Ted Zaharko: Ridiculous Offers

From Financial post article Concern for North America house prices

Ted Zaharko, who owns Royal LePage Foothills Real Estate Services in Calgary, says Canadians are following the U.S. too closely and expecting the same market conditions to happen here.

While prices and sales continue to fall in Calgary, he figures the market has bottomed out in the city which surpassed Toronto as the second most expensive place to buy a home during this housing cycle.

"We have people putting ridiculous offers in on a home and nobody is selling. People are saying 'l'll wait for prices to drop.' It's not going to happen," says Mr. Zaharko. Prices were down 4.2% in Calgary in November from a year ago, according to CREA.

Ted Zaharko should lay off assertions like "it's not going to happen" considering some of his statements from 2008.

In the Calgary Herald article from Jan 5 Return to 'normal' predicted for 2008

The middle ground has been claimed by Royal LePage, which has forecast a four per cent climb in prices, setting the Calgary average at $429,000.

Despite the city's strong economy and population influx, 2008 will see moderated growth and more sustainable real estate market conditions, says Ted Zaharko, broker-owner of Royal LePage Foothills.

"The combination of less frenzied market conditions and increased supply in resource-rich Alberta are anticipated to grant first-time buyers -- many of whom were previously priced out -- entry into Calgary's resale market in the coming months," he says.

While prices are on their way up again, Zaharko sees a decline in sales through the Calgary Real Estate Board's MLS system for this year.

After setting a new record of more than 33,000 deals in 2007, the Royal LePage official is calling for a six per cent decline to 31,000 in 2008.

"Calgary's real estate market is healthy and is primed to continue like this in 2008," he says. "Calgary is going to return to being a normal market this year and that is the best kind of market to have."

There have been 23,151 total MLS sales between January and November 2008 this is down 27.2% from the 31,799 recorded for the same period last year.

November total MLS average price was $388,747, which is $40,000 off Ted's forecast. Decembers numbers look to be a further decline.

Ted Zaharko explains the price declines in the article Calgary home prices slide as Canada chalks up gains from July 18th.

By year's end, the average house price in Calgary is expected to remain unchanged from last year at $414,000, while the number of unit sales is forecast to decrease by 16.1 per cent to 27,000 units sold by the end of the year, said the report. In 2006, the average price was $346,675.

Nationally, the average prices increased by 5.6 per cent for a detached bungalow, to $351,587, 5.2 per cent for a standard two-storey home, to $418,943, and 3.9 per cent for a standard condominium, to $248,408.

The national average house price is forecast to rise by 3.5 per cent this year to $318,000, but sales are projected to decrease by 11.5 per cent to 461,000 unit sales by the end of 2008.

"While Calgary's residential real estate market remains strong, speculators are altering the resale market significantly by continually adding to inventory levels," said Ted Zaharko, broker/owner for Royal LePage Foothills in Calgary. "Considering the decreases in average year-over-year sale prices, speculators will likely continue undervaluing and selling their renovation and investment properties throughout the year, as many are now unwilling to hold onto multiple properties while the market continues to catch its breath."

What a display of desperate rationalization to explain the price decline! What about the speculators buying up properties in 2006 and 2007 wouldn't that be considered a market distortion as well?

Also consider another Calgary Herald article Luxury housing demand good sign for city from July 26th

"As my broker Ted Zaharko says, the inner city is very much like lakefront cottage properties," says Starnes. "There are only so many and they become more valuable in each passing year."

I think this is one of the biggest myths generated by the up cycle of this bubble. Identifying some positive aspect of a real estate investment, great weather, "downtown", beautiful rockies, Olympics then making some sort of definitive statement about appreciation. People neglect that at some point these characteristics become priced in and have little impact on ongoing appreciation.

Truman - From the Archives

This is a post from Truman's blog dated June 21, 2007. It has been removed from his blog along with most other old posts but it remains in the web archives. Since then prices for SFH fell 80K for the average and the median dropped by almost 60K. Data from Mike's stats using numbers from December 1-27.

What were they saying last year??

It's interesting to look back one year, and see almost the same comments we're hearing today. These are all comments from the Calgarian Contrarian blog from 2006:

Jul 5: Buyers in Calgary are stupid. (Well, if you were one of those "stupid" buyers, you would have an extra $74,050 in your jeans today)

Jul 11: TD is predicting that oil will fall to $45/bbl by mid 2007 (it's $69 today)

Jul 11: When to sell? I have a feeling June 2006 may have been the top (As it turns out, June 2006 is now 20% below current levels)

Jul 16: Calgary is going to crash, just like the US markets. Maybe worse. (You didn't give us a date)

Aug 2: I think people are pretty dumb and will continue to buy well past the point where supply is greater than demand

Aug 20: Around my office, people from admin staff to engineers talk about buying a house right now as very stupid (What's your prediction today? We'll do the opposite)

Aug 22: This chart also shows the greed in this city and I'll be one happy person when the wheels come of this RE wagon. It's crazy what some of these properties are selling for. I'm sure we'll see a 30-40% price correction in Calgary within the next 12-18 months. (It's still possible if prices drop $210,000 on the average home)

Sep 13: A boom in Saskatoon? I'd be shocked. I wasn't aware of any major oil and gas developments near there and oil companies haven't liked offices in Sask ever since the NDP scared them away in the 70s. Has there been any large population growth there in the past few years? (Last week 81% of Saskatoon homes sold above the asking price)

Oct 8: I think we could be in for a hard landing.

