Real estate sales in the Edmonton area were below average in February, and in fact were the lowest we've seen in at least the last 7 years. Looking at the chart below, it's like we've gone back to 2009, only there was no economic meltdown last fall. With reports that Edmonton is the most affordable city in the country, employment is on the rise, and is seeing improved in migration one has to wonder if the chill on sales will continue, and what if any impact the impending interest rate increases will have.
Edmonton real estate sales
Most of the people we are working with are not your fair weather variety of buyers. Looking at homes when the temperature is at or below the -30 degree range is not something people do for s--ts and giggles. I do believe the sales will improve beyond the "siberian lows" as the weather improves. If sales improve beyond 2010 levels is yet to be determined. I don't believe they will for the first quarter but I do think they will be stronger than 2010 level in the remaining quarters. I only put this out there so that people can measure the accuracy of my prognostications.
The average sale price of residential listings increased slightly from $310k to $312,840 in February (down from $317k last February). The median sale price dropped from $307k in January (and last February) to $305,000. The most probable scenario is that we will see the average price rise as the sales increase in the first half of the year.:
Edmonton average home prices
Inventory remains slightly ahead of last year and is increasing as we expected it would, at the end of February there were 6389 residential listings in the Edmonton area. As of today there are 6.12 months worth of inventory making it a buyer's market.
Edmonton homes for sale
The number of new listings are right in line with last year and 2009:
New listings
So what affect will the impending change on amortizations and interest rates have on the Edmonton market? The usual result of these type of changes is a slight spike in sales just before the deadline. In October 2008 when policy changes eliminated the 0 down payment and 40 year amortization there was a slight spike up from August '08. While I don't believe that we will see that much of a jump when we go to a 30 year maximum amortization next month, the spike may be bolstered by buyers who are going to take advantage of their rate holds.
All in all the Edmonton market seems "slow and steady." The majority of sales are in the 300 - 500 thousand range and if there is one indicator I would point to that would suggest an increase in the average price, it is the number of multiple offers we have had in this price range.
I think it would be crazy not to consider, at least to come extent, that this “worst in over 40 years” January and February will affect number of buyers out there. Most people are just having ample fun keeping vehicles running (and on the road) and getting to work. After work, I think a lot of people are doing what I have been doing: shovel snow then go inside and hide. Jan and Feb will be record low sales months due to weather and nothing more. That’s my 2 cents.
Cheers,
E-townbrown
So the price is at end of 2006 level even in the situation when we still have 35 years mortgage and lowest interest rates… that is a bad sign…. don’t you think E-townbrown?
You are right about the weather.. next excuse will be we don’t have anymore 35 years mortgage,right? Starting April the excuse will be the interest rate…
And for who is interested, how about to get 90 resumes for a position? Yes, the employment went up but it looks like 1 position for 90 candidates.. good? bad? Up to you to decide:)
“So the price is at end of 2006 level even in the situation when we still have 35 years mortgage and lowest interest rates… that is a bad sign…. don’t you think E-townbrown?”
No I think that after a significant correction there can be some sideways price movement expected – after the post-correction rebound of course. That was the single and only time housing prices went down since the peak. Everything after that has been seasonal and other fluctuations that get bulls excited when they fluctuate up and bears excited when they fluctuate down.
As for 90 people trying to get one job – that’s a strawman argument and really has nothing to do with the overall employment situation here. You make it sound like 1/2 the province is out of work. Employment in Alberta has been excellent – and for some, like myself, the busiest years were actually DURING the “economic crisis” as contracts were in place before the “bust”. Since these projects were not related to oil but longer term infrastructure needs, they were carried out despite contractors (at the time) going for the throat. Overall, I think Alberta faired very well through the “crisis” – only those tied directly to “tar-struction” jobs and the associated engineering and supply chain jobs were hit really hard when the oil price tanked. But these oil front-liners are used to boom and bust. They either have nothing and travel light, or know how to plan financially around these massive fluctuations. (Or they’re young and believed the chants of the bulls during the boom “This time is different! Peak oil! $200 oil forever! China needs our oil!)
So, in short, I think you’re just fearmongering and cherry picking data to support your rather untenable position.
And that is about as nice as I can say THAT!
)
Cheers,
Etownbrown
I didn’t want to sound like 1/2 of the province is out of work.. I wanted to tell you one of the situations now with the employment. I can give you another one from today.. 1 position, 30 applications…It looks like more and more people are looking for work.. you base your affirmation on government unemployment stats.. that doesn’t give you the entire picture and you know that.. On top of that to be employed doesn’t mean you make enough money to afford a house at these prices. In my opinion, the pool of fools is almost empty now… As I said in the past, when you have already 70% ownership rate it’s hard to believe it will go higher… I don’t have time to look for stats but you will see at least 20% of the population has a low income so they will not buy.. 10% left only but in reality there are other categories we can exclude from the 10% pool.
Speaking about your long infrastructure needs, they will stop soon.. That was a way to stop the disaster but the government money will stop… The private sector has to pick up and I’m afraid it is not going to do it at the level to support the high price of real estate.
And finally, about your reply to Professor.. If 100k looks high for you and you thing at that level you can gamble let me tell you the average income in your “books” should not afford more than a condo at these prices… there is no way to afford 350-400k SFH.
Just a hint for you:) 100k is low between the potential buyers I know. Not talking about the down payment… But again as somebody else mentioned not the level of income is driving all the people to buy… Sometimes you have to use your brain also…. Math grade 2 should be enough but… it looks hard for some:)
“As I said in the past, when you have already 70% ownership rate it’s hard to believe it will go higher… I don’t have time to look for stats but you will see at least 20% of the population has a low income so they will not buy.. 10% left only but in reality there are other categories we can exclude from the 10% pool.”
