RBC's housing affordability measure in Canada's largest cities is as follows: Vancouver 72.1%, Toronto 47.5%, Montreal 43.1%, Ottawa 39.0%, Calgary 35.9% and Edmonton 31.5%. That means it taks 31.5% of monthly income in Edmonton to own an average detached bungalow, including taxes, utilities and mortgage payments. Meanwhile in Vancouver it would eat up 72.1% of your monthly income. 

"The Alberta market continued to be stuck in low gear in the first quarter of 2011. Sales of existing homes and construction of new housing units showed very modest increases," said Robert Hogue, senior economist, RBC. "While market conditions have become more balanced in recent months, owning a home doesn't seem to be getting more expensive in the provincial market at this stage. Affordability levels are still looking quite attractive."

RBC's housing affordability measures remained relatively unchanged, and below their long-term averages in the first quarter of 2011 in Alberta. The measure for the benchmark detached bungalow in the province moved up to 31.3% (an increase of 0.4% from the previous quarter), the standard condominium stayed flat at 20.2% and the standard two-storey home fell to 34.2% (down by 0.2 of a percentage point).

RBC's report notes that there are signs that the Calgary housing market is finally overcoming its protracted slump. "Calgary home prices have yet to break out of their listless trends, but they rose at their fastest rate in more than a year in the first quarter, with detached bungalows leading the way," said Hogue. "Firmer market conditions and higher prices had only limited impact on Calgary's affordability, which remains among the most attractive of Canada's major cities." (This was interpreted by a Calgary reporter to mean that Calgary is THE most attractive of Canada's major cities). 

They did not make any comments (that I could find) on the Edmonton market, even though it was the most affordable in their study. I assume that is because Edmonton is not yet showing signs of coming out of its "slump." I would suspect that will make us even more affordable next quarter (relative to other major cities). 

The majority of Canadian markets experienced weakened affordability in the first quarter of 2011. "Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada - with Vancouver being a notable exception," said Hogue.

One of the things we love about this particular conference is that its not brand specific (which doesn’t mean brand loyalty doesn’t exist here). The presenters were exceptional with my favorite being Benjiman Tal. When describing Ben Bernancke's obsession with printing money he described it more humourously then I’ll do justice to here, but he basically said that Bernancke is thinking that if he blows hard enough, the pig “US economy" will fly. 

With the conference not being brand specific it's an opportunity to talk to a lot of people you wouldn’t normally get to chat with. For example, we posted recently about needing someone for a showhome for our project in Sherwood Park, so who better to ask some construction questions than Vince Laberge who was at the conference and is the incoming President of the Canadian home builders association?

Among the more notable conversations I had was one with the always enlightening Bill Buterman with Axess Capital. Bill’s company is a MIC (mortgage investment corporation) that has somewhere between 250 – 300 million dollars of syndicated mortgages under management. Bill has an MBA from Harvard (I have nicknamed him “the money man”) and is one of the council members for the Real Estate Council of Alberta, the provincial Regulator for real estate and other related industries. Mortgage backed securities or syndicated mortgages are extremely complex and until recently were not regulated. Maybe in short order I’ll do a post on this or better yet have him do it.

Then there was Wayne Moen with Remax River City who is also the president elect for the Canadian Real Estate Association. Last year he hung up on me over a year ago during a heated discussion on title insurance. To Wayne’s absolute credit he called me over and we cleared things up very easily. Wayne is a huge fan of title insurance and gets it for all his properties as well. Actually once we got a couple of minor facts sorted out we realized we weren’t that far apart in our points of view. If you want more info on title insurance Stan Gallbraith of Galbraith law did a guest post about it.  

Then there was Larry Aitken who I had butted heads with philosophically when he was president of the Alberta Real Association and I was at the regulator the Real Estate Council of Alberta. In fact some my dear friends from RECA were at the conference. The one thing I respect about Larry is that eventhough we would disagree on certain topics he would always listen to the other side. I wish some of my dear friends would do that sometimes.

I can’t leave out Ken McCoy who had served extensively on REIX (Real Estate Insurance Exchage) who provides our errors and ommissions insurance and also replaced yours truly at RECA. We chatted extensively in the corner of the AREA hospitality suite hosted by Lyle Magnusson the current AREA president who is from Vulcan AB (who also gave me a pair of Vulcan ears). By the way thanks for the compliment Ken.

And of course the REALTORS® Association of Edmonton president Chris Mooney, who is a much better singer than I would have guessed. And no I didn’t ask him about “external forces.”