Oct 31: it is typical for condos to be overbuilt the most during the boom and experience the largest correction in price during the downturn that invariably follows. (Condo prices are up 23%)

Nov 3: President of CREB states: "buyers may lose out by waiting until spring."
This comment to me sounds like the "just wait until the spring rally" that the US National Association of Realtors was putting out last year at this time. Many US markets peaked in the summer of 2005 and then the fall is when sales started to drop and inventories started to build. At that time, every pundit was saying it was simply a lull before the "spring rally". Well, the spring rally never came.
Is Calgary different? Are there enough new buyers to overtake new supply and continue to push up prices from their current levels? (We know the answer is a resounding "YES" and Calgary is "Different")

Nov 3: the ponzi scam seems to be over in edm too (Edmonton prices have risen more than Calgary's this year)

Nov 3: I'd love to know what entry point all of the people who are waiting for prices to fall have chosen. 10% decline? 20%? 40%? Or, were they afraid to buy three years ago, really afraid in the summer of 2005, and terrified now? Do they think they are bright enough to call the market bottom? (November)

Nov 7: can you not see that inventories are 110% higher than nov 2005 and will probably be 230% higher in dec compared to dec 2005 (Dec 2006 inventory was 78% higher)

My blog was not in operation until November, but it's interesting to go back and look at the predictions. The most accurate was from our beloved Al Bundy:

"I think we're in for another crazy time in real estate in Calgary starting Jan. 2. I'm sticking to my guns here, and predict a further price hike in Calgary of 15-20% in 2007. Call me a nut case if you want to, but that's what I see. That's what the math tells me."

Al, you were dead-on. As it turns out, someone flipped the switch on Jan 2 and it indeed did go crazy again.

Posted: Thursday, June 21, 2007 9:43 AM by Bob Truman

Christmas Vacation Round-up

I will be taking a break for a week or so. Here is some real-estat news that caught my attention recently.

Gregory Klump and the CREA come up with a "weighted average" to show that prices have fallen less than the 9.8% of the traditional average. I haven't had time to examine this but I suspect the weighted average is reasonable. However I wonder why they didn't introduce it when prices were increasing. Hmmmm.....

Read the Globe and Mail's article how high-risk mortgages crept north. Here is a post I had last year last year on the subject.

Mike Fotiou has a post comparing the first 16 days of December to 2007 in Calgary. SFH prices down 6-7% condos down 10-12%.

Merry Christmas everyone!

CBC News Fail follow-up

So after a couple of days of sales data it is clear the CBC report on the Calgary Real estate market was misleading and did not represent the facts on the ground. Was it an attempt to artificially boost market sentiment or just the result of ignorance?

The estimated monthly rate of sales is still slow and does not even make it close to "frenzy" or "resurgence".

SFH: 533 (-37% YOY)
Condo:234 (-40% YOY)

Pending sales are barely changed from when the report aired. There are 7 fewer SFH but 8 more condos in the pending queue from December 9th. Mike's stats.

Mike Fotiou also wrote an article on this report on his blog.

CBC News Fail

This clip from CBC News Calgary discusses the local real estate market. Instead of objectively looking at the data they let misinformed brokers tell the story.

[go to 18:00 mark]

Mark Carne is trying to jump start the sluggish Canadian economy and as Peter Akmen tells us that strategy appears to be working in the Calgary Real Estate market.

...but now with falling interest rates Baine is seeing an opportunity in real estate to secure Kaylyn's future.

Real estate agent Kristen McNaugton has been run off her feet. Instead of the usual winter slowdown, December has been the start of a real estate frenzy. "Well our phone is ringing off the hook. People seem to be getting off the fence and they're ready to buy"

[prices have dipped..] but McNaugton says thats not the only reason for the resurgence of sales. She says the bank of Canada cutting interest rates has opened the doors for buyers. "...this is an awesome time to purchase".

...

This mortgage broker says unlike markets in eastern Canada he expects a huge rebound in Calgary real estate prices this spring.

"The stock market isn't the place to go right now, a lot of financial planners would like to hear that to much but its the fact. If anyone has any liquidity right now they are looking at real estate."

Now both real estate agents and mortgage brokers agree the safest investments are right here in Alberta. They are telling their clients to avoid some Canadian cities and most of the U.S. because they say they haven't hit rock bottom

The CBC interviewed two brokers and put together this. Sales so far this December have been slow. From Mike Fotiou's site the first 9 days of December there have been 155 SFH and 71 condo sales. If they continue at this pace it will be the slowest month in YEARS. Note that December may be worse than this estimate as I am assuming the same rate to continue through Christmas.

