 1799 sales, a discrepancy of 117 sales. Over the first six months of the year this has adds up to 520 sales. In the past, any late sales not included in one month’s report were added on to the next month’s report. In other words, since I am using the officially reported numbers on my chart, I actually don’t have 520 sales accounted for so far this year.
——————————————————————————————
If I understand correctly, the agent has two days to report a sale. So the final numbers would be available a couple of days after the initial release of the numbers. You could wait OR in your reports link to graph that is generated off of the data when it is created.
If that is too hard why not get the previous TWO months of data each time. So at the start of June get the May numbers (which might not be final) and get the April numbers again so that your ongoing graph is only out in the currently discussed month.
In regards to the suggestion to wait for the adjusted data rember that the ability to write your review quickly after the month end is not really meaningful. If the first week of May saw a surge in sales or listings or rapid price movements it will be old news anyways when you write about it at the start of the next month.
Just sold in Edmonton and moving to Ontario. Are we seeing similar trends there as well? We’re renting for a bit….wonder if we should be renting longer?
I thought it took at least the average of 3 years or more to sell a house in Edmonton. Did you list yours’ 3 or more years ago?
Thats nonsense, sold ours in 3 months and its a typical place.
Glad we sold it – I was bullish and thought prices would go up again. Think thats not going to happen for 2-3 years (flat prices at best), there are others in our complex who have been trying to sell for ages but they have unrealistic (2007) views of their house value.
If a house is priced right and is in good condition then it should sell. Many houses in our area that were for sale at the same time ours was would appear to be priced at 10-30K too high. As a result they have been sitting forever. Not sure how realistic the sellers/agents are in those instances.
I bought a condo in Edmonton in 2004, and sold in 2009. The story: Bought for 160, value peaked at 400 in the summer of 2007. We almost sold and went renting, but was finishing school and getting married so we decided not to go through that at the time. Hindsight – should have sold!! We sold in early 2009 for 270. Made 110 on the place, used most of that equity to pay off student loans and put 10% down on a house for 375.
If my place drops 110,000, I’m not losing money. I’m just paying mortgage rates on my student loans instead of prime plus 5%. If prices hold flat, then my education was essentially free. If you, like me, owned before 2006, you really aren’t losing money if prices go down unless they sink below the pre-boom prices. We’ve still got a LONG way to go before that happens.
I do feel for those who bought their first house at the peak, as they are the ones who are really losing money. However, those who used their ridiculous equity growth in 2006 and 2007 to buy toys, cars, vacations, etc. are basically just looking at paying the credit card bill 2 years later.