Thursday, November 29, 2007

Pent-up supply

It seems the recent "softening" of the Edmonton real estate market has been framed as a short term event as a result of hesitant buyers. This article in the Edmonton Sun quotes three REALTORS: Housing to heat up: Realtors

ReMax realtor Simon D. Hunt
"I don't think we'll continue to see much of a dip because there's still a lot of demand,"
"Peoples' perception is that the market has crashed, but that is skewed."

ReMax realtor Len T. Wong
"There's no urgency out there to buy at this time of year," he said.
"But the spring markets will be a lot more stable."

Jon Hall of the Edmonton Real Estate Board
"There's just been so much steam in (the house market) that the top is loose and the steam is getting out a bit,"

However, their are also people waiting for the spring "bounce" to relist. And consider the quote from John hall in this article

He noted that one builder has built 100 basements, but has now capped them waiting for things to improve.
"He's just going to wait for the market to turn," said Hall

To me this does not make sense especially considering that the recent downturn is small compared to the boom as pointed out in the article:

Hall said prices had dropped 6.5 per cent over the last five months after a 74 per cent hike over the previous 17 months.

So after a combined 60-70% increase is it reasonable to hold out for more? Are sellers reasonable to wait until spring to sell after such an incredible long term run-up? Is the spring going to be a market of pent-up demand or pent-up supply?

Saturday, November 24, 2007

An Alberta Real Estate Story

This is a story of a client that gets their home appraised by a REALTOR A. REALTOR A tells REALTOR B of the same firm all the juicy details of this new listing including the sellers motivation (Family illness) and their minimum price. This REALTOR fails to informs the sellers of the value increasing zoning of the property.

REALTOR B submits an offer to the seller with another company he owns using this confidential information. REALTOR B sells the property one week after taking possession to developers for a profit of $55,000.

Almost 5 years later REALTOR B is required to pay a fine of $10,000 plus costs of $7,000. Net profit $38,000.

Real Estate Council of Alberta - Decision

Morale of the Story: Avoid being caught in shady deals because you might need to pay a fractional amount of your ill-gotten gains.

Real Estate Council of Alberta Other Decisions

Real Estate Council of Alberta - News Releases

*Picture of Wolves inspired by shadow company REALTOR B used to buy the property "Wolf Willow".

Friday, November 23, 2007

Conflict of Interest

Global Edmonton aired a story of a local REALTOR that sold a property to one of his clients without disclosing he was the owner or problems of the buildings condition. He sold this property after owning for 6 months at a substantial profit. Also interesting to note the $40,000 'cash-back' deal involved on the buyer's part.

Global Troubleshooter story BUYER BEWARE


Wednesday, November 21, 2007

Fort McMurray: triple REIC filtered for your enjoyment

I am having trouble finding MLS stats for Fort McMurray. I suspect year over year sales are down but I can only find information heavily filtered by the Real Estate Industrial Complex.

The Edmonton Journal qualifies any downward indications with quotes from a local REALTOR.

'Seasonal slowdown' for home prices in Fort McMurray

"It's a seasonal slowdown, which is normal before Christmas," Milly Quark, president of the Fort McMurray Real Estate Board, said Wednesday.

Prices in this northern Alberta centre also dropped slightly in October 2006 -- then rose for 11 consecutive months. "Canada Mortgage and Housing Corporation is predicting a price increase next year," Quark said.

On the supply side, "land is at a premium," Quark said.

Building lots are selling for $345,000.

"I understand they are going quickly," she said.

Then there was another news item linking to some real estate investment site:

News Release
Capital appreciation is currently very high at around 20% pa meaning investors are faced with a wholly positive real estate outlook. Investing now will allow them to ride the wave of success that Ft. McMurray is enjoying and should guarantee very significant returns.
Executive Suites
Gross yields up to 26%
1-bed Apt (56sqm) = C$ 350,000 (~£176,768)
With average prices for SFH at $625K is it still reasonable to assume that the 20% yearly appreciation will continue? Is there an equilibrium price even with fast-paced oils sands development or do prices continue upwards?

Based on the price for this investment the gross yield is extreme. With a price of $350K the rent would need to be over $7500/month or $250/day for the stated 26% yield. Rents and even hotels rooms are far below under these amounts.