Estimated December sales
SFH 534 (-37% YOY)
Condo 245 (-37% YOY) *edit*

I don't know how many agents are being run off their feet. According the CREB there are 5700 Realtors which means that so far in December there have been less than 4 homes sold per 100 members. The number is likely higher than that because the sales numbers I am using are for Calgary city only.

strategy appears to be working?
December the start of a real estate frenzy?
Run off her feet?
Resurgence of sales?

epic CBC fail

Upgraders - Statoil update

The list of upgraders can be found here in the Alberta Industrial Heartland section. There has been some recent developments regarding these project and I have done my best to consolidate them in a list.

Shell Scotford Upgrader Expansion 1
under construction

Shell Scotford Upgrader Expansion 2
deferred

Strathcona Refinery
completed - thanks squidly!

Sturgeon County upgrader
(Fort Hills Petro Canada/UTS/Cominco)
Fort Hills upgrader joins delayed list

BA Energy Alberta Heartland Upgrader
construction halted

North West Upgrader
"waiting to further finance"

Synenco Energy Northern Lights Upgrader
From what I can figure out it doesn't look good*

Statoil North American Upgrader
delayed two years*
Update: Statoil looks at shipping bitumen to U.S.

The Norwegian company said in a statement it withdrew a regulatory application for its upgrader in Alberta's Heartland region due to "prohibitive construction costs, the state of the global economy, an uncertain oil price outlook and lack of legislative clarity."

Total Upgrader
delayed two years?*
Update: The Calgary Herald has a list of projects delayed, canceled or on hold. It lists the Total Upgrader as "on hold". I'll post their list in comments.

*More specific information regarding these projects would be appreciated

Truman Prediction Follow-up

This post will do a follow-up on one of Truman's predictions followed by a random but awesome 80s music video.

Back in January he made a predictions that prices would stay within +/-5% and a statement on the strength of the Calgary real estate market. He has followed up a few times on this throughout the year.

Jan 30
It speaks to the amazing strength of the Calgary economy that in spite of decreased sales and increased inventory, the price is remaining stable, or even rising slightly. If prices stay where they are now, and I fully expect them to, within a +/- 5% range, the buyers will appear. People have been waiting to see what would happen in January and now they know. My phone is busy, and many other realtors I've talked with, report plenty of interest. Sales will be down considerably this year compared to the frenzied activity of 2006 and 2007, but it seems to be a non-issue. When you compare this year's sales to the years when we had a normal balanced market, we're right on the average.

Posted: June 4, 2008
On Jan 31, 2008 I predicted the median price would fluctuate between $389,500 and $430,500 for the remainder of the year. Do you think this is accurate?(To May 31, the 30-day median price has risen as high as $428,000 and has fallen as low as $410,000. The median price on May 31 was $419,000)

October 30th
From the previous topic a reader has posed this probing question. He said "Why would you, a realtor that works at commission, not an economist, not a market analyst but bob Truman the salesman knows better than all the pros?"

After predicting the prices with uncanny accuracy in 2007, it would be a feat of unimaginable insight and clairvoyance to do it two years in a row, in these turbulent markets, so let's see how this year's prediction turned out:

In January 2008, I predicted the 30-day median price would rise as high as $430,500 and fall as low as $389,500 this year. So far, the price has been as high as $428,000(Feb), and the low is $390,000(today).

In the Calgary Herald yesterday, it said "Much attention, understandably so, is being paid to economic experts and what they have to say..." It goes on to say, "They get it right only 40 per cent of the time."

Now to answer your question of why I know better than the pros. I don't really consider it a part of my job description to predict the future. I take no credit for an accurate and lucky guess, but I do operate at a different level of consciousness than they do. They are entrenched in the structures of existing institutions which imprison the mind, and they continue to perpetuate the dysfunction in their work.

November numbers are now available from Mike Fotiou. The median fell below $389,500 or 5%. I also compared the other price measures to January and all except one fall outside the 5% range predicted.

SFH	January	Novemeber	%Change
Average	$455,297	$435,471	-4.4%
Median	$410,000	$387,300	-5.5%
$/SF	$302	$281	-7.0%
Condo	January	November	%Change
Average	$311,232	$285,820	-8.2%
Median	$290,000	$251,800	-13.2%
$/SF	$313	$281	-10.2%

Failed predictions are not hard come by but the gloating by Truman in October makes this post-worthy.

...Anyway i'm in good spirits despite all the political and economic turmoil so one that note here is Herbie Hancock and "rockit" from 1985. Enjoy.

First Place Edmonton

After the failed draw, the south side townhomes from the First Place Edmonton are now on the MLS.

I compared this to another townhouse listed on the MLS.

	First Place	Summerside
List	$267,918.00	$249,000.00
bdrms	2	3
baths	1.5	1.5
size	905sqft	1291sqft
parking	outdoor	double attached garage
yard	unfenced shared	decorative fenced
year	2008	2003

The Edmonton Journal had previously said the First Place townhouses were being sold at a "cut rate" in a shameful display of collusion between the media, the city and developers to soak some remaining first time buyers.

Marc Perras Radio Ad

Some more radio ads from Marc Perras of the REALTORS Association of Edmonton

October Ad 1

While average residential price was down in October the average price of single family homes was up.
Really so where is the decrease?
Condos. Condo sales prices had the biggest single month drop of the year. Down by 5.8%.
So single family homes are up condos are down.

