Before I get to the stats for August I do want to discuss a couple of reports that were released this week. The first by a "centre-left" think tank about the Canadian housing market. The report called "Canada’s Housing Bubble – An Accident Waiting to Happen" suggests that at least 6 of Canada’s major markets are heading for major correction. And the second from the C.D. Howe Institute called "Not here? Housing market policy and the risk of a housing bust" says we are not in bubble territory.
Both articles are well worth reading and predict different outcomes from our current economic situation. The first study suggests that easy money and low interest rates have created a bubble. They think we are in a bubble because between 2001–2006, all major housing markets in Canada shot to well above the $80,000 average (in 1980 dollars) that had been the norm for 20 years. They also suggest that Edmonton is one of the worst cities, because much of the increase in prices was fueled by the condo market.
Most forecasters have called for prices to drop marginally over the next two years, followed by years of stagnation. The second report says that our tighter lending policies "worked well in reducing the possibility of a housing bust in Canada during 2008-2009, and continue to mitigate the risk of a massive wave of defaults in the future.”
The two reports are not completely opposing views – one says we are in big trouble, the other says it’s not great, but it’s not that bad either. Both reports suggest that if the banks raise mortgage rates gradually (slower than the bank of Canada rates), and policy makers keep lending rules tight the damage will be mitigated.
Edmonton’s Real Estate Market in August
It was more of the same in August in Edmonton – relatively slow sales and high inventory. Single family homes out-performed condos this month as sales of single family homes stayed almost in line with last month:
The average sale price of single family homes increased slightly from $388,549 in July to $390,893 in August. Condos on the other hand dropped from $237,112 to $229,358 in August:
A similar trend was seen with price per square foot with single family homes increasing from $264 to $267 and condos decreased from $235 to $225/square foot.
As has been the trend for a number of months home owners got a smaller chunk of the asking price with the list to sale ratio dropping for both condos and single family homes.
Looking at all of this from a seasonal perspective nothing is really out of the norm…sales tend to slow and prices tend to decline in the second half of the year. We could see a "blip" in September as we have seen in the past two years, but if we do it will just be a blip…not an indication of an improving market.
I might be blind, and if I missed it please let me know. Did either of these reports that are refered to in this article refer to the amount of work thats starting to happen and is planned for Alberta? Fort Mac has major projects planned and starting that will be ongoing. Will they end? Well they do have to maintain whatever they build. The major pipeline companies, Enbridge $400 million for a line twinning between Edmonton and Ft Mac. The Gateway project (in the $billions) that starts is Bruhderhiem and goes to the central west coast. And no they won’t send the oil products by train like some crazy government offical in Ottawa suggested. Almost 1/3 of the rigs in Alberta are booked for the winter already, and I’m willing to bet a cup of coffee that over 75% will be running this winter. You do the math 24 people per rig X 650 rigs = 15600 people plus office staff, trucking, road building and what ever other spin off work a rig creates. Almost every hole drilled needs a pipeline.
As of right now all activity in the north (Grande Pr, Ft St John, Ft Nelson ect)
most of the product comes to Edmonton area. Some is processed and sent to Vancouver directly. Apache along with some offshore money are planning to build a pipeline from Ft Nelson BC to Kitimat BC. How many super tankers are going to have to be built to manage the transport of the products?
I’ve only touched on a couple projects, and haven’t mentioned the Mackenie Valley Pipeline. That in it self would drop the National Unemployment Rate by 1%. And all based out of Alberta, and where’s the support going to be from? Edmonton and Nisku.
I myself am an avid reader of this blog, and have been for quite some time. Yet I find it odd that no-one ever refers to an EUB report or even an NEB report. Perhaps we should be looking for construction anouncments instead of waiting for a report from the desk of some person in Ontario who gets told what to write and release. Perhaps we should be having the rig report/oil patch report published on here once a month as we have the info from the EREB, really they do go hand in hand.
