Thursday, August 28, 2008

REIN strikes again

Don Campbell of the the Real Estate Investment Network strikes again. Edmonton takes the number one spot again for the top ten towns to invest in Alberta. Edmonton Journal just soaks it up in the article: City Real Estate No. 1

The Edmonton Journal sure did its best to lend credibility to this report. Look! They use "data" to arrive at their results! It must be credible.

The list is compiled from a survey of statistical and demographic data from sources such as Statistics Canada, Canada Mortgage and Housing Corporation, Multiple Listing Service, government and economic development offices.

Edmonton has had the top spot for six years now so why has it performed so poorly recently?

A look at other statements from Don Campbell may be enlightening.

From a previous post Consider the Source:
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.

He predicted that Calgary would appreciate 12.2% in 2008 in this post:

At a Real Estate Investing Network seminar last night, my mentor Don Campbell (author or Real Estate Investing in Canada), predicted a 12.2% increase in real estate prices for Calgary in 2008. Recently the Toronto Dominion bank predicted a 10.1% increase for Calgary in 2008, and CMHC is stating it will be in the single digits.

I think we'll see 15% increases in 2008 ... however, I'll buy basing my numbers on 8% appreciation. (8% is huge ... and all we should ever hope for.)

People are in fear over the Royalty Review and "Our Fair Share". It's a great buying time.

And what about the top Irish banks (plural) supposedly investing in Calgary?! This quote is from March 1st. link here
"International investors are definitely buying. Calgary and Edmonton real estate is hot in Europe and the U.S., more than I've ever seen before in all my years involved in real estate. The top banks in Ireland, for instance, are buying here. They see it as safe, secure and good for the long-term, compared to other options."

Friday, August 22, 2008

CMHC Forecast Changes

The post will compare CMHC 2008 housing forecasts taken at different times in their Housing Outlook reports. The forecast is for yearly totals for sales and listings and yearly averages for prices.

CMHC Forecasts for Edmonton 2008
Resale Spring 2007 Fall 2007 Spring 2008
Sales 22,600 20,000 18,500
Listings 29,000 29,000 43,000
Price $374,000 $360,000 $350,000

CMHC Forecast for Calgary 2008
Resale Spring 2007 Fall 2007 Spring 2008
Sales 33,250 31,700 26,000
Listings 57,750 57,750 62,000
Price $473,000 $450,000 $429,000

2008 Actual Prices
Month Edmonton Calgary
January $332,051 $408,672
February $338,347 $415,017
March $343,760 $419,396
April $336,931 $414,006
May $340,499 $418,881
June $341,376 $418,866
July $335,100 $413,738

These forecast have been lowered a couple times and it they will still be overly optimistic compared to what has occurred so far this year.

Monday, August 18, 2008

Upset Customers

From the Financial Post - Alberta leads national drop in home prices:
The situation has left brokers like Ken Shearer, of Edmonton-based Royal LePage Noralta, trying to explain the market to upset customers. "People who bought in the last 12 to 15 months are angry. I'm telling them we have an oversupply of listings inventory, the largest in history.

Why would people be angry?! What type of advice was the Edmonton Real Estate Association giving out last year?

In only the first three months of this year, average home prices have climbed 12.4 per cent, so Pratt has abandoned her earlier forecast of a 15 per cent increase for the full year.

"We're predicting that prices will continue to rise until August, at four to five per cent per month, then at two per cent per month," she said today.

April 4, 2007

Price increases may moderate slightly as the market returns to pre-boom levels but I do not anticipate that actual prices will decrease.”
May 2, 2007

Rising prices are forcing buyers to explore their housing options. People are being priced into the condo market,” said Pratt. “May figures demonstrate that the trend has not yet abated.” She urged both buyers and sellers to consult a REALTOR® before venturing into the market. “With the average price of a single family dwelling rising by over $400 a day, you need the latest market figures that only a REALTOR® can provide.”
June 4, 2007

I wasn't going to bring those quotes up again but decided to after hearing this ad from Marc Perras of the EREB.

It's sort of like driving around on fumes with your gas guage on empty just waiting for fuel prices to go down.

Marc Perras of the REALTORS Association of Edmonton

There are homebuyers waiting on the sidelines of the market anxiously waiting for housing prices to drop.

But there is nothing to suggest that a big drop is coming?