Average price of single family home increased by 0.3% from $362,097 to $363,274. Median price decreased 0.8% from $345,500 to $342,750.

October Ad 2

Global unrest, economic uncertainty most major markets are feeling the effect of fnancial instability....

Unlike most major markets there is still a high degree of consumer confidence in Edmonton and thats being reflected in the housing market

So we are maintaining an even keel?

As compared to a typical fall, absolutely.

Sales generally slow at this time of the year and we have seen that predictable slowdown. Its safe to say that the stronger sales in the third quarter of the year contributed to reduced demand in October?

Which is normal?

It is. This October's resale figures were lower than last year but well with the norm. We're also seeing inventory levels continuing to decrease, heading back towards normal levels.

So all in all the Edmonton market remains stable.

More than most major markets in these strange economic times. I'm not going to use the 'R" word.

Unless you mean REALTOR

Instead of being 'well within the normal range' sales are lower than each of the the previous five years for October.

Notice that there was no mention that the decrease in inventory is also part of a regular seasonal pattern just like sales.

The sales to listing ratio dropped from 55% in September to 40% in October which indicates a deterioration in the market independent of seasonality.

Inventory of Spec Homes in Edmonton

Some suspect information came out from the Edmonton Real Estate Blog regarding inventory of spec homes:

Some interesting tidbits out recently:
• Increase of 15,000 full time jobs in Alberta for October putting employment at an all-time high in Alberta
• Decrease of almost 5000 spec homes compared to last year in comparable inventory.

I found an article from the Edmonton Journal discussing spec homes. Inventory of spec homes has increased over the last year. These homes are also described by CMHC as completed and not absorbed.

There were 1,047 spec and show homes at the end of this October, up from 662 at October 2007, but that's on a downward trend from an August peak of 1,090 units.

"That number peaked in August and moved lower in September and October as absorptions have outpaced completions," Goatcher said. "It gives us some comfort that single-detached activity should start to turn the corner as we go forward because their inventory numbers are now moving in the right direction."

There were 524 multiple-family new, completed units at the end of October, compared to 338 at the same time last year as units started months ago before a slowdown are completed.

BS Detector

The globe and mail article "Real Estate get the Obama boost" is an example of desperation in Toronto.

One quote set of the BS detector

She recently helped one client buy a house listed for $695,000. The client pays about $2,200 a month in mortgage costs but collects $3,000 a month in rent.

"They have someone else paying off their mortgage."

Wow! No consideration of the downpayment used, the other expenses such as taxes, maintenance or vacancy. For $695,000 how did they arrive at the $2200 payment? Here is one scenerio I came up with:

Purchase Price: $695,000
Down payment: $320,000
Mortgage: $375,000
Interest Rate: 5%
Amortization: 25 years
Monthly Payment: $2192.22

Really, any property can have a mortgage less than rent with a large enough down payment.

Update: Mike Fotiou, a Calgary REALTOR, has an excellent post about this article on his blog.

Calgary: statistics causing fear

Re: "Cutting home prices key to sales success," Nov. 4.

The above article contained numerous statistics used in comparing the Calgary real estate market in 2007 and today. While this comparison may be interesting to some, it continues to put fear into Calgarians' minds. I am a mortgage associate, and 2007 was a great year for me, and recognized by all in my industry as an anomaly year. To give a much more rounded and useful comparison, redo the statistics in the article and compare 2006 to 2008. 2006 was also a great year for me and I am on track to do better in 2008 than in 2006. My sky is not falling, nor is it for most Calgarians. Yes, I will not do as well in 2008 as in 2007, but 2007 was not a normal year. Please stop the fearmongering and compare what is happening in the Calgary real estate market today to a more realistic 2006 year.

link

Well, just go to the Alberta Bubble blog. They put the numbers in context by comparing with many past years, including 2006.

Sales Volume (old criteria of combined SFH and Condo, from BT’s site)

Oct 2001: 1821
Oct 2002: 1930
Oct 2003: 2021
Oct 2004: 2135
Oct 2005: 2584
Oct 2006: 2122
Oct 2007: 1944
Oct 2008: 1442

Also I don't see how the article is fear mongering. In most cases 2006 was a better than 2007 in the statistics used. Consider the title where it is a continuation of the theme that the slowdown is a result of the deliberate decision of potential buyers to wait on the sidelines.

Cutting home prices key to sales success
Buyers waiting for deals in cooling market

Maybe he is referring to a REALTOR suggesting to sell an infill at 625K if the competition is at 700K. Oh, the humanity!

Upgraders: blast from the past

Lets go back a year and consider the story of upgraders. First from the August 2007 article City's housing market going through a correction, not a crash

Realtors say they wouldn't be surprised if average prices fall by six or seven per cent from their July peak, before levelling off in early 2008. If so, that would take the average single-detached home price down to $388,000.
....
Roughly a dozen upgraders are slated for the Edmonton region. Thousands of new jobs will be created.

This was a very loaded statement. "Roughly a dozen" was actually nine. The term "upgraders"was applied to a brand new sites, expansions or converting existing plants. The use of "are slated" actually meant some were under construction, some were approved to be build and some had filed applications. So if you were shopping for a house at the time and thought this meant 12 new upgraders in the Edmonton area you were wrong.