Has anyone noticed the help wanted signs are up again and have been for some time? Has anyone noticed ads on the radio from major engineering companies looking for people?
Seems to me people are scared of losing something they don’t even have.
The housing market here is fine, no market has ever gone just up all the time. 1999 oil was $12/bbl. People will be comming here looking for work, looking for homes, and looking for a better life mostly because of oil or a spin off of it.
Have a great day and enjoy whats left of our summer!
Excellent points. I’ll publish what I can find on other parts of our economy…when I can find some time!
Hey A Mc,
Great points, albiet a bit of a housing bear myself, it’s hard to argue the jobs that are coming out of Northern Alberta. That being said, there are other view points that would also come into play. Firstly, although significant drilling is currently occuring, my understanding is that much of it is just due to the expiry of land leases the gas companies have, and that they either have to drill, or lose the lease. As such, drilling should end up being short lived unless natural gas prices rebound – which is also on dicey ground considering the massive amount of shale gas reserves that can now be exploited cheaper than wells drilled in alberta, which will not only continue to depress natural gas prices, but also make it less lucrative to drill. (If i’m incorrect in any of this, someone please feel free to jump in, as this is just my understanding in this matter).
Furthermore, as you’ve alluded, everything in Alberta is oil and gas related, and our livelihood depends on the price of those commodities. Depending on whether the US stays out of another recession, or whether Europe can keep it’s head above water, and if China has enough demand and strength to keep prices high, our future is totally up in the air, and for the most part, those aforementioned places aren’t looking so hot.
But lets say the job market stays stable. I think the biggest worry is the amount of debt Albertans / Canadians have taken on. It’s enormous! What happens when interest rates go up? What happens when rates go back up to historical averages. Is a house affordable to the average person then? Even if we can keep up with it, that money will be taken away from local businesses in the form of interest, so local businesses still end up losing. Even if the majority of people are smart enough to save their money, it doesn’t take many people who aren’t smart enough and go broke to cause a surge in supply.
I’m not saying housing is going down, sideways, or up for that matter – and anyone who says they do know is blowing smoke up your you know what. There’s too many unknowns for anyone to make the right call, which is why no one can seem to agree what will follow. That being said, I see too many negatives, and not enough positives to the point where I’ll continue to keep renting, and just watch things play out. The risk just isn’t worth it, as there just isn’t enough upside.. As of right now, the cost of rent is cheaper than the cost of home ownership, and it sounds like theres quite a few people out there who might be finding the same thing as me. Living in a apartment blows, but the risk of losing 10% on a house (40-50k), sucks even more. That’s the fear that’s running through alot of buyers now, and will keep them sidelined for a while.
One thing to remember about your last comment, you only lose if you sell. If you’re buying to live in it, and you’re planning 5-10 years there, what’s the worry?
good point. however, if you could buy it cheaper tomorrow, why would not you wait?
no one knows the future for sure. the market seems to face more head winds. that’s buyers’ worry.
Rates won’t be returning to historical rates for a long long time, well unless the historical average only includes the last 5 years. The North American economy is in for historical slow growth into the foreseeable future. So if rates were to rise much, the fragile economic growth will stall causing rates to drop again to stimulate activity. It’s call a catch 22 situation or better yet “a balanced market”.
I also believe housing in Alberta will be stagnate for years to come, then maybe rising a inflation, like a normal market. We have had our return to normal and yes these prices are finally normal again. They have actually been undervalued for the years leading up to 2005. Just ponder this, if housing prices were normal up until 2005, why did over 70% of people in Alberta own when 64% was the norm for ownership rates in Canada? To me It means housing was serious undervalued in Alberta if so many people could afford to own.
I agree with you on it being cheaper to rent than to own, but only at this moment in time. When rental market balances out, and it will, rents will increase, and it already looks like it’s started. The big players like Boardwalk equities are already reining in incentives and discounts. Also it won’t be long until all the new investment condo/house market will be rented out. Thus dropping the vacancy rate even lower than it currently is. So all I can see in the future will be rental increases, well unless you want to live in a dump in the inner city. So if are going up and house prices will stay stagnate, the rent or own argument won’t hold much water.