There is still a lot of inventory on the market but sellers have adjusted already. The near record number of sales in July suggests the market has really stabilized.

So there is not much ground to be gained by waiting?

The average price of a single family home fell 0.5% in July. If you consider that amount to an average month's rent...

..Then your sitting there paying rent waiting for prices to drop...

Then you are not gaining any ground. You are just missing out on all that selection.

First, if I was living under a bridge and had the cash available to buy a house then the gas analogy might make sense. But I'm not, so it's stupid.

If your rent is cheaper than the mortgage then you gain that difference plus the depreciation each month. I'm not even including if the furnace breaks down or city taxes.

Wednesday, August 13, 2008

Spotlight Edmonton Journal

Today I am just going to make comments on the following article from the Edmonton Journal: Our housing market's correction is not a calamity

EDMONTON - Is the city's housing market going into the tank, as it did in the 1980s? Or is it already showing signs of emerging from its year-long funk?

My guess? With the average price of a single-family detached home in Edmonton down to $379,224 in July -- nearly $38,000 or 9.1 per cent below the July 2007 peak of $417,150 -- the recent downturn is largely history.

Sales volumes are picking up, the bloated inventory of unsold homes is shrinking, new housing starts are down by more than 70 per cent, and current prices better reflect what buyers are willing to pay to live in what has become one of Canada's most consistently prosperous cities.

Regarding the comment about sales picking up and inventory shrinking it is technically true there are stats that can be used to show this. By comparing to sales from last year and to inventory from last month this statement is correct. Here is a chart showing sales and inventory from the Edmonton Real Estate Blog. Personally, I wouldn't make the case that recent trend.s in sales and inventory makes for a bottom

...But let's get a grip. Alberta remains an island of prosperity in an otherwise stormy sea. We've had a correction, not a U.S.-style housing market meltdown. And what a run we've had.

I like how "we've had a correction" refers to the it in the past tense as if we have already past it.

Since January 2002, the average price of a single-detached home in Edmonton has jumped by more than $216,000, or 133 per cent. And that's after taking into account the price declines of the past 12 months. Local condo prices have risen even faster, soaring 157 per cent since early 2002.

Those numbers reflect a sea change in the global economy, and a rise in commodity prices that remains intact, despite the recent correction.

What this article fails to acknowledge is why prices have fallen at all. Decreasing prices without a change in these economic factors demonstrate that something else responsible for the initial run-up. No details were given about what this "something else" would have been because that would mean discussing looser lending standards and speculation; Basically the same things we share, at least to some degree, with the States.
Still, it's easy to see why some naysayers expect the housing market to continue to weaken. Consider this gloomy headline, which recently appeared atop the front page of one national newspaper: "Housing slump stalks Western Canada."

The accompanying story, based on a report from two Toronto-based economists at Merrill Lynch, said house prices in the major cities of Saskatchewan, Alberta and B.C. are overvalued by 10 per cent, and a "sustained downturn" may be at hand.

The Merrill report is here. It says that those cities are overvalued by more than 10%, with Edmonton overvalued by 25%.

Well, here's the thing. That would have been useful advice a year ago. Not so today. As noted, Alberta's real estate markets have already corrected.

While the average price of a single-detached home in Edmonton fell 9.1per cent through July, on a year-over-year basis, comparable homes in Calgary fell nearly 10 per cent, to $456,380.

So when referencing the Merrill report for Edmonton it uses 10% instead of 25% overvalued. Now that prices have dropped 9% it's "all corrected, time for dessert". Well even then the Merrill report attempts to account for the correction which it had modeled Edmonton at 34% overvalued in 2007 which has decreased to 25% in 2008 with price drops included. Note to Edmonton Journal - READ THE REPORT!

The rest of the article I agree with regarding Saskatoon and Vancouver entering into a downturn. They are going to git hit worse than Edmonton going forward. But I didn't read anything convincing in this article that tells me Edmonton is done.

Tuesday, August 12, 2008

11 down, 74 to go

The First Place Edmonton program had very few applicants. Even less than I could have expected. Of 85 townhomes 11 have buyers after the draw today. See today's 630 Ched article (thanks squidly):

There were only 15 applications for 85 new town homes designed for first-time buyers.
The city held a draw this morning to match applicants with individual town home projects in Canon Ridge and Greenview. Those are former unused school sites.
Of those 15, there will only be 11 buyers since in four instances applications were sent in for both properties.