Here is another article from the Edmonton sun also from August 2007. Hold off on selling the house.

Even with huge slowdowns, at least half those projects will happen. The bitumen upgraders in Strathcona and Sturgeon counties are just starting. Nine proposed upgraders are listed on that website.
....
House prices will go nowhere but up.

The list of upgraders can be found here in the Alberta Industrial Heartland section. There has been some recent developments regarding these project and I have done my best to consolidate them in a list.

Shell Scotford Upgrader Expansion 1
under construction*

Shell Scotford Upgrader Expansion 2
deferred

Strathcona Refinery
under construction*

Sturgeon County upgrader
"considering deferral of any decision to construct the upgrader."

BA Energy Alberta Heartland Upgrader
construction halted

North West Upgrader
"waiting to further finance"

Synenco Energy Northern Lights Upgrader
From what I can figure out it doesn't look good*

Statoil North American Upgrader
delayed two years

Total Upgrader
delayed two years?

*Total Energy may have bought this, not sure of the status of the project.

The two in this list under construction were started before the above article were written so they do not represent new projects. Any clarification to this list by reader would be welcome .

CMHC forecast update

This post will shows how CMHC forecasts have changed over time.

CMHC resale price forecast for Edmonton 2008
Q2 2007 $374,000
Q4 2008 $334,000

CMHC resale price forecast for Edmonton 2009
Q1 2008 $375,000
Q4 2009 $335,000

CMHC resale price forecast for Calgary 2008
Q2 2007 $473,000
Q4 2008 $405,000

CMHC resale price forecast for Calgary 2009
Q1 2008 $450,000
Q4 2009 $406,000

The change in a single quarter for Vancouver 2009 is more stunning:
CHMC resale price forecast for Vancouver 2009
Q3 2008 $645,000
Q4 2008 $535,000

Data is from CMHC Housing Market Outlook

See previous posts here and here

Living on the Hill

I'm looking out of my window at an incredibly blue and sunny Alberta sky that does not appear to be falling. Despite rumours to the contrary, life in the big city goes on and we should all be thankful to be living here and enjoying tremendous blessings compared to so many people in other parts of this crazy world.

I wanted to comment on the Calgary Herald article "Living on the Hill". It starts out with anecdotal examples of the economy not collapsing followed by a desperate sales pitch for individual properties.

We are constantly bombarded with negatives telling us that we should be tightening our belts and avoid spending. But fortunately our economy is fairly stable today, thanks to people who are still buying. I was with a car dealer last week whose sales chart showed that he'd sold four cars already that day.

Retails sales have fallen in Alberta, by 0.4% in August. This is notable when you consider inflation and increased retail space under construction.

Calgary. It's clear that many are still positive about the future -- although perhaps a little wary of the immediate future -- and realize that this is a good time to buy real estate.

It is arrogant to say that people 'realize' it is a good time to buy real estate. This implies that it is not even an opinion or a possibility but an indisputable fact.

I was thinking of real estate sales while driving north up Crowchild Trail and noticing a splendid new house under construction on the brow of the hill of St. Andrews Heights. There's confidence for you -- and a good response to the killjoys.

Ignoring the anecdote, the actual numbers for housing starts are down 59% in Septemeber. Anyway the article continues with desperately trying to sell individual properties.

The mature, ideal location and quality of many of the homes demand high prices. A 1,800-square-foot Rosedale bungalow backing onto the park on 9th Street is listed at $1,699,900 -- but what a beauty.

Does the Calgary Herald not have enough real estate ads?

Calgary Real Estate A Safe Haven?

Calgary real estate still a safe haven
Housing values enjoy steady increase

Appreciation has ranged from moderate levels a decade ago, to huge double digit gains and now declines. Not a steady increase.

"A residential home is the greatest long-term investment vehicle. The cost of land, materials and labour are not going down over the long term . . . The Calgary real estate market has weathered the current economic slowdown well. We've been working towards a normalized market since the first of the year. And slowly our inventory has been coming down and our market sales remain steady from January forward. I believe we'll continue to do so and we're perfectly positioned for long-term investment opportunities right now in this market if someone's looking to buy," said Jensen.

When stating the Calgary market has weathered the current economic slowdown well he is not considering the fallout that is yet to come. Pending sales of single family homes decreased from 334 to 206 in just over a month. Sales appear to have fallen faster than could be accounted for by seasonal factors from 1152 to an estimated 801 (based on the 698 so far this month from Mike's stats).

It is correct that inventory has come down from the peak in May but is up significantly from where it started the year in January.

"We may be in for some continued slower times for this quarter, but I believe this is the kind of market where real estate bargain hunters can find those great deals, but if you're not out there looking you can't find the best deal. And it's hard to negotiate the best deal when the market has turned the corner and everybody's buying," said Jensen. "I believe there are people out there just trying to time the market like the stock market."

This is not considering the people who simply cannot afford real estate or those saving up for a down payment. Finally take a look at some other articles regarding the upcoming market recovery:

From July 5th: Calgary Resale market seen as turning corner.
Calgary Herald had another article from January: Housing market set to catch spring fever.