You wrote: “As of right now, the cost of rent is cheaper than the cost of home ownership, and it sounds like there’s quite a few people out there who might be finding the same thing as me.”
You more or less proved my point by this comment. Ponder this; when quite a few people want something prices always go up. So if no one wants to buy and everyone wants to rent then the price of rent goes up. This makes buying the better option. When everyone runs to ownership then goes up, making renting the better option again. Again a catch 22 situation or better yet “a balanced market”.
Regarding rental prices, another blog that I frequent had a post in August on the topic of rents:
http://edmontonhousingbust.com/2010/08/rental-market-update-4/
They have a chart that shows Boardwalk’s owner occupied rents and market rents, and included this observation:
“The occupied rents (average of rents paid by established tenants) didn’t move nearly as much, but those two were up in Calgary by about $10 to 1,091 per month… whereas in Edmonton the occupied average continued to slide, and is now sitting at $1,034 per month. Generally we can see in the trends that whenever the “market rent” remains below the “occupied rent” generally both are in decline… where as when “market rent” > “occupied rent” both are increasing. ”
So, that would indicate that rental rates in Edmonton are, if anything, on the decline. That said, I also believe that the rent and house price ratios will be brought back into balance. Of course, by “balance” I mean the purchase price of a place should be about fifteen times the annual rent.
In my personal example of me living in a ~$500,000 house and paying $1900/mo (which is out of balance in favor of the renter) this will probably be corrected. The price of the house could drop by over 30% to $342,000. The rental rate could go up to ~$2778/mo, or some combination where they meet in the middle.
The main issue that I have with the large increase in rent prediction is that those new rental rates wouldn’t be able to be supported by the average incomes of families in Edmonton. Plus, you cannot finance your rental payments, so easy credit doesn’t create a “rent bubble”. Fundamentally I don’t see a significant increase in rents without also having a significant increase in inflation.
I can understand why people are predicting housing asset deflation of ~30%; that’s what both the rental rates and incomes would predict.
Those three numbers (house price, rent rate, income rate) are fundamentally related, and tend to align at certain ratios. It’s like a three-legged stool, and one of those legs (house price) is much longer than the other two. The other two legs could grow longer, but I think it’s much more likely that the house price leg will be shortened.
Like I stated in the last comment. This rental market condition applies to the market right now but will not apply in the future. Markets are self balancing and the housing market has balanced, the rental market on the other hand hasn’t. We will just have to wait a year or so to see how things pan out. My Chicken bones say “Edmonton has a chance to be hit by a massive meteor”. So I guess rent, prices or income won’t matter.
What creates a rent bubble (increases) is lack of supply and if everyone wants to rent, supply dwindles.
I think your stool right now has 2 long legs (house price, income rate) and soon the last leg (rent rate) will grow to met the other 2.
Hope everyone was listening to the radio this morning about the pipeline announcment from Ft Mac down to here, Enbridge Pipelines (great company). You heard it here first, HMMMM I wonder what else the normal person hasent heard of thats yet to be released to the public. I’m sure you’ll be impressed with the next announcement that happens in a couple weeks.
Regardless you have a couple points, but please refer to my comment of “people are afraid of losing something they don’t even have” Without owning a home how can you be critical of a market that you have no vested interest in?
AND yes oil and gas is the motor of Edmonoton and Alberta. Why else would most people live here? People think spin off business is having a line up at Gregg Dist. No its not, its restaurants, bars, retail outlets. The more disposable income the more other businesses make. Perhaps there should be a survey on how many people are directly then indirectly affected by oil and gas.
Directly I put the number at over 50%, indirectly over 80%. Remove even half of the people from that equation, and Hey! you’ll be able to buy your home at 1999 levels.