This is a phenomenal construct you have come up with here. You’re saying the buyers are all gone because 70% of people have homes and 2/3rds of the people who don’t own can’t afford a home.
There are a couple of problems with this theory. I will call it the “sex, landlords and oil” theory.
1. Sex. Two poor people who can’t afford a house meet in a bar. Dick meets Jane and 1 year later they are pregnant. Dick marries Jane. Suddenly Dick and Jane, together can afford a house, and would rather own when raising a family. (You see you’re assuming 2/3rds of the 30% of non-owning population is destitute – but really how many of them are just too young to buy or not in the need of their own home yet? Every year U of A cranks out how many thousand graduates? Every year how many people have that second baby and the townhouse gets small real fast? )
2. Landlords. If your theory is correct that these people can’t afford homes, they will need to rent. Then more people will graduate from college / tech school / university / drop out and will need housing and they can’t afford a home either. So suddenly there is a big increase in the demand for rental properties. So landlords, being the human philanthropists that they are, will build more apartment buildings and condo complexes to keep rents affordable. Oh wait. Landlords are pond scum – they will take advantage of the falling vacancy rate and raise rents as high as they can. Suddenly the “rent vs buy” calculations take a dramatic turn.
3. Oil. When projects up north start up again, the poor people here waiting for housing prices to implode will get some new neighbours – people coming into town to work up North and make big large piles of oily cash. These people will need a place to live. Even if they only stay here for a few years, some will buy just because, well, they can afford to and they can’t park a $80K welding truck and two cars in one stall at a condo complex. They may also bring with them snowmobiles and lake toys. These are hardworking trades people who like to live large when they are not toiling for oil 12 hours per day. Many can’t be bothered with renting.
Oh, and you can’t write all infrastructure off the page like that. I know what I am talking about. The infrastructure I am referring to cannot be allowed to deteriorate further – not without some very dire consequences. That’s why my industry stayed relatively busy during the “big bust”. We’re not tied to oil.
We’re tied to EVERYTHING!
Even grade 2 kids know that….
Cheers,
Etownbrown
“This is a phenomenal construct you have come up with here. You’re saying the buyers are all gone because 70% of people have homes and 2/3rds of the people who don’t own can’t afford a home.”
That is absolutely not a “phenomenal construct” he has invented. It’s just a basic and widely used statistic.
In any society, there is a limit to home ownership rates. Home ownership rates have increased here in recent years, as people jumped on the housing bubble bandwagon. The same thing happened during the dotcom stock market bubble when everyone was “investing” in stocks online. When the bubble bursts, they leave en masse, and eventually move on to the next fad.
No financially literate person would argue this ratio could or should approach 100%, as you have tried to do in your “sex” argument. Our normal ratio skewed upwards during our housing bubble, (as America’s did) and now that the we’ve turned the corner, it will revert to its long-term mean along with prices (again, as America’s did).
Furthermore, your comment, “Suddenly Dick and Jane, together can afford a house, and would rather own when raising a family,” is false. Why would Dick and Jane automatically prefer to mortgage a house than rent one? They would only do so if mortgaging is a financially better decision than renting, or at least if it is close (due to the intangible benefits some people derive from owning their residence).
As the gap between renting vs buying increases, eventually new Dick and Jane couples at the margin would choose to rent rather than mortgage; they won’t automatically choose to make themselves poor just to “own.” Some individuals may, but in aggregate, “Dick and Jane” won’t.
This why all bubbles eventually run out of gas and revert. Whether its finding a better investment than some dotcom pipe-dream with no earnings, or renting a house for a small fraction of the all-in cost of buying one, eventually money will stop flowing towards the trendy, bubbly asset and instead find more value elsewhere.
Also, your “Landlords” argument is absurd, and would only make sense if there was a monopoly (or government restriction) on supply of rental units.
If rental prices increase substantially, new market players will be induced to supply rental units, and prices will moderate. If you are actually challenging this very basic and widely accepted law of economics, I don’t really see much point in any further discussion.
Chris G
Think of it this way, 70% is a relative number, it’s not set in stone, ie it changes. As an example; when you have new in-migration and they all rent then that 70% ownership rates decreases. We all know that’s not going to happen, some will buy and some will rent. Either way new accommodations will be required and once the market absorbs all the new builds, then what happens? We could face the same thing that happened in Alberta from 2005 to 2007 or Edmonton from 2006 to early 2007? All I know is that no one knows for sure what’s going to happen, but if I were you I would pay attention to in-migration and new construction stats. Those have the greatest effect on re-sale prices, rental rates and land prices. Or as I like to put it, supply and demand, simple economics.
I understand this concept very well, thanks.
The fact that the mean fluctuates is a given. The notion that it could ever reach 100% is absurd.
The fact the total population denominator of this ratio also changes over time is irrelevant.
The statistics you cite are of course market fundamentals, but I don’t think it is up for debate that prices substantially exceeded fundamentals.
Dick and Jane hook up, shack up and then make babies and transition to home ownership because that is what Canadians (and North Americans in general) aspire to do and associate with success and long term planning.
I never said the ownership rate would be 100%. I said the ownership rate being 70% did not mean that the buyer pool was dried up. What I did say was that those who do not own are not a static group of people by a very dynamic and ever changing demographic. A $15 change in the price of oil and the startup of projects up north and the slurry of job openings will change migration to this province (once again) over night. Those who can’t afford to buy here will simply be trampled by people from other provinces who know how to make a buck here – just like I was back in 2006.
Right now the vacancy rate is quite high, and perhaps renters are enjoying a rent reduction, or perhaps some rental incentives or just the relief of sideways rental prices.