It was great to see and talk to so many people, many of whom are leaders of the industry unlike us poor sods who were there “on our own dime.” One thing that Sara and I both agree on - no matter what ideas or conversations we have this conference it always stokes the gray matter fire. It engages you in a way that many conferences don’t because of its diversity. For the many REALTORS® that read this blog, we highly recommend checking it out in 2013!

Amortization Changes:

The recent changes to mortgage rules were designed to curb household debt in Canada. Last April we saw the maximum allowed amortization in Canada drop from 40 years, to 35 years, and this March we will see a further drop to 30 years. To us this appears to be part of a long term plan, and perhaps we will even see another drop to 25 years next year (putting us back to what was the norm for as long as I can remember). A gradual decline is certainly preferable to a massive change, and providing a few months notice also "lessens the blow."

So what does the amortization change mean to the average home buyer cost-wise? The monthly payment on a 30-year amortization is $34.72 higher for every $100,000 of mortgage than a 35-year amortization (assuming 4% interest rate). That's not a really a big deal as far as I'm concerned, the big deal is the impact it will have on approvals - many buyers are qualified at the maximum amortization, so buyers will not be approved for as much after March 18.

Over at the First Foundation Mortgage Blog, they clarified that current homeowners with 35 year mortgages may be concerned about what will happen upon renewal; typically, as long as you are not changing your loan amount at renewal, you should be able to continue with your original amortization schedule. However, you should confirm this with your individual lender or mortgage broker. If you need to increase your mortgage via a refinance at renewal, you will be subject to the limitations of the new rules.

Lower Refinancing Amount

Currently borrowers can refinance their mortgage and increase the amount of the loan secured against their home up to 90% of the value of the home. The new rules will reduce the limit on refinancing 85% of the value of the home. This change is directly intended to deter home owners from using their home as a "bank machine" and encourage Canadians to pay down their mortgages spending less money on interest charges. 

A research note today by Peter Nerby, senior vice president at Moody’s Investor Service, says that “changes to the government’s mortgage guarantee insurance program that are intended to curb consumer mortgage indebtedness and cool the housing market ... are credit positive for Canada’s banking system and their bondholders.”

No more Government Backed Insurance on HELOCs and the like

The government does not want to encourage Canadians to have large HELOCs and other other "non-amortizing lines of credit secured by homes" for a few reasons:

• These loans are currently limited to 80% of the value of your home, there has been a substantial increase in the value of homes in the past few years, which means a substantial increase in the credit available to home owners. This is a big part of the rise in overall household debt in Canada.
• Generally borrowers are not required to make regular payments on the principle amount of the loan, and these loans are generally variable rate products which exposes borrowers to rising interest rates.

These changes are geared towards limiting tax payer risks (as we are the ones in the end insuring these loans) and decreasing the household debt in Canada and only affect new loans (if you have an existing insured HELOC it will remain insured until it is discharged). 

How will all of this affect the Edmonton real estate market?

On first glance it would be easy to assume that these changes will push buyers forward and create an earlier peak in the housing market just like we saw last year. However, the changes last year had more of an affect on first time home buyers and their ability to get a mortgage; last year not only was the amortization shortened, but the rules for get approved were changed (you have to qualify at the 5-year fixed rate even if you're taking a shorter term and/or variable rate). These changes had a noticeable impact on the housing market in Edmonton (and Canada) and we saw sales drop off right after the rules came into place. 

This year the changes will have less of an impact on buyers entering the market, and more of an impact on existing home owners looking for re-financing and lines of credit. I don't believe these changes will create a significant impetus for buyers move their purchase forward. We think there are other, bigger influences at play in Edmonton such as migration into the province, job creation and rising mortgage rates that will affect the housing market later in the year.

In a previously published post, we had quoted Chris Mooney, President of the REALTORS® Association of Edmonton about "external influences" and many people wondered "what constitutes an external influence?" I would suggest this qualifies as an external influence. As always, time will tell just what impact (if any) this has on the market.

It was the best of times and the worst of times... the same can be said for the Edmonton real estate market over the past year.  Even still I feel very fortunate to be lucky enough to be in this city during these unique times.  While signs abound that there are underlying weaknesses in the world - and especially the American - economy, some indicators have suggested that things stabilized in 2010, some have improved, and some continue to deteriorate.  In the next few days our year end report to our subscribers will provide a fairly detailed look at the market in 2010 and will include our forecast going forward.  Today though I am writing a summary...

