Sunday, September 21, 2008

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.

Friday, September 19, 2008

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.

Saturday, September 13, 2008

You Should Buy!

The faulty buy vs. rent calculator has showed up once again, this time on the RE/MAX of Western Canada site. This calculator always returns "You Should Buy!" no matter what inputs are used.

This calculator was covered in the first post on this blog and was originally found on but has since been removed.

Here is an example of the calculator currently found on the RE/MAX site where I used some absurd numbers.

Press Calculate...

You should Buy!

It looks like you should Buy based on the assumptions you have given us.

Why? If you buy for $1940723.70 (the maximum you would qualify for) you will pay down your mortgage of $1690723.70 by $443034.79 over 10 year(s) with your Principal and Interest payments of $9833.33 per month, plus your property will increase in value by $0 for a total investment growth of $443034.79.

This total is greater than your total investment growth from renting, which is approximately $297690.39 after 10 year(s). This was calculated by growing the monthly savings from renting ($10000.00) plus your current downpayment of $250000.00 at a standard after-tax rate of 4% per annum.

Wow! According to this calculator buying a TWO MILLION DOLLAR house that will not appreciate is a better option than renting for free. The problem is the same as before the savings from renting are fully accounted for. Saving $10,000/month under a mattress will amount to $1.2 MILLION over 10 years.

Totally broken. Again.

Saturday, September 6, 2008

Perras: Ridiculous Statements

The thing that is astounding about the Edmonton Journal and Marc Perras is how they can be so certain in their fabricated stories when they have been so wrong in the past. I am referring to the Edmonton Journal article Home sales spike as prices sag.
With downturn ebbing, buyers flood market that's 'not going to get any better'
Bill Mah, The Edmonton Journal
Published: Thursday, September 04
The term ' buyers flood market' was not brought up by the industry insiders quoted in the article but created by the Edmonton Journal, demonstrating their own bias.

Marc Perras, president of the Realtors Association of Edmonton, said the figures confirm what he's experienced in his own real estate office.

"I've been run off my feet," Perras said. "July was ridiculously busy and August has been ridiculously busy, and when it shows in the numbers, it's not just me."

These are the Edmonton sales numbers for August for the last several years. 'Ridiculously busy' is a great exaggeration at best. I have my own bias here so I will just present the numbers and the sales chart again (from Edmonton Real Estate Blog).

August Sales
2003 1438
2004 1534
2005 1934
2006 2079
2007 1299
2008 1541

There were 9,612 residential properties in the inventory on Aug. 31, compared with 10,501 at the beginning of the month.

"The stats show buyers are confident with the Edmonton economy. It's a large selection to pick from right now, and I think they don't foresee a drastic dropping of prices, so they want to get into the marketplace and buy.

It is true that part of the inventory reduction is due to some recovery in the sales/listing ratio which is at 51%. What is not mentioned are listing that are removed or expired but did not sell. From the weekly update on the Edmonton Real Estate blog there were 692 delists last week alone. Another 'expert' chimes in:

"For buyers, it's not going to get any better than it is right now because of the supply, which is going to start to dwindle away," Goatcher said.
Sales will start to dwindle as well going into winter. Actually they already have, but you wouldn't have guessed it from this article. Honestly, I do not know what will happen in 2009 but I still get aggravated at the certainty which these statements are made.

Saskatoon Spin

I know this is an Alberta blog but this article from the Saskatoon Star Phoenix demands attention.

Saskatoon home prices stabilizing

More homes are up for sale in Saskatoon and their average price is headed for a plateau.
I am not an expert in geology but I'm pretty sure a plateau is flat and not a decline of more than $30,000.
"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.
This August sales were at a 10 year low. And clearly not on par with 2003, 2004, 2005.

August Sales
2003 240
2004 296
2005 319
2006 349
2007 397
2008 224

This comes shortly after a desperate article (4 pages!)tackling the Merrill Report stating that Saskatoon is 50% overvalued.

Star Phoenix is one of CanWest minions along with the Edmonton Journal and Calgary Herald. See previous post on Saskatoon here.

Wednesday, September 3, 2008

Edmonton August Report

The August report is here. Sales were only compared to 2007's devastating numbers and not to other more "balanced" years. While its true that sales are up over 2007 consider some previous statements regarding sales:
Near record January sales indicate that housing sales will remain strong in the Edmonton area as buyers and sellers adjust to the new pricing levels,” said Marc Perras, president of the REALTORS® Association of Edmonton.
Feb 5, 2008 (21% drop over 2007)

“We predicted that sales would be on par with the last ‘normal’ year that we had in 2005. So far the market is behaving as we anticipated.”
March 4, 2008 (32% drop over 2007)

Actually in the forecast released at the beginning of the year Marc Perras predicted sales to drop slightly. The actually number of sales this year will certainly be less than his forecast.

"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."
Jan 9, 2008
..There is more....
With the high inventory, demand was strong with residential sales near traditional volumes.
April 3, 2008 (34% sales drop over 2007)
April sales of all types of residential property through the Multiple Listing Service® were lower than the two previous years at 1,823 units but higher than the more typical years of 2004 and 2005.
May 5, 2008 (25% sales drop over 2007)
Sales were up 1% in April when compared to 2004/2005. See previous post.

May sales exceeded same month sales in 2003 and 2004 but were below May sales for 2005-2007 when the market was super-heated.
June 3, 2008 (36% sales drop over 2007)

This is a false statement. May sales were in fact below those of 2004. See previous post.

Don't get me wrong. Number are numbers and there were 18% more sales this August compared to last year. I just don't buy the spin. To EREB 2007 was off limits except when comparing to record low sales. This chart is probably the most enlightening way to look at the sales figures stolen from the Edmonton Real Estate Blog. It is laid out so it is easy to compare sales from each month to the last several years.

See the red line? Thats the sales surge the Edmonton Journal is referring to in this article: Edmonton home sales surge, prices dip.

There is still more. Marc Perras had to comment on price as well.
“Housing prices typically rise slightly through the fall,” said Perras. “We expect that the strong sales this quarter will support rising prices as we approach year-end.
This reminded me of a previous statement which I debunked in this post.
"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."

Ed Jensen's report for Calgary was less brutal and focused more on sellers. He still managed to call the Calgary market stable and had the same buyer's market charts.

Monday, September 1, 2008

Timeshare Revealed

Came across this website from a regretful timeshare owner. Have a look.

I remember when my wife and I went to a timeshare presentation to get the free gifts. A couple of marketing ploys I remember:

  • They place a sales representative beside each couple during the video to prevent dissenting opinion.
  • The use a complex point system to book hotels. This is designed to prevent the buyer from understanding exactly what they are purchasing.
  • Of course they use high pressure sales tricks. Such creating an artificial urgency to buy today and today only.
  • Also, the gifts were disappointing. Not that I should be surprised but the camera was pretty much garbage. We did not use the hotel before it expired.