Chris G
If rental prices increase substantially, new market players will be induced to supply rental units, and prices will moderate. If you are actually challenging this very basic and widely accepted law of economics, I don’t really see much point in any further discussion.
So why build new rentals if rental rates will moderate? Where is the investment in that? REIT’s, the only real players in the rental market these days, all ready know this from the past, ie. the 80′s. Look back and see how many purpose built multifamily rentals where built. Way too many. That’s why rents in Edmonton where so cheap for so many years. The rental market was oversupplied until around 1998.
Those who buy or build multifamily rental buildings or projects factor this in. they’re in business to make money, not lose it. Why do you think Boardwalk quit buying in Alberta. The price per door became to expensive and, yes, that includes new builds. And that’s not going to change any time soon, due to the economic conditions that Alberta has and will have in the future. Or why do you think Boardwalk or Mainstreet own the majority of their properties in Alberta in the first place. Because back in the late 90′s the price of rental doors in Alberta was extremely cheap. Also there was the prospect of enormous future economic growth, thus when these REIT’s calculated out their cap rates, they were humongous. So big in fact that they also had phenomenal growth rates from 1999 to 2007. And most of the cash flow and gain in equity to borrow against came from Alberta.
The only supply of new rentals in Edmonton is coming from either speculative or forced into condo owners/single family homes. And that’s not going to last for ever either. There are a couple of purpose built new rentals being built, but only in areas where rents will supply a cap rate of at least 7%. So until rents, overall, increase enough that a new build is feasible, no much new purpose built rental property will be built in Edmonton.
Just look at what happened in Alberta in the last couple of years. How many purpose built rentals where converted to condos?
In the next couple of years rental rates will be going up significantly to balance out the new normal cost of building in Alberta. So say hello to my little friend called “INFLATION”. That’s what happens in hot economies like we currently are and have experienced in Alberta. Look at the BRIC countries for a comparison.
This is not an intelligent conversation. The market for rental housing is reasonably efficient. I am not willing to debate this with you.
I am not calling anyone dumb.
Some of the arguments being put forth here (not the people making them) are absurd, and thus not intelligent.
It is like trying to debate math with someone who contends 2+2 = 5. I am not willing to ignore these types of logical errors.
I am not throwing a tantrum or being childish, but I am at a loss to find value in continuing this discussion. I’m sincerely sorry you find this offensive. I have done my best in limited time to add value to this conversation but I’m afraid it is falling on deaf ears, and this is unlikely to change.
Your misinterpretation of my market efficiency comment is a good example of this.
If you guys watned to discuss open-heart surgery methodologies, I’d say the same thing; we can’t have an intelligent conversation about something we don’t all understand.
Chris G
Ok, after re-reading all your posts you seem to just be saying that renting at the current time makes more sense financial to you than buying. Strictly by the numbers, you may be right, but if you factor in the intangibles, like some of the ones etownbrown mentioned, you may be wrong. And I talking factors such as; family, stability, friend, neighborhood, etc., not sex, landlords and oil.
PS: sometimes its hard to track the conversation on this blog when bits are posted all over the place.
@ChrisG:
You’re putting words in your opponent’s mouths and then using that as a reason to run off from the debate claiming that there is no intelligent discussion. Some would consider this as a clever excuse to quickly claim victory and run off before even landing a solid punch.
I never challenged any basic tenets of economics, but I am not confined in my thinking to oversimplified Economics 101 models but rather consider real-world and *local* experience which is definately a factor here in Alberta. This is not not Vancouver and it’s not Winnepeg – it’s a market as unique as the local political and corporate culture.
1. Rental markets can respond a whole lot faster to an increasing vacancy rate than they can a decreasing one. When there is an exodus of people out of here like after the last boom the rental companies can very quickly lower rates or add incentives to entice renters. (They didn’t go down much – like housing prices.) But if there is a sudden migration due to a boom, the supply of new rental units is not quite so instantaneous. It takes time to get the engineering done, permits and approvals, break ground and complete construction. And don’t forget – where there is sudden demand, you can bet it has to do with a boom around here meaning the trades and laborers are all up north making very large money. This means those who remain in town for local projects can almost name their price. Depleted manpower reserves also make projects go into cost and schedule overruns. Smart companies will also avoid responding with a knee-jerk reaction to what may be a short-lived surge in demand. The “supply will meet demand” theory is just that. A theory. In practice it’s far more complex.
2. Because of the lag in supply following demand in this case, landlords do what landlords do best: rase the rents. How many renters gave up and bought a house or condo rather than paying exhorbitant rent hikes during the last boom? How many were afraid of getting priced out while watching housing prices rise? How much did rents go up? Was there supply to meet the demand? No. Was there a housing crisis in Edmonton? Yes. Remember tent city? Remember the seniors on a fixed budget being priced out of the rental market? Demand overwhelmed supply. Economics 101 theory did not explain the situation.
Sometimes supply meets demand. Sometimes right away, and sometimes after a period of supply lag. And sometimes, prices skyrocket if supply fails to meet to demand, and the market self-regulates without any increase in supply at all. People drive less during a gas shortage. People buy homes when vacancy rates plummet, rents soar and the cost of borrowing is low.
This is a more complete generalization of “supply and demand” as it applies to the rental market. And it applies to both residential and commercial markets.
I’ve been in engineering for 20+ years and do project and construction management. I’ve lived here for 40 years and seen two major boom/busts and lots of smaller ones in between. Don’t underestimate the power of experience.
Intellect makes for great theories – that experience can quickly qualify or dismiss.
As such, your assumption of an authority position on these subjects based on the citing of ‘Economics 101′ is not acknowledged.