2010 started reasonably well in terms of MLS® home sales.  It paralleled 2005 and 2008 in the first quater which resembled a more balanced market. Sales started higher than they did in the first quarter of 2009 but that didn't last long as 2010 sales peaked in April while 2009 saw sales skyrocket in June and July. The next time we saw 2009 and 2010 sales in the same league was November. While 2010 certainly lacked the drama that 2009 brought with it, it brought us back to reality - agents still need to understand pricing and how to work with their fellow agents. It seemed there would be no "easy deals" in 2010, especially since sellers for the most part didn't control the negotiations unless they were very well priced.

In 2009 we saw extremely low sales in the first quarter which was to be expected coming off of the fiscal crisis late in 2008.  Then sales shot up like a rocket which I viewed as surprising after the undeniable storm the world financial markets had just weathered. The resurrection of the stock markets took many stock analysts by surprising just proving the point that if anyone is certain they know what's going to happen they are full of beans. (I would say crap but I don't think Sara would like that).

At the time (mid 2009) it appeared to me that many of the buyers in the market were moving their decisions forward to take advantage of the extremely low interest rates.  We had predicted this would likely cause a vacuum effect in the sales down the road and it did, this is in large part why we saw sales in the Edmonton real estate market peak early in 2010.

Normally sales would peak in May or June based on seasonal historical trends. From April to June sales slowed considerably and I considered the overall sales numbers sluggish.  Although our office ran against the grain with our sales increasing that is not indicative of the market.  The sales slump continued right through to November, partially because there was nothing pushing anyone to buy (typically rising mortgage rates or rising prices will push people to buy).

You could almost feel the bears smile (their dreams of spiraling market were crushed in 2009) as they came out again with knives in 2010.  When you add the increased number of residential listings, to the lower than normal sales the stage was set for downward pressure on home prices in Edmonton.  However, given all the negative pressures - lower sales, higher inventory, a media cycle fed on negative stories - prices actually held their ground with the average price of 2010 finishing right around where it started. It makes one wonder what will happen when the news cycle shifts to more positive stories on the Alberta economy? We'll address some of that in our forecast.

So how is the market?  As a seller or a buyer you really have to look at what and where it is that you are selling or buying.  For example, absorption in Millwoods has been just under 3 months and the market can be described as hot in the lower price ranges.  Sherwood Park has performed similarly, but acreages around Sherwood Park and downtown Edmonton condos are having a much slower absorption rate.  Even within the different price ranges you can see a difference performamce.  One underlying factor going forward that we touch on in our forecast is the construction condo inventory that represents probably the greatest opportunity for buyers and the greatest risk.

All in all it was a year of necessary adjustment.  While properly priced properties had an opportunity to sell, the challenge for many sellers has been trying to determine what is a bona fide offer versus a buyer just fishing to "steal a deal".  We also saw a lot more creativity in putting sales together with interest buy downs, home warranties offered by sellers, and more recently a buyer protection program being offered through First Foundation.

That's it for our brief review.  Have a Happy and SAFE New year and a prosperous 2011. 

Here are the results:

1. At this time next year the average residential sale price in Edmonton will be:

• 43% said higher
• 36% said lower
• 20% said about the same

So 63% of readers think prices will be the same or higher at this time next year.

2. The total sales for 2011 will be:

• 40% said higher than 2010
• 30% said lower than 2010
• 29% said about the same as 2010

3. Some economists have said Alberta's economy will grow more in 2011 than any other provice. As a result, our real estate market will:

• 64% said we will do better than the other provinces
• 28% said we will do about the same as the other provinces
• 5% said we will do worse than the other provinces

So I guess that means even if we can't agree on what the market will do, we can agree that Alberta will at least do as well, if not better than the other provinces next year.

4. The 2011 spring market will be:

• 31% said good
• 31% said average
• 27% said below average
• 11% said hot hot hot!

5. In 2011 mortgage rates will:

• 48% said stay about the same
• 45% said rise
• 3% said drop
• 2% said skyrocket

The interesting thing is, although the answers to the questions were middle of the road to positive, the comments were almost all negative. We asked "Do you have any other thoughts on what will happen to the real estate market in Edmonton in 2011?" Here is what our readers had to say:

• same as what will happen everywhere else in Canada: not goodThe arena may spur some commercial development in downtown Edmonton but we won't see that announced until the end of 2011 and nothing started until the arena footings are in and investors can see something tangible - perhaps early 2013.
• The cost of new construction on the outer edge is still cheaper on greenfield than on brownfields so the city will increase the cost of urban sprawl to encourage developers to infill.
  New construction will be on smaller lots with less "real" amenities. The "features" of new homes will all be fit and finish, glitzz and glamour rather than long term features (garages, finished basements, extra bedrooms, landscaping) that really add value to a resale down the road.
• It will grow slowly. Not extreme...but steady growth.
• I believe that Alberta's real estate market will continue to decline next year due to the following reasons:
  1. Commoditites will do much better next year, partly due to continued demand outside of the USA (namely China), for our natural resources...
  2. This will cause greater inflation, (namely demand pull). This in turn with a stronger dollar will cause interest rates to rise....
  3. I strongly believe that there are a majority of people out there who have overextended themselves and you will see this begin to bite in a big way.
  4. This however will not have much effect to the overal employment figures in Alberta as companies have learnt to operate in a much more efficient manner. I also believe that the majority of the construction/ upgrading has already been completed/ accounted into next years growth.
  5. Construction companies will continue to build at full speed in order to repay thier loans, as these loans will beginning to expire next year and the cost of servicing that debt will increase, due to higher rates. This is my 2 pennies worth!
• Looking for more "normal" market - ie 2005-06.
• Keep up the great work
• If builders can stop creating a glut then prices will recover. Otherwise, we're screwed.
• Demand for workers will tend to shift people to Alberta once again. Once people believe the bottom of the market was reached and the swing back up has momentum (even if the speed is not fast), then the trade-up market will get back on track. I don't see this happening until mid-year, but you never know and it could happen in the spring.
  Condo sales will heat up, especially in the mid and high level marketplace as aging suburban residents who have been putting off the move will want to respond to the improving market conditions by trading up and even down.
  The first time buyers market will also improve as jobs increase and workers move in. This will be strong even at the start of the year as people take advantage of record low interest rates.
• I think the excitment will even be lower then the past few years. People just don't care like they did in 2006 and 2007. Users on blogs might be higher but thats just the realestate market breaking through online. Real estate will go back to being a home not a money making machine.
• Edmonton will muddle through the next two years better than most cities. It's 2013 and 2014 when things get interesting.
• 2011 should be a repeat of 2010 with the exception that prices will dip by at the most 10%, made evident in first half of year. This should bring the resale prices at a bottom. Finally!
  Sales should remain put.
• Lots of inventory, an average number of buyers with prices trending lower than the prices at the same time in 2010.
• It will be considered stable as compared to other provinces , but the slow decline in prices will continue due to mortgage rule changes in Apr 2010. When I talk to people in mortgage business, they say that the difference in max mortgage approval is around 50K to 100K less now than before Apr 2010. That has to have an effect somewhere. Its already showing because people are buying smaller houses more than before.
• Newer neighborhoods that mix condos and higher price point houses may be in for a bit of a shock if cash-poor condo owners have to start renting out at reduced prices.
• It will be another good year for sellers. Last spring there were only some owners bought in 2007 peak started to list their properties. This time almost all or most 2007 peak buyers would list them. Thus price should not go higher too fast due to the inventory. On the buyers side, this time the real buyers who have been waiting for 2~3 years would step into the market. For these buyers, there is no time and room for them to waite further longer. Most lost their patient already.
• High listing and high sales would be a main tone for 2011!
• What is your prediction?

Thanks to everyone who participated, the results are very interesting and the comments are terrific. We will have our predictions for 2011 in the near future.

6.4% of Albertans indicated they were highly likely to purchase a home in the next year, the highest in the country and well above the overall average of 3.56% (only 1.8% of Saskatchewan and BC residents indicated the same thing). This was also up from the Spring when 4.3% of Albertans indicated they were highly likely to buy and last fall when only 2.9% indicated so.

At the same time, Albertans had the lowest expectations that house prices would rise next year (perhaps that's why many are thinking it will be a good time to buy).

Most Canadians are confident in their ability to pay off their mortgages, do not regret taking on the mortgage they did, and believe that real estate in Canada is a good long term investment. At the same time most Canadians feel that as a whole we have too much debt, and that low interest rates have allowed many people to become home owners in the past few years who probably should not be homeowners. Is this a case of not in my backyard syndrome?

Among homeowners with mortgages, the average equity is about 50% (meaning they have about half the value of their homes paid off) and 81% have at least 20% equity.

Mortgage arrears remain stable at .42% nationally which is lower than what we saw for most of the 90's.

The average mortgage rate for a new mortgage this year was 3.75% and 72% of Canadians that renewed in the past year renewed at a lower rate.

The vast majority of mortgage holders in Canada have considerable capacity to afford rises in mortgage rates. 84% said they could handle monthly increases of $300 or more in the monthly payments, and the average amount was $1056 over their current costs.

Propertywire.ca reported yesterday that the winds of change were blowing in St John's where CREA had its meeting.  They go on to say that "at the very least it will change the face of the Multiple Listing Service (MLS®)."  A pretty bold statement.  Who is the face of the MLS®, what is the face of the MLS®?  If they could tell me the answers to these questions then I might be able to address them.