Looking at the numbers and wondering how the average came out to $390 K after 3 consecutive weeks of $378K, $372K and $371K? What am I missing?
Thanks,
Some of the numbers I report show the board as a whole, and some of them are just Edmonton. When I reported these numbers today they are just for Edmonton since the official numbers from the board were not out. Tomorrow I’ll post the official numbers from the board which will be more in line with what I’ve shown on the weekly numbers. I know it’s confusing but I have access to certain information when I want it, and other information I have to wait for so I try to publish what I can asap.
Let me consult my magic 8 ball to see where the housing market is headed… probably just as accurate.
Housing prices have battled some tough battles but this will be the toughest. Consumer confidence and trust is a tough thing to regain. I can’t imagine anyone wanting to buy after reading either of those two articles (especially the first one with 24 pages of multiple choice destruction).
But then again I couldn’t imagine buying after 2006. Not because I had a 8-ball, profound intelligence or a researched report but because I didn’t like imagining 35 years of debt.
Chicken bones say??
Flip that arguement about now wanting a debt for 35 years. How do you feel about renting for ever? Debt gets smaller. Rents will go up over the long term. Some people even use other peoples rent to reduce their debt.
I don’t have issues with mortgages, just with 35 year ones. I’ll wait til I have enough saved/make enough money/housing drops to afford a 15-20 year mortgage.
I said this before, house prices are relative to the incomes. You want cheap housing, then accept $15 an hour for a journeyman electrician, and a 50K for a senior engineer like many places in the US.
Compared to the incomes, Edmonton is very reasonable, if no cheap. You are supposed to pay a third of your gross incomes for housing. If the average household income in Edmonton is 90K, then they are supposed to pay 30K for principal, interest and tax. At 5% mortgage, this translates to 450K average prices for a home. Since the current average prices is around $390, then the market in Edmonton is underpriced by $60.
“You are supposed to pay a third of your gross incomes for housing”
The problem with that calculation is that is leaves too much room to manipulate the variables to fit by changing the mortgage rate and amortization. Can’t afford a fixed rate? Then go variable. Still can’t afford? Let’s push it out to a 20, 25, 30, or 35 year mortgage.
I prefer the 3x income estimate: 90k x 3 = 270k which would put you right around the housing prices in the summer/fall of 2006.
M.
it’s actually 3.5 times, not 3 and 97K not 90k. So 97k x 3.5 = 339
From EREB, Residential average price $335,397
Looks like housing is priced right.
DaBull,
I’ve never seen stats that say the average income in Edmonton is $97k, not have I ever seen the claim that 3.5 X annual income ration considered affordable. I’ve seen the 3X ratio considered affordable, and that ratio cited by many sources. Here is a quote from a paper recently published on the topic:
“On annual basis, Demographia compiles a report to cover price-to-income ratios in 270-plus markets in Australia, Canada, Ireland, New Zealand,
the United Kingdom and the United States. The Demographia International Housing Affordability Survey employs median house price divided by
gross annual median household income in each market to rate housing affordability values. Demographia uses the following scale to rate housing
affordability:
* Severely Unaffordable 5.1 & Over
* Seriously Unaffordable 4.1 to 5.0
* Moderately Unaffordable 3.1 to 4.0
* Affordable 3.0 or Less ”
Source: http://www.scribd.com/doc/36383418/The-Elusive-Canadian-Housing-Bubble-Summer-2010
I just went to Demographia’s website and downloaded their paper (PDF), and they have Edmonton listed at a multiple of 4.1, which is just on the edge of “seriously affordable”.
DaBull, can you please cite your sources for the claim that a 3.5X mean income ratio is considered affordable, and also please cite your claim that the mean (or median) household income for a Edmonton family is $97,000 a year.
Quit reading bear only blog sites.