Now if you’ll excuse me, I have work to do. I am busy working 55+ hours per week maintaining a vital component of Alberta’s badly aging infrastructure – like I was throughout the recent ecnomic crisis. I got a 10% raise during the crisis as a matter of fact. Still think it wise to scoff at infrastructure maintenance now? When I said maintenance I didn’t mean dusting. There are advantages to being in infrastructure-related engineering and once or twice removed from oil related boom-bust cycles. That’s another thing experience has taught me in the last 20 or so years. Utility companies are years behind with major maintenance projects and my company is outsourcing to every local consulting firm with a sign over the door. If you want a big oil machine to run you need to have the infrastructure to supply both the machine and the influx of people needed to build and operate that machine.
Cheers,
Etownbrown.
Etownbrown, all I meant was that I was bored with this “debate” because we’re not talking the same way and it clearly will not get anywhere.
I have nothing against you personally, I only found your “sex, landlords, oil” and other unorthodox ideas pretty far out in left-field. Unless you’re willing to accept basic, well-established logical realities, there’s not much point in this.
I’m sure you’re a smart guy and a good engineer, but just because the world is more complex than economics 101 doesn’t mean we can throw those rules out — they should never even come up for debate; they are fact.
I share your sentiment about “bean counters.” I am not one.
I agree there are intangible sources of value with owning a house; I mentioned so in at least one of my comments.
For me personally, I give minimal weight to those intangibles so the decision is straightforward. Perhaps what seemed as my disregard for those intangibles (which you obviously value) is what rubbed you the wrong way?
My view is that right now, there is a substantial financial gap in the buy vs rent decision that favors renting, so one has to place a lot (excessive?) value on those intangibles to justify buying in Edmonton.
At this point I’m not really willing to spend any more time talking about this, and I’m certainly not interested in trading cheap shots about each other’s professions or lifestyles.
I am grateful to this winter. We were in indecision,.. may be to settle down here… Now I know for sure: I don’t want to live in this climate, in the state of permanent construction, with huge debt all over around.
Just wait until the potholes this spring! HAAAZAAAAA!!
Cheers,
OB
Good report guys, fairly balanced! I disagree about price increases for the rest of the year…but, meh…Whatever, I’m going to go hibernate.
I guess it has been all of the beautiful weather in Calgary that is contributing to their improving sales numbers. When I’m rich I think I’ll spend my winters in Calgary.
Edmonton is usually a month behind in catching up to Calgary.
Prices and sales are up in Calgary, so will be in Edmonton.
Ok, so the reason for the dead sales activity is the cold. Versus 20 days to go for 35 yr ams and fixed interest rates set to begin their long ascent higher getting closer to the long term average. (8.25% over the last 25 years)
I would’ve thought people planning to buy and live here could handle the cold.
The way I understand this post is that people in the 300-500 range can handle the cold, (repeat buyers with “equity”) but the 0-299 range are driving cars without heaters (first time – no equity). That makes sense to me, as realities are different right now for new buyers, compared to the new buyers from 5 or more years ago.
I think what is coming is higher average prices combined with lower sales activity. This is because the “step up” buyers are completely out of touch with the financial thinking of today’s first time buyer who just can’t envision paying unknown amounts of interest for 30 years on something that went from 200,000 in 2006 to 300,000 by the end of the year.
Real estate corrections start with the first time buyer. They are the lifeblood of the market. Higher prices with lower sales is a very strong indication of a correction coming.
At some point in 2011 I think the average sale price line on the chart above will cross the average price of 2006. By then the average “step up” buyer will have an inclination of what is really happening.
So it’s really the $200 – $300K range then. Because if the prices in 2006 were acceptable then there never was a 0-$200K range to begin with. The truth is that even before the boom there were slow and steady price gains from 2000 to 2005. This was the slow and steady correction before the housing boom in 2006/2007. I can understand why bears are looking towards 2006 prices for their target numbers – they think the price correction up to 2006 was sustainable but the housing rush afterwards was not. But I have another theory. Housing prices will simply continue to go sideways until their average long-term price gain history turns back into a nice straight line. Every year we go sideways, we get closer to that straight line.
Yes, prices could go back down and then back up again, or they could just continue sideways – like they have been. Face it. There might NOT be a big house sale in Edmonton and a bunch of happy bears running about buying houses at 50% off. This is especially likely if the economic recovery does not get derailed by spiking oil prices due to conflict in the middle east and the falling apart of OPECs recent control on production and prices.
Cheers,
Etownbrown
Right, but obviously if nominal house prices flatline long-term (i.e. real house prices decline), then renting your residence and investing your money elsewhere is surely the better decision.
I said straight line I didn’t say FLAT line. If you want a flat line you need to look at prices from 2008 to 2011. If you factor in the price correction (and housing frenzy afterwards) the line becomes notably sloped – upward. Homes go up in value in the long term. And when you rent you don’t “invest your money elsewhere” you invest the DIFFERENCE between renting and owning IF one actually does that. (Few do). What is the difference between renting and owning right now? Not enough for me to want to be looking down the barrel of a 25 year mortgage 10 years from now with “all that money I saved”. You guys make renting sound like it’s 10 cents on the dollar compared to owning. Who are you renting from? Your mom? The rental market in this town is brutal and we all saw that during the last boom. What I paid for my house is constant. I will never pay more for my house – my mortgage payments will go down as me and my wife bring in more income – not up. Rent always goes up. Besides, one could rent forever if all they based their decision on is the rent vs buy calculation. I had far greater motivation to own a home and it had to do with having kids. And I didn’t have kids to get rich. The “kids versus childfree calculator” said to get a vasectomy. But I’d be missing out on the priceless joy of these two fantastic little people that are with us now. The rent versus buy calculator can’t add in the value of having a long term plan for my family and kids that means one day they’ll be home owners a lot easier than other people.