The deal that was ratified yesterday was basically the exact deal that was offered to Ms. Aitken, head of the bureau some months ago. So lets look at what is in this deal:

• You can post a listing with a broker for a flat fee in the MLS® system.  This has been the case for some time, years in fact.  There have been flat fee brokers for almost as long as I've been in the business.
• The big change is that the REALTOR® does not have to represent you.  Basically, a listing can be put in the MLS® system by a company who will charge a fee, flat or otherwise, but they may not have to present offers, or show your home, or have any fiduciary responsibility to you whatsoever. 
• As always, in order to have your home in the MLS® system, and displayed on the REALTOR.ca web site, you must use a REALTOR®. Contrary to what has been widely reported there will not be public access to the MLS® system.

What it really means is that more than ever, consumers will have to do their research into what services they want when selling their home.  If you ask me, this does not represent a major change to the industry. There have been competitive business models for years. I have had serval different service options and different fees associated with them, for over a decade.  We will continue to offer these options to our clients.  So when the winds of change have died down a year or so from now then ask me, was it all really much ado about nothing?

What to do when your appraisal is undervalue

Have you recently bought a house or needed to refinance and the bank required an appraisal? Did you feel the appraisal was undervalued? What can you do?

First off, an appraisal is an opinion of value. An unbiased opinion. The appraiser will use two or three approaches to determine value; the sales comparison approach (direct comparison), the cost approach and if required an income approach. All three approaches are then reconciled to determine value.

On the majority of residential properties the sales comparison approach is given the most weight in the final reconciliation. Typically three “sales comparables” are used for the sales comparison approach.

So what can you do when the appraisal comes back lower then you expected?

1. Ask for a copy of the appraisal. Knowing which comparable sales the appraiser used can help you determine if they overlooked a better comparable. Work with your REALTOR® to get similar comparables that were sold within the last 3 months.

Make sure the comparables used are similar in property style (i.e. 2 storey vs bungalow), location, square footage (+/- 200 sq.ft.), condition (renovated vs original finishing), age, site exposure (busy street vs lake front), basement (finished vs unfinished) and garage (1 car vs 2 car garage). These are just some of the criteria your REALTOR® can help you with.

2. Ask for a second opinion from a different appraiser. This may cost you extra money, but that $300-400 may make the difference in making the deal work. As mentioned earlier an appraisal is an opinion of value, and I’ve seen a discrepancy of 10-15% from one appraisal to another.

3. Switch to a different lender. Unfortunately the majority of the lenders use appraisal management companies. The mortgage broker/specialist will submit a request for an appraisal and the request is somewhat randomly assigned to an appraisal company. The appraiser may or may not be experienced in your neighbourhood, type of property, etc. On the other hand, some lenders have the flexibility to use their own approved appraisers which they have built up a working relationship with.

Knowing what options you have available will go a long way in making the deal work. If you’re an investor it’s even more important to have an appraiser as part of your team.

David Luong, Edmonton REALTOR®

David Luong is an investor, REALTOR® and certified appraiser and can be contacted as follows:

david@teamjohnston.com
LinkedIn: http://ca.linkedin.com/in/luong
(780) 995-6526
View David's current listings

Here are a few of the most telling stats he posted:

• Average prices: In Toronto, the average bungalow price in the first quarter jumped 13.3% to $459,000, and condo prices rose 10 per cent to $317,500 compared to a year earlier. In Edmonton, the average residential price is $12,000 below the national average at $330,000
• Trends: Toronto's average house prices continued to climb through 2008 and 2009, even as prices in Alberta's major cities declined from the all-time highs set in 2007. In Edmonton, the average price of a single-detached home spiked to a record high of more than $420,000 in mid-2007. Last month, it sat at $388,500.
• Afffordability: 32.9% of median pre-tax household income was needed to service the mortgage on a typical detached bungalow in Edmonton (Calgary 37.1%, National 40.6% - Ottawa and Montreal the same, Toronto 49.1%, Vancouver 69%). For 2-stories Calgary and Edmonton were below 40 per cent, while Toronto and Vancouver were at 58% and 77% respectively.
• Average household incomes: Calgary $113,000, Edmonton $90,000, Vancouver $82,300 (about $2000 higher than Windsor), Toronto $101,400.
• In the U.S. at the peak the ratio of average household income levels to average local house prices got to 10 times or more in overheated markets like Los Angeles and Phoenix. In Vancouver, the average detached bungalow now costs roughly 11 times the typical average local household income level. Yikes!