Quote of the day

"Buyers are a lot more cautious," said Palibroda, who's been in the business for 28 years, "and they're not a lot of fun to deal with. We can't push them around anymore."

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Happy Happy Joy Joy

An article from the Edmonton Journal takes a look at the brighter side. Local sunny break amid economic clouds.

So just where is E-town's economy going? Toward a period of slower growth, admits Tsounis, at an estimated 2.5 per cent this year, 2.8 per cent next year, and an average of 3.3 per cent between 2009 and 2011.

That's down from a red-hot five per cent annually between 2003 and 2007. But it's growth nonetheless, at a time when the U.S. economy will shrink, and Canada will struggle to stay above water.

I am not sure when this forecast was made. Was it before the market crash or after? I could only find a forecast from May 2007 on the city of Edmonton website here. There was a lot of optimistic economic forecasts including GDP.

2008 - 5.0%
2009 - 4.0%
2010 - 4.0%
2011 - 4.5%
2012 - 4.5%

The rest of the article was bright and sunny.

Feeling more cheerful yet? Good. There's more.

Let's start with oil prices. They fell to the $67-US-a-barrel range Wednesday, about $80 or 54 per cent below the July peak of $147. The worry warts will tell you we're heading for an '80s-style crash, but that's absurd.

Just as oil markets overshot on the upside, they're now overshooting on the downside. China and India haven't gone away. Once OPEC's proposed cuts take hold, the credit crunch eases -- as it's already showing signs of doing -- and recovery begins, demand will pick up. So will oil prices.

What did the author write just over 2 months ago? In the Aug 12th article Our housing market's correction is not a calamity:

Unless energy prices fall off a cliff, Alberta's economy should remain strong. And that should lead to a stronger housing market in 2009.

So what's a cliff? In my view, oil prices would have to skid to $75 US per barrel or lower for a sustained period -- rendering some oilsands projects uneconomic -- and natural gas prices would have to sink below $7 per million British thermal units (MMBtu), making drilling too costly to justify.

Despite the recent hiccup in commodity prices, I don't think that's in the cards. Now that the speculators are on the run, I'd expect oil prices to find a bottom in the $100-per-barrel range; natural gas should find support in the $8 range.

See previous post

If you don't read the newspaper you are uninformed. If you do read the newspaper you are misinformed.
— Mark Twain

Unknowns: Inflation, Deflation, Peak Oil, Climate Change...

This is just a little diversion from the main focus of this blog to look at the big picture.

A lot has been going on in terms of trying to prop up the world financial system and it is unclear what impact these actions will have going forward.

Google image search source lewrockwellblog

One thing that I cannot sort out is deflation vs. inflation. It is clear that deflation has been winning recently. Good news for me, my salary is in dollars and houses and stocks become cheaper. Saving for a downpayment in cash is working, even at low returns. Go bears!

However, I have anxiety over what I don't understand. I don't fully understand where this money is coming from to bail out banks worldwide and to 'provide liquidity'. Perhaps there will be a delayed reaction and inflation will return.

So in the short term it appears that the credit crunch is resulting in a reversal in leverage causing deflation. However the impact of the desperate solutions by those in power is a concern to me in the medium to long term. Are savers going to be coerced to invest through monetary policy?

Google image search some blog post I added to bloomberg LIBOR chart

There is a view that the energy industry, and specifically the tarsands, will keep Alberta's economy insulated to some degree. I think that some of this growth was the result of distorted demand from the United States living greatly beyond their means. There are those that have said American personal, government and trade deficits are sustainable with lines such as "America is the largest economy in the world" and "World reserve currency". I have my doubts.

Imagine a world where money is a method for trading goods and services and ignore for a moment the apparent permanent imbalances in US monetary policy. I know this sounds foreign and simplistic but bear with me. Extracting oil from the tarsands is expensive in terms of resources such as labour and capital. Consider the sacrifices made by people working long hours, living in camps far away from home. How much capital is being invested to retrieve this energy? If money is an exchange for goods and services what will Americans offer in the future to us for all this hard work? During the housing bubble they would remodel their kitchen, take out a home equity loan and buy a Hummer. Now what?

google image search Texas REALTOR

Google image search some Bloomberg article

In regards to oil there are two wild cards. Oil is a limited resource and therefore could use more of people's incomes to sustain marginal production methods such as the tarsands. At the same time policies to combat climate change could promote alternatives.

What impact will inflation, deflation, peak oil and climate change will have on the Alberta economy and nominal real estate values going forward? Any thoughts?

Another Marc Perras Radio Ad

Here is the ad.

"The average price of single family homes was down by 1.9% since August. Condos on the other hand were up 11.7%.... When you factor in all types of residential property the average price was down 1.3%"

Probably a simple mistake but it is rich that at the beginning of the ad the questioner said "Anybody can read statistics off a page and give you numbers". The average price of condos in Edmonton increased by 0.5%.

The price drop was explained by change in sales mix:

"It has a lot to do with the mix of homes on the market. The average factors everything from entry level homes to estate homes. Right now there are more entry level, lower priced homes on the market, so that brings the overall average price down despite the strong sales we are seeing."