In 30 years when I am off to the retirement home and hand the keys to the house to my children to rent out or live in, you can show your kids the rent vs buy calculations you did. I’m sure they’ll feel SO MUCH BETTER about their inheritance then… Historically, the “saving the difference” when renting is a lot of hot air. Most Canadians do not save money anymore – average annual savings are actually negative after declining steadily since the 1960′s. This means that whether people own or buy, they are living on all (or more) of their montly disposable income. This also means that the smart bear renters are not saving up those big bags of cash that the rent vs buy calculators have promised them.
It’s a great theory but one that does not often play out in practice.
Your logic is seriously flawed. I can’t direct this discussion forward intelligently until we are on the same page with the basics.
I’m going with the application of historical data from past events and making corollary to theory. Not being a financial analyst or economics professor requires me to do that.
You’re claiming to be an expert and feeling too priviledged here to “lower yourself” into debate on the basis that your opponents are not qualified to hold a discussion on the subject. So if you don’t want to post here, feel free not to.
So think about how frustrated you feel trying to talk to those you have deemed to be uninitiated and then you’ll know how I feel trying to have a discussion with someone I have deemed to be a textbook narcissist.
Cheers,
Etownbrown
Professor, we were told by a number of banks and RE agencies that prices will remain stable in 2011 and will go up in 2012 by the rate of inflation.
No correction has been mentioned.
And we already are the cheapest RE market in Canada.
All the major cities(Toronto,Vancouver, Montreal, Calgary, Ottawa) are more expensive, even smaller ones like Saskatoon and Regina if you factor in the income/price ratio.
Cheapest in Canada is not saying much…as ALL of Canada is overpriced anyhow. Check out the US..heading for a RE double dip:
http://money.cnn.com/2011/03/03/real_estate/housing_buy_or_not/index.htm
Sorry, but sales have been dropping for so many months now. It ain’t the weather. It’s nice to think that…but last winter there was cold weather too.
WaitLonger has never owned anything and never will. He is a pure basher. His only hope is that average price drops soon (before his 45th birthday) to 50,000.00 so he can borrow 2500.00 from his parents and move out of the basement.
Who are you Tonto? Why are you bashing?
Hold yourself to a higher standard, and have some class. Go troll somewhere else.
Sigh, here we go again. I must be hitting some nerves with a few stressed out home owners here.
I actually own quite a lot. I even own property. Just not in Canada.
I rent my house in downtown Edmonton. I support my family,I have a 6 year old, as well as my mother in law. I make 100K year, and it’s going up to 135K in June.
Oh yeah…that $2500 I’m going to have to borrow from my parents to buy a house… well I save that much every month.
And why would I only put down 5-10% a house anyway. Haven’t I already told people that’s a disaster waiting to happen? It’s not a smart thing do something that. Hello….on my 50K house I’d put down at least 10K.
I rent out 2 rooms in the basement for supplement income.
I have no debt. I do not need money from anyone.
I will buy a house in Edmonton. Just not this year, and probably not next. When I think it’s bottomed out. My landlord actually wants to sell me his house now for 300K. I said no thanks. I found out the assessment is 280K. Sorry, but while the house is decent for the location, it’s old as shit. I literally would have to re-do the wiring..the garage, the front deck, fix the bathroom and kitchen. Basically it needs 100 K of work done to make it “nice”. And Why would I pay 300K+ for a house when the guy I’m renting from bought it for probably 150K 10 years ago??
In fact…..why doesn’t he wait another 10 years and try to sell for 600K ?
Because it’s not worth it and no one will buy it. What??you mean property value doesn’t double every 10 years???#$@#
but…but…everyone told me it does…
Now Tonto, instead of stressing and attacking other posters personally, deal with your issues. Start with an excel sheet. Calculate after-tax income, subtract expenses and add debt payments. It’s not that hard, you will even be able to find a few hundred a month in savings to help pay down your debt. Start with the highest interest / smallest debt amounts first. Just be calm and start with a solid plan.
If you have any equity…do take out a loan to pay off HIGH INTEREST credit cards and stuff like that. Good luck. Let me know if you need any help.
Well if you’re financially independent and debt free and have that kind of income, you can AFFORD to play the ‘rent vs. buy’ game. Whether you gamble on prices going up or prices going down, you’re still gambling. The fact remains for most average working people that make close to the average household income, buying a house is a good thing in the long term. Also, the “rent rent rent” answer we are seeing here is also based on a serious of calamitous happenings that have, as of yet, not shown any signs of coming down the pipe. These scenarious are being offered as inevitabilities, like ‘$200 oil forever’ was offered by bulls, and the threat of a US style housing crash was by bears. Both never happened. Maybe there is some thinking out there other than Bull or Bear thinking – like middle ground.
I actually was a bear and bet on “worst case scenarios” too once and lost about $175K. Well, actually I lost nothing – I just need to pay more now for the same thing. Maybe the bears will be right and buy homes for 50% off next year and I’ll regret pulling the trigger. Or maybe things will pick up here again (albeit at a more sane pace) and the bears waiting for their sale will get left in the dust like I did back in 2006. In any case, my living costs to remain in Oilberta and work and live were going up whether I liked it or not, and whether I rented or owned. Inflation is as inevitable as death and taxes.
If I did not have so much family and extended family here I would probably think about living in a far less sucky place. Yes, there are jobs here but that does not always make up for the other things that suck about Edmonton. I’ve shovelled six metric tonnes of snow in the last two months and the suspension on my otherwise reliable car is near destroyed due to driving over frozen tire ruts. Somehow our “festivals, river valley trails and shiney new art museum” just doesn’t make me feel any happier about living in the great white north. (I’d leave but the wife says no. We have too much family here. Safety in numbers? Or just mass stupidity?)