Still looking for monthly stats i stumble upon more advice
An Important Note for Fort Mcmurray Real Estate Buyers

Many times Fort Mcmurray Real Estate buyers avoid using the services of a REALTOR under the mistaken belief that it costs them money - or that they will be able to negotiate a better deal directly with the seller or seller's real estate Broker. This can be an expensive mistake when buying a home.
Are there any Fort McMurray stats published online? Just numbers.

Update: Thanks Laura for the link

Thursday, November 15, 2007

Consider the source

(Not my video but enjoy the tunes.)
LRT boosts house prices, says study

The Sun cites Don Campbell from the Alberta Real Estate Investment Network.
Network president Don Campbell says research from across Canada shows the value of residential property rises from 10% to 20% when it's located near transportation-improvement projects.
Don Campbell is a real estate guru and leads hordes of speculators throughout Alberta.

Consider that prices already have increased above and beyond any transportation effect.
Consider that it is not normal to look at any development in the city with the real estate lens. These include the ring road, LRT or several bitumen upgraders in Edmonton.

This is not the first time the mainstream press has given Don Campbell free advertising:

Transit effect a boon to homeowners
Ron Chalmers, The Edmonton Journal
Published: Wednesday, November 14

Campbell said he expects Edmonton home prices generally to rise nine per cent in 2008 and 12 per cent in 2009. Homes that benefit from transportation improvements will outperform the market by an additional 10 to 20 per cent, he said.
What subprime crisis?
Don Campbell, Financial Post
Published: Saturday, September 08, 2007

Consider the source.

Saturday, November 10, 2007

The Magestic Loan Goddess of Calgary

The mysterious and powerful loan goddess summons the power of credit to help shelter mortals. We read from the passage of testimonials:

"Thank you Rae for all your wonderful help! You made the process of obtaining our first mortgage a delight. We can now afford our dream home."
Where in the past mortals used "documented incomes" to afford homes, this can now be conjured by the loan goddess.

For entrepreneurial Canadians like freelancers, consultants, commission sales professionals or business owners, keeping taxable income low is just plain smart. And that means your T4 should not be an indicator of your ability to carry a mortgage.

With good credit, we’ll qualify you based on the income you tell us you make. This accessible mortgage approval process works for those who worry about proving exactly how much they earn.

Thursday, November 8, 2007

Edmonton Comfree Sales

Comfree recorded 146 sales for the month of October in Edmonton. There is currently 21 months of inventory on Comfree with 3108 active listings at current sales rate.

21 months.

Compared with September's total of 201 sales are down 27%.
Compared with last October's total of 354 sales are down nearly 60%.

Comfree moved less than half the homes as they did the same month last year.

October Report

With current inventory at 3108 Comfree has over a BILLION dollars of inventory and 52 million dollars of sales in October.

Note that they do not include the mystery stats
"sold to listing" or "sales success".

Sunday, November 4, 2007

Oil Detour

There is an article from Calgary's Real Estate News site discussing the impact of the royalty review.
At the end of the day, it doesn’t matter how you look at any news scare. Real estate prices have and will be increasing in the future for a simple reason; supply and demand.

The day when I am writing this article oil prices are sitting at $90 which is considered to be quite cheap according to many economists. Obviously Alberta has the second largest oil reserve in the world and that creates a lot of excitement among oil companies, especially when other sources become unstable due to political reasons and when global demand is growing twice as fast as supplies can keep up.
Alberta produces many types of oil and Nov 2nd prices range from $52 for bitumen @ Hardisty up to $91 for Edmonton sweet synthetic. Link - prices converted using 6.29 barrels per cubic meter.