A different perspective comes from the Edmonton Real Estate Blog. Keep in mind that this is also referring to the first half of October as well.

As you can see from the chart below, this is not just a case of fewer high end listings selling, as the average price per square foot has dropped.

Sales price/square foot chart.

Homes are on sale, Stocks are not safe

Ed Jensen makes the case that real estate is a safer investment due to the turbulence in the stock market in the Calgary Sun article Seller's market returning:

Investing in real estate in Calgary, he said, is a safer investment than putting money into the stock market.

The main index of the Toronto Stock Exchange fell more than 600 points yesterday in yet another day of turbulent market swings.

"People should take note," he said.

Isn't it precious that when home prices fall they are "on sale" or represent oppurtunity but when stocks fall they become a dangerous investment?

May 2008 CREB Report
BUYERS NEED TO PAY ATTENTION – HOMES ARE ON SALE TODAY!

“Now is not the time to wait until the sale is over and then decide to buy; after you read a headline, the best time to buy has passed,” cautioned, CREB® President, Ed Jensen.

Also the title of the article "Seller's market Returning" may be a couple weeks outdated. Sales were good in Edmonton last month and were decent for Calgary and listings were down. For the first half on October sales/listing ratio appears to be back in buyers market territory. A buyer's market is described by less than 40% ratio while over 60% is a seller's market. From Bob Truman's Stats:

Edmonton Sale/New List Ratio
SFH/Condo
July 2007 51% / 41%
Aug 2007 50% / 44%
Sept 2008 53% / 45%
Oct 1-14 2008 40% / 32%

Calgary Sale/New Listings Ratio
SFH/Condo
July 2007 51% / 45%
Aug 2007 52% / 47%
Sept 2008 44% / 39%
Oct 1-13 2008 36% / 36%

What is Normal?

According to several CanWest publications Western Canada's real estate market it normal.

Victoria real estate market gets 'back to normal' as industry sees signs housing boom is over
CanWest Global's Vancouver Sun

"We're also looking over the last five or six years and what we're finding is things are just coming back to normal,"
-Victoria Real Estate Board President Tony Joe

Lower Mainland real estate market returning to 'normal' levels
Canwest Global's Vancouver Sun

"We're experiencing a return to more normal market conditions," Kelvin Neufeld, president of the Fraser Valley Real Estate Board said in a release.

Regina housing market back to normal
CanWest Global's Regina Leader-Post

The housing market in Regina was at a frenzied pace earlier this year, but during the third quarter, prices have cooled down and flattened out, says a report by Royal LaPage Realty. More available listings and less demand from buyers means the province's housing market has returned to more normal conditions, the real estate company said Monday.

Condo market returning to normal
CanWest Global's Calgary Herald

"In 10 to 12 months, the supply and demand in the condo market will be normalized. It's starting to shrink already."
-Calvin Buss, president of Buss Marketing

Levelling in real estate market sets stage for stronger 2008
CanWest Global's Edmonton Journal (from August 2007)

"I don't really want to use the word 'softening' because I think this is more of a normalizing market. We were super-heated, and now we're coming down to something that's more reasonable."

Saskatoon home prices stabilizing
CanWest Global's Saskatoon Star Phoenix

This fall, Janzen forecasts a real estate climate more in line with Saskatoon's "normal" residential sales market.
"We're more on par with 2003, 2004, 2005 - so we're indicating a return to a more normal, stable environment," he said, adding the market is expected to stay in a similar state for some time.

See previous post

Edmonton Forecast Check

September was a good month for sales in Edmonton and the topic was covered in the article Edmonton home sales skyrocket in September. Perras' forecast from the beginning of the year was brought up -

Perras forecasted sales volume for 2008 would reach "reasonably strong" volumes similar to 2005, before the market spiked in 2006.

Here is the text from the original forecast from January 9th

The total number of residential sales in 2008 will probably drop slightly from 2007 levels. Perras expects that 19,100 residential properties will sell through the MLS® in 2008. There were 20,544 sales in 2007.

Initially it called for more sales than in 2005 (19,100 compared to 18,634) and currently we are running slightly behind the sales of 2005:

	2005	2008	Difference
JANUARY	886	1227	341
FEBRUARY	1257	1287	30
MARCH	1680	1557	-123
APRIL	1802	1823	21
MAY	2098	1821	-277
JUNE	2134	1852	-282
JULY	1610	1784	174
AUGUST	1934	1541	-393
SEPTEMBER	1547	1729	182
OCTOBER	1333
NOVEMBER	1445
DECEMBER	908
Total (Jan – Sep)	14948	14621	-327

Also looking at prices the forecast called for 4% increase across the board. Compare this to what we have now

Perras anticipates that prices for all types of residential property will increase gradually through 2008 and finish the year about 4% higher than the current price. If the forecast is accurate then single family detached homes will sell for $397,303 next year and condos will be priced at $263,400.