So, I guess we’re stuck with eachother for now!
Cheers,
Etownbrown
Talk about car problem…..same. I just paid $1600.00 today because my power steering pump broke. Apparently…it’s common in this cold weather. Anyhow, I did something I didn’t think I would need to. I bought an SUV. I actually had to rent a car for 2 weeks because I couldn’t drive down my street this winter. Stupid rear wheel drive. One of those things I wasn’t expecting to do. I thought I could get a couple more years out of my existing car. But oh well.
“Also, the “rent rent rent” answer we are seeing here is also based on a serious of calamitous happenings that have, as of yet, not shown any signs of coming down the pipe.”
That is absolutely not the case. My “rent” answer is solely derived from current market numbers, and nothing else.
So what then, is the RELEVANCE of the number the “rent versus buy” calculator spits out if people DO have other variables in play, such as emotions and values? You scoff at emotion when it comes to financial decisions. This is laughable, as emotion drives entire markets and creates the greed in bulls and the fear in bears. Would I have to put my kids up for adoption if your “Kids versus Childfree” calculator told me kids are a bad investment?
You bean counters. You can never see past the numbers. (That’s what ultimately limits your worth.) The number a rent/buy calculator spits out might be YOUR sole motivation but don’t impose this narrow view on the rest of society – yes those masses that actually drive the marketplace.
I don’t live for money. I use money to live. That changes my “thinking” a whole lot – and still somehow enables me to remain financially successful and economically viable.
Count them beans.
Cheers,
Etownbrown
Rent vs buy calculators are important for making an informed decision, however, renting, in itself, earns you freedoms that buying cannot. We all have to pay cash for freedom in this world, and renting offers freedoms that are priceless IMO.
- Not attached to the house for 30-35 years in a real estate market imposed life sentence
- No downside risk of a dropping market, except, your rent might go down or your landlord might go bankrupt
- Get up and leave or upgrade rental arrangements at any time
- Landlord can fix all those little things that add huge costs to owners
- No margin call when you go to renew your mortgage
- You don’t have to hire a bunch of service sector agents or do a bunch of paperwork to get into your house then give you a huge bill (buyin)
- You don’t have to hire a bunch of service sector agents or do a bunch of paperwork to get out of your house then give you a huge bill (buyout)
- The system has nothing to seize / claim / lein / caveat from you
In this economy and in this part of the world, houses end up owning people. What kind of life is that? Rent for freedom brother, rent for freedom.
Sheldon,
“Affect” is a verb. “Effect” is a noun.
Also, your comment, “Edmonton is the most affordable city in the country,” is clearly false. Edmonton may be the *least unaffordable major city* in Canada, but it is obviously not the most affordable city in Canada. There are plenty of smaller Canadian cities where real estate is less overpriced than in Edmonton.
I don’t give any weight to your commentary or predictions, but it is nice to see the stats. Thanks for posting them.
Wow, I had no idea how far this “it’s different this time” line of thinking went.
Forget about fundamentals, apparently 33% of the people on this blog think the rules of the English language and of basic logic no longer apply!
Waitlonger;
I enjoy your posts very much.
In your case you earn $100,000 a year and waiting for house prices to fall to $150,000.
1 and 1/2 yearly salary would buy a beautiful house.
Don’t you think that would be “severely affordable?”
That’s not counting your spouse’s income.
1 year salary for 1 nice house.
Now that would be very very severely affordable-so to speak.
Although it sounds nice, I don’t think it will happen.
If prices fall 20% more…then I might bite. It would make more sense.
But for right now, given my situation..given the economy, I’m very happy renting.
However, I will never be stuck with a large mortgage. Who knows if my situation changes. I could always lose my job. I could get hit by a car or something. That’s why I save as much as possible. I do have a very good income for my age so I’m taking advantage of it now.
Let’s say the avg house prices falls to 200-220K. Then it’s much more affordable. Weren’t prices low 10 years ago? Wasn’t the construction quality better? It’s perfectly reasonable to expect prices to be that low. Hey, if it’s reasonable for people to think that prices can double after 10 years then I can believe the opposite. People call my a doomer and stuff.
I mean…it’s not like I don’t like buying nice stuff. I just bought a new car. Sometimes you have to buy things cause they are a necessity. Buying RE right now is not. Again..this could change in 2-3 years. What harm is it to wait and see what the market does in 1 year? If a house is suppose to be the biggest and most important investment a family should make (I personally don’t think it is)….then make sure you are not getting hosed on the deal at least. But then again…maybe I’m wrong. Maybe my 280K house will cost 600-700K in 10 years. Or maybe 1+ million like in Vancouver. At that point I would not even worry about been priced out of the RE market….I’d be worried about my bowl of cereal that will cost $40.00.
Thank you for appreciating my posts. I get flamed more than get compliments
Yes, Charlie that would qualify as “severely affordable,” but just becuase something is affordable doesn’t mean it’s a wise purchase.
The amount of income a person earns is irrelevant. If WaitLonger earned $1 million per year, it would still be a poor financial decision to buy a primary residence here rather than rent one.
I believe I am in a similar position as WaitLonger, only younger. I just ran another buy vs lease calculation, looking at comparable downtown condos I could mortgage instead of my current rental (they average ~$190,000, but I rent for ~$1000), and the numbers come up strongly in favor of renting. Condo prices will need to drop a further 20%+ before mortgaging a condo would start to be a better financial decision than renting one.
If I woke up tomorrow and made twice my current salary, nothing in that calculation would change, and I’d arrive at exactly the same result: renting instead of buying is a no-brainer in this city at this time.