Also, it is a recent development to include Alberta bitumen as proven reserves. Usually only convention crude is included in this report. From Wikipedia:

The addition of 174 gigabarrels of the vast Alberta oil sands deposits, mostly in the Athabasca Oil Sands, to proven reserves by the Alberta Energy and Utilities Board (AEUB),[4] was controversial at the time because oil sands contain a semisolid form of oil referred to as bitumen by Canadian government authorities, rather than conventional crude oil.[4]. The existence of the deposits (historically referred to as "tar sands") has been known for centuries since major rivers cut through the sands to reveal the bitumen in the river banks, but their development had to wait for high prices and the invention of new technology. In recent years technological breakthroughs have overcome the challenges of producing it and most Alberta oil is now non-conventional production from oil sands rather than conventional oil fields. The AEUB estimates that by 2016 Alberta oil sands production will triple to amount to 86% of the province's total oil production, and Alberta will by then be one of the largest oil producers in the world.[4]

The difference between crude bitumen and crude oil is somewhat arbitrary since bitumen is really just an unusually thick and viscous grade of crude oil, and many U.S. oil refineries have been modified to handle it in recent years as domestic U.S. oil production declines. The main problem is that it must be heated or diluted with solvents before it will flow through pipelines.

If it is possible for Canada to add significantly to proven reserves in one year due to new technology and higher prices is it possible for other sources to develop in the future? Venezuela has a similar tar sand deposit to Alberta but it is not included as proven oil reserves. Why would a REALTOR look at the narrow view as energy being from the two reported sources - convention crude and Alberta tar sands?

Venezuela tar sands
Coal to Oil in China
Oil Shale
Ethanol Fuel in Brazil

CMHC Market Outlook

I am puzzled by CMHC's Alberta reseale price forecasts released in the latest Housing Maket Outlook. They list several downward pressures yet forecast appreciation of 6.8% for Alberta in 2008.
A strong first half of 2007 will push existing home sales in Alberta toward last year's record, totalling 74,000 transactions. In the summer, a surge in listings has slowed the rate of price growth considerably and buyers have become increasingly resistant to the recent run up in prices. Consequently, sales are now on a downward trend. In the face of weaker migration, this trend will continue in 2008 with sales falling five per cent to 70,000 units. Following a 24 per cent gain in average price in 2007, a flurry of listings and weaker sales will limit price growth in Alberta to seven per cent in 2008, the weakest annual gain in four years.
CMHC appears to use a downward sloping supply curve in their models where higher prices will lead to less supply:
In Alberta, weaker migration, higher resale selection, and rapid price growth will lead to a slower rate of new home construction this year and next.
Note that the CMHC had the same price appreciation forecast for Alberta in the forth quarter in 2005. Up to $235,000 in 2006! This is with "oil price at nearly $70 US a barrel" and "$70
billion in oil sands spending is planned in the Wood Buffalo-Athabasca region over the next decade" factored in.

CMHC Q4 2005 Housing Market Outlook
2004 194,769 6.5%
2005(F) 220,00 13.0%
2006(F) 235,000 6.8%

CMHC Q4 2006 Housing Market Outlook
2005 218,266 12.1%
2006(F) 282,500 29.4%
2007(F) 318,000 12.6%

CMHC Q4 2007 Housing Market Outlook (Prairies)
2006 285,383 30.7%
2007(F) 355,000 24.4%
2008(F) 379,000 6.8%

Friday, November 2, 2007

CREB: The glass is full

The Calgary Real Estate Board reports on October sales. Their interpretation of the monthly 4.3% increase is quite the stretch.
“As we move through the fourth quarter of 2007, we are seeing a normal amount of market activity. The good news is that our October sales have increased somewhat over September sales, showing consumer confidence in the real estate market as well as in Calgary’s over all strong economy,” remarked CREB® President Ron Stanners. “This is also a reflection of Albertan’s belief in the strength of our energy industry. With the broad selection of properties available today, buyers can select their dream home through the MLS®. Home owners, by pricing their homes competitively with the guidance of their REALTOR®, can anticipate a quicker sale,” Stanners continued.
However sales are down 9.1% when compared to last October. Those October 2006 sales were down 19.7% when compared to 2005.

Here is the data:

Oct 2007
SFH: 1113
Condo: 501
Total: 1614
MOM: 4.3%
YOY: -9.1%

Sept 2007
SFH: 1064
Condo: 483
Total: 1547

Oct 2006
SFH: 1241*
Condo: 535*
Total: 1776
YOY: -19.7%

Oct 2005
SFH: 1512
Condo: 699
Total: 2211

*These number in the October 2006 under 'City' report were 1245 and 537. The 2005 stats are from this report as well.

Update: The Balanced Market label is still outside the range as covered in an earlier post.