10 minutes ago I saw Global Edmonton coverage and they did NOT mention the disappointing application turnout. Actually they covered a couple who applied and mentioned that they were lucky to be picked from the draw. Rohit did confirm that they are making a profit (I presume if they sell) just not as big as other projects. Also in the Global coverage they mentioned that there were 30 townhouses in Millwoods between 250K-285K . They did not point out there are an additional 110 townhouses priced below 250K in Millwoods as well.

See previous posts here and here

Update: here is a link to Global Edmonton's Coverage

Sunday, August 10, 2008

Klump on Calgary

I made a chart showing Calgary housing prices and quotes from Greogry Klump, cheif economist for the Canadian Real Estate Association. Prices are from Mike's Site and I did include August which so far only has 9 days worth of data.

The arrow points to the time period between months. This is because the data points are entire month averages and generally the comments are referring to previous month's data.

The two quotes are found in the ealier post.

Thursday, August 7, 2008

Developer pwn3d city

defintion of "pwn" here FYI.

My last post was not very clear on the subject. I think that the First Place Edmonton program is a way for the city to make availabile some land, and to provide a builder incentive primarily to help developers make profit. By builder incentive I mean that the city is bearing the cost of deferring payment of the land for 5-years, which is not unlike other private promotions offered to lure buyers. Also I think the land cost of these units, from $30,000/unit at the southside development, is on the low side and somehow the final cost ends up being not terribly affordable. Maybe the developer's "costs" make up some of the difference.

Specifically, I am concerned about the 2-bedroom south side townhouses. Of the 43 units at the southside location 27 are two bedroom suites between 905-921 sqft. From the site:

2 bedroom unit $229,400 town home + $30,210 land = $259,610*
3 bedroom unit $238,800 town home + $38,780 land = $277,580*
2 bedroom accessible unit $276,400 town home + $29,750 land = $306,150*
*Prices do not include GST and are subject to change without notice.
Two bedroom units are $249-$253/sqft without considering the land cost and $281-$286/sqft with land. From Bob Truman's site sales price per square foot in July was $244 for condos, which includes land and GST. Granted this average would include older building but it also includes condos with underground parking, townhouses with fenced yards and garages and properties in more expensive neighborhoods than Millwoods or NE Edmonton. Also the floorplan raises some concerns. Note on the main floor how there is no closet by either entrance and the bathroom is directly adjacent to the kitchen/dining room.

Also the resale comparisons I made in the last post are still on the market. The 1345 sqft Millwoods townhouse is still $274,900, the duplex in Caynon Ridge is $279,000. The least expensive 3 bedroom/1.5 bath townhouse with double attached garage in Summerside is now $283,900 down from $288,00o from last post.

Anyway it will be interesting to see if all these 2-bedroom condos will be unloaded by August 12th when the "draw" takes place.

This of course is my totally biased opinion, the Edmonton Journal said that these units are being sold at a "cut rate". My advice would be not to take their word for it and explore other housing options before committing to this program.

Saturday, August 2, 2008

Calgary July Stats

CREB released the July stats for Calgary. I have to commend the Calgary Real Estate Bubble Blog for calling Ed Jensen's sales pitch regarding 40-year mortgages:
“Buyers who wish to take advantage of the zero down mortgage program will need to hurry as this program, and the 40 year amortization program, are discontinuing shortly. Buyers can get more information about these programs from their REALTOR®.” concluded, Jensen.
Ed Jensen, August 1, 2008

I'm expecting Realtors (some who are struggling) across Canada to further increase their advertising/marketing budgets from now till October 15, 2008. With sales down 30%-40% yoy already, what will most of them do after that date?
I can already envision the new emergency marketing slogan:

"The best time to buy is now - before October 15, 2008."
CREBB July 9th, 2008

What did Ed Jensen say about these loans on July 12th?

The Canada Mortgage and Housing Corporation, the Crown corporation providing mortgage insurance on behalf of the government, eased the rules in 2006 to encourage homebuying.

That change, Jensen said, had little impact at the time.

"We didn't notice it in the market place," he said.

"So I believe in reverse, I don't think we're going to see a large impact on sales."

Funny that after these loans were introduced Calgary saw huge numbers in sales and prices and he didn't notice them. He seems to have noticed enough to make a sales pitch. See previous post.