Not sure why all the harshness on renters vs owners. Renters are “bitter” and homeowners are “scared”. For the most part, neither are true but calling the other person a dummy for what they’re doing reinforces the fact that what I’m doing is right. There is a market for both, and there are many reasons for doing one or the other. I rented for the first 8 years after I left home. It made sense as my job had me transferring all over the freakin place. Four provinces and a territory in those 8 years. Then I got married, kids came along and it made sense to buy a home. I’ve owned homes now in 3 different provinces over the past 22 years. First home I ever owned in 1989 was a 5 year fixed on 25 year ammortization at, get this, 10% interest rate. Thought that was a good rate at the time lol! My point being, is that over the long term, owning a home is a good idea. Over a 10 year period your house will appreciate plenty, but there is also a downside. Unexpected things happen and if for one reason or another you have to sell your house because your company wants to move you, or your spouse leaves you, or through either recession or injury you lose your job……well you’re screwed if the market is down. Renting offers flexibility, but it has obvious downsides as well.
I don’t think the housing market is going up or down much this year as price inflation/deflation pressures are roughly equal. Bmo says otherwise http://www.financialpost.com/news/Housing+market+cool+down/4379296/story.html but I just don’t see it with the inventory levels we have right now. As far as the USA double dip goes…..it may very well happen, but has little to do with us. It will be easy to know, in my opinion, when housing prices are due for another leg up. Watch rental vacancy rates, Alberta gov’t migration figures…next one due out in April, and resale housing inventory and sales. If it wasn’t for the secondary rental market (people who bought condo’s/duplexes/SFH to flip or had to move and couldn’t get rid of them) we’de already have a tight rental market as they just aren’t putting up a lot of apartment buildings. My two cents worth…..and I didn’t call anyone a moron!
Itchy, of course I agree there are many factors of consideration. Mortgaging a residence is seldom a terrible decision, as is renting one. The goal is to determine the optimal decision, and my point is that right now, due to the abnormal state of the market, renting is likely the better option. Of course, prior to the burst of Edmonton’s housing bubble, buying was clearly the better decision.
In normal times, the buy vs lease decision is much less dramatic, and the two options much more even. This is especially the case as an individual ages and builds savings that exceed the room of available tax shelters (RRSP, TFSA, etc.), making the tax exemption on a primary residence all the more attractive vs longer-term renting.
However, right now (in Edmonton) the numbers for renting far outweigh the case for mortgaging. Your point that mortgaging a residence for 10+ years is probably not a terrible decision is completely valid, but it does not mean buying right now is the optimal decision. It just as valid if a potential buyer waits a couple years before starting the mortgage process of a long-term residence.
I also dislike the emotional angle many approach this issue with; my comments were driven solely from a logical perspective and I didn’t intend to slag anyone. (Not sure if your comments on that were directed at me or not.)
Your comment doesnt make sense to me. You say you base your comments on logic, yet you say BEFORE the bubble burst, buying was clearly the right option? You mean when prices were high? Buy high and sell low is the strategy now?
Prices are 15-20% off the peak so that would mean that now is the low point IMO. Looking at historical trends, Edmonton prices have never fallen more then that in one period so I dont see how renting is by far the better option. Even when plugging the numbers in this handy tool, one could easily make the conclusion that there are circumstances where buying is the better option.
http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=2&ref=patrick.net
I think people should wait a year and see what happens. Hey if every agent and CREA are telling you prices will go up 5% this, you can still afford to wait a year. It’s not going to kill you.
You misunderstand.
All I am saying is that during a period where house prices are rising rapidly for a prolonged period of time, the buy vs rent decision becomes “just buy,” for many people, because the high probability of selling for a substantial gain in 1-2 years effectively dwarfs the other factors of consideration.
That said, obviously there is an inflection point where the bottom falls out of the run-up in over-valuation, and those who bought on that basis will end up making a mistake. In Edmonton’s case, we are well past the peak of the bubble so that logic goes out the window.
Your comments re: timing the bottom are irrelevant to a buy vs lease calculation — all you need to do is measure the value in the buying scenario vs renting and determine which is most probable to be the better outcome.
“Of course, prior to the burst of Edmonton’s housing bubble, buying was clearly the better decision.”
Sorry… What? You must mean Edmonton, London right? Because Edmonton Alberta never had a housing bubble, so no such bubble was ever there to burst. Unless you want to call a -16% aftershock after a more than 200% price gain over three years a bursting bubble…
Your posts are starting to read like a WWII Nazi counter-intelligence propaganda campaign. You (futily) try to discredit your detractors and call them “too lacking in basics to have an intelligent conversation with” while offering your worst bearish realestate nightmare as a historical fact.
If you’re going to rewrite history you need to burn a few books first. I recommend starting with your Economics 101 textbook there…
Cheers,
Etownbrown
And with Godwin’s Law clocking in at 6:20pm this ridiculous debacle of a debate is officially over!
Hey you started it with the whole altering history thing. Besides, I never called you a Nazi. I said your post read like the ramblings of a historical revisionist, which was more of a politically incorrect metaphor than an ad-hominem attack.
Suggesting you might be a narcissist – now THAT was an ad-hominem attack. But then again, I probably lack the intelligence to use such big words and this is not me but a ghost writer that I hired to win arguments for me on the internet.
The debate is tomorrow by the way. This was just the pre-debate snowball fight. You did quite well. Feel proud.
Sieg Heil,
Etownbrown
Karl, first the calculator is not the right one.. don’t forget in US you can deduct the interest… second only if you assume the price goes up faster than the rent yes it is better to buy but that is not the case right now in Edmonton.
One question… why in many new communities the new houses are cheaper than the houses built in 2005-2008 you can see on MLS? Same size, same location.. .it looks like the builders have enough options to reduce the price comparing with “owners”.