Here is a good little free site for Edmonton average and median income by household type up to 2005. You have to pay for the current info. You will be very surprised by the numbers. Might even change your outlook on the Edmonton real estate market.
http://www12.statcan.gc.ca/census-recensement/2006/dp-pd/tbt/Rp-eng.cfm?TABID=1&LANG=E&APATH=3&DETAIL=0&DIM=0&FL=A&FREE=0&GC=0&GK=0&GRP=1&PID=94592&PRID=0&PTYPE=88971,97154&S=0&SHOWALL=0&SUB=814&Temporal=2006&THEME=81&VID=0&VNAMEE=&VNAMEF=
Sorry the link will not work in this blog.
Here is another way to get it.
Google the words “topic-based tabulations household”
Pick the first on that comes up.
Pick “Edmonton” from the Geography pick list.
Waaala you get the average and median. and a whole lot more. Again this is only up to 2005 you have to pay for current info. I do.
Here is a snippet from the report “Canada’s Housing Bubble – An Accident Waiting to Happen” page 5.
When you factor in median incomes, the same
historic range appears for housing prices. Hous-
ing prices for 20 years, prior to 2000, stayed in a
narrow range of between 3 and 4 times provincial
annual median income.
http://www.policyalternatives.ca/publications/reports/canadas-housing-bubble
To me between 3 and 4 is 3.5, not 3 and not 4, but 3.5 and this is from one of the biggest “housing bubble,CRASH coming so look at me” organizations out there. Hell even Garth Turner knows it’s always been 3.5.
Looks like the cdhowe has some interesting supporters, with a lot to lose.
http://www.cdhowe.org/support/support_supporters.cfm
Chris Davies 02. Sep, 2010 at 9:16 am #
One thing to remember about your last comment, you only lose if you sell. If you’re buying to live in it, and you’re planning 5-10 years there, what’s the worry?
——————————————————————————
I remember lot of people thought same way in USA that why I care price when need for living. That is what Reatlors are selling these days.
What about when they go for refinancing after 5 yrs and most (0/40, 5/35) are due in 2012-13 and they all have negative equity.
You need 10% return to make $110 from $100. If price goes down 10% ($90) then you need 23% return to make $110.
this is the definitive list of ALBERTA MAJOR PROJECTS. Updated from the government. I’ve been using this for many years. Best snapshot of the Alberta economy for what’s being built, planned, approved or on hold for every sub-sector in the economy including location. (click on the pdf on the page)
http://www.albertacanada.com/about-alberta/inventory-of-major-projects.html
Interesting information. I might be wrong but that the total number works out to about $55-$60k per person for everyone in Alberta (aprox 3.5-4million)
Tourism number surprises me.
Who financed these research papers?
It must be “BroakWalk” properties.
May be those great researchers can share with us about picked up the tap.
There will not be a lot of majors Oil Sands projects in 1-2 years.
Only pipeline job.
You forgetting in-site production.
If you are read this
http://www.oilsandsdiscovery.com/oil_sands_story/insitu.html
These little projects aren’t as massive as mining, but they more than fill the gap while the massive mining projects get up and running. So they will create great economic value to Alberta and its people in the next couple of years. Life looking pretty peachy keen in good ole Oilberta these days.
There are a lot of projects in the inventory, but there has been little commitment to begin most of them. However, in the near future the Shell Upgrader Expansion will be complete and a huge construction workforce will be out of work. Local infrastructure spending (LRT, Anthony Henday, Whitemud) is also beginning to taper off. The 5 year horizon is promising, but prior to that I predict the market bottoming in 2012-2013 between $270K and $290K.
@ DaBull
i haven’t forgotten about those projects at all. They are listed in that link above. I worked on Firebag Stage 1 back in 2003 one of the first large scale SAGD at the time.
@ Tim
You’re forgetting about the Airport expansion and hopefully action in Upgrader Alley. Also, have you seen the proposal from Leduc County to put in a new town/ small community in between Nisku and Beaumont that will hold 20K people? There’s some action goin on if you look around definitely not a huge amount that everyone wants tho.