	01/12/06	Peak Price	01/12/07	Forecast Dec 2008	Sept 2008
SFD	341933	426028	382022	397303	362097
Condo	227428	271908	253270	263401	252234
Duplex/Rowhouse	295178	367964	306967	319246	315690
All Residential	294155	354718	329705	342893	324906

And inventory:

The current inventory of residential properties is now 7,094 homes. The inventory will decrease through the year but the wide choice of properties will have a dampening effect on prices offsetting increased demand from in-migration and economic growth. Condominiums are expected to become a stronger option (especially for first time buyers) because of the lower price point.

Right now inventory is at 8,808 it probably won't get much below where it began the year at 7,094, if at all.

Here are some previous posts regarding forecasts:

CMHC forecast changes
Klump on Calgary
Quote of the Day
EREB average price and analysis (2007)
Forward Looking Statements (2007)

Marc Perras - Spinning like Clockwork

From the latest round of radio ads on the REALTORS Association of Edmonton's site:

August Market Facts - Prices Up
August Market Facts - Sales Up

First off a comment on the titles. Sales were down compared to July and up compared to last year. Prices were down both to last month and last year. Anyway I had the misfortune of listening to these...

Just like the swallows return to Capistrano every year after winter the buyers return to the Edmonton real estate market after summer.
It happens every year like clockwork and we expect it to happen again - Marc Perras

This is simply a fabrication by Marc Perras and is not supported by reality based arguments.

Look at this sales chart again from the Edmonton Real Estate Blog. Compare June, July and August numbers with those of September, October and November. With a few exceptions fall tend to be slower than summer. The only thing happening like clockwork is desperate spinning from the REALTORS Association of Edmonton.


*Chart From Edmonton Real Estate Blog

There is more...

But we usually see softer prices in August because people have so much on the go. That pattern held true this August as the average residential price dipped by about 1.8% from the previous month.
So prices fell slightly as expected...

He then goes on to say how prices are expected to rise in the fall. Using their own numbers I determined the % month price changes for August and September going back to 1990 (from REALTOR Association stats).

	Aug % change	Sep % change
1990	1.37%	-2.61%
1991	0.44%	-1.61%
1992	1.46%	-1.31%
1993	-1.03%	-3.22%
1994	2.70%	-1.80%
1995	-3.85%	-2.04%
1996	2.79%	-2.03%
1997	-0.92%	-0.69%
1998	-0.85%	-0.94%
1999	-4.41%	2.72%
2000	2.07%	-3.43%
2001	-5.72%	2.51%
2002	-1.26%	-0.62%
2003	-0.40%	1.19%
2004	0.79%	-0.92%
2005	0.12%	-2.77%
2006	5.56%	2.95%
2007	-2.80%	-0.15%
Average	-0.22%	-0.82%

Generally September has had higher price drops than August. And the drop of 1.8%, while not devastating, is worse than average.

Also remember when the price drops were supposed to only occur in the second quarter? This statement I covered in a previous post.

Q: Should I buy now or wait?

Perras: "I think it's a great time to buy now. If we're going to see any softening in prices, it's going to be in the second quarter, which is right now. This kind of inventory is going to thin out as we get into the fall."

Marc Perras, May 6, 2008.

I don't mind bullish arguments and would expect them from REALTORs. But when they totally make stuff up that is not supported by the numbers they need to be called on it.

The Case for Saving

For those with no down payment this post will present the case for saving and buying a home with more reasonable terms, as opposed to buying before Oct 15th when the new mortgage rules kick in.

I will compare the following options:

1. Buying a house for $300,000 now with 0% down and 40 year amortization

2. Buying a house for $300,000 next year with 5% down and 25 year amortization. The down payment will be saved into RRSPs and withdrawn using the first time home buyers program.

1. According to this table CMHC fees will be 3.1 + 0.6 = 3.7% of the loan amount. Total loan amount $300,000 + $11,100 = $311,100.

2. Rent instead and put $1250 per month (if possible) into GICs. After 1 year you will have saved $15,000 for a down payment. Also assuming a 26% top tax bracket you would get $3900 in tax savings (some of this refund in 2008 and some in 2009).

After 1 year track record of saving it is more likely you will be able to stomach the shorter amortization of 25 years. This combined with the down payment of 5% will reduce the CMHC fees to 2.75%. Total mortgage amount $300,000 - $15,000 + $7,388 = $292,838. Although the monthly payments will be higher the amount save in interest is substantial.

Down Payment Saved
Option 1: $0
Option 2: $15,000

CMHC fees
Option 1: $11,100
Option 2: $7,388

Mortgage Balance
Option 1: $311,100
Option 2: $292,838

Potential Tax Rebate
Option 1: $0
Option 2: $3900

Monthly Payment (assuming 5% rate from RBC calculator)
Option 1: $1490
Option 2: $1703

Total Interest Payments
Option 1: $403,887 (ouch!)
Option 2: $218,107

Year Mortgage Free
Option 1: 2048
Option 2: 2034

Bottom line is that option 2 is more than reasonable and you don't have to be a doom and gloomer or get a return on your savings! The same concept applies with any reduction in amortization and increase in down payment up to 20%.

Note: This comparison assumes flat home prices for 1 year and no return on RRSPs. Also see previous post comparing 25 and 40 year amortization.