Waitlonger,
I agree. No point in rushing any decision, regardless of what you choose to do.
BuBu,
Good point on the tax deductible interest, I didnt think of that. That would make a difference. My point was that at this point, renting does not far outweigh buying. IMO, you could make a case for each. I think prices will go up this spring and no I am not a realtor.
Karl, if you post your email I can send you the Canadian buy vs rent worksheet I use.
We earn more than $180 K and still rent…. Unless absolutely required to buy, renting always rules under current scenario….
We compared the house we want to buy and the house we are currently living…. Rent rules and what a peace of mind….. People , rent and save your money for great oppurtunites that will come.
Prices were either stable or going down slowly for the past 2 years and will continue for a few more years.. So what’s the hurry to buy ???
Exactly.
I’d like to know one thing:
In your opinion,what’s the price range in Edmonton that would induce a mass buying of properties again?
I can’t say that. It’s impossible to predict the madness of crowds.
For me personally, I would need to see at least a 20% decrease in house prices (or, a comparative increase in rents) before it would start to make sense to buy.
That said, I strongly suspect that if prices fell 20%, we would not see a return to the buying frenzies of the bubble years. Once housing fully loses its lustre as an investment fad, it will take a long time to gain it back. People will need to forget the lessons learned from this bubble’s burst, and that will take many years. It is much more likely we will see a buying frenzy in a new fad, such as green energy stocks, for example.
Also, government & CMHC distortions of the market played a big part in prompting the buying frenzy, and I don’t expect those same actions to become politically desirable a second time soon either.
Personally, I’m looking for a $320K house to land between $200-250K. Keeping in mind that 15 years ago my parents house was only $110K and now worth around $320K. In the last 10 years I have only earned $400K. (About 40K a year.)
So am I expected to spend the equivalent of my life income on a house that with mortgage will nearly doubles the cost again? (I am a HEAVY saver, having saved nearly 40% of my income in those 10 years of working while “renting”.) My parents together earned nearly 80K a year, and had only a fraction (1/3) of the cost of a home. What kind of economics are we playing?
I pay about $24 a day to live where I am at. My rent would need to double to match my mortgage alone, not to mention utilities and taxes on top. If the landlord raises rent again, I’m simply moving. There are plenty of vacancies around town with even lower rent right now. My friend “manages” an apartment that is sitting at 50% vacancy. Apparently people are moving away from Alberta or being evicted for non-payment.
I can understand how unaffordable it is getting. I paid $5 for a 4L of milk the other day, so I’m going to have to start making due with only 2L of milk. Time for cut-backs, inflation is kicking in. People don’t start buying when the price of everything is going up but wages are stagnant. Geez, I don’t know too many people making $100K in Edmonton right now. Do you?
Call me crazy?
Your assessments are correct. It’s perfectly fair to want prices to drop for affordability reasons. Just wait and see what happens when there’s a flood of listings this spring.
Stricter lending = lower prices
More listings = lower prices
Rising rates = lower prices
Less buyers = lower prices
Keep saving, you are doing the right thing. Don’t do something stupid like taking out a 400 k mortgage because the banks approve it. That’s what started this whole scam.
Wait it out, watch the correction, and you will have your pickings.
“Stricter lending = lower prices
More listings = lower prices
Rising rates = lower prices
Less buyers = lower prices”
Isn’t funny when you say this to some people, how they just look at you with this brainwashed, empty look and respond…”But houses always increase in value…”
THE LEADER IS GOOD, THE LEADER IS GREAT!
“Hey this bean looks like the leader! Lets add it to the collection!”
positive provincial migration= higher prices
strong economy= higher prices
higher oil= higher prices
warmer weather= higher prices
housing prices are looking “even” with a little increase in prices by the end of the year over year i would say
i really don’t see how renting is better than buying.. if your gonna be living in some sort of building the rest of your life(like everybody in the world) might as well buy as soon as you can and start paying the house off.. eventually u WILL pay it off and after that its done.. if u rent, your paying and getting no were.. at the end of the road your still paying rent..
plus there is less freedom in renting. landlord could sell at any time making you move out(with proper notice). you can not enjoy it like it were your own
711. I agree with you. Buy rather than rent if you can.I bought my house in 1972 for $22,000. Some people at the time were saying wait for the prices to drop.August 2010 my house appraised at $390,000. Plus the equity in my house allowed me to purchase revenue properties that are also worth much more than I paid, and now provide good positive cash flow.For me there was pride of owning my own home and the satisfaction of being able to make my house the way I wanted it.Now that I am retired I could not afford to rent a house like mine.My advice is to buy soon if you can. You can wait to see if prices drop. If they do, how long do you wait? Until they start to go up? When this happens there may not be the house you want where you want it. So now you either buy something you are not completely happy with or you keep looking ,meanwhile the prices may keep rising and the choices go down.
Your assessments are correct. It’s perfectly fair to want prices to drop for affordability reasons. Just wait and see what happens when there’s a flood of listings this spring.
That upward tangent on the new listings is the highest degree slope ever… LOL, as well, its only MLS supply. Thats just a large % portion of the real supply on the street.
- High starting supply increasing at an increasing rate = lower prices coming..
I wonder if we will see record supply numbers this year?
High prices hurt demand and the average price is rising, so, the demand is dropping.
- Lower demand = lower prices coming
- Lower supply of credit is coming (tomorrow) = lower prices going forward
Once the prices start normalizing from the last few outlier years, it will be a real win for the people of this great country.
Good point on the tax deductible interest, I didnt think of that. That would make a difference. My point was that at this point, renting does not far outweigh buying. IMO, you could make a case for each.