Tuesday, October 28, 2008

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.

Saturday, October 25, 2008

Klassic description


Thursday, October 23, 2008

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

Sunday, October 19, 2008

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?

Saturday, October 18, 2008

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.

Thursday, October 16, 2008

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
“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
July 2007 51% / 41%
Aug 2007 50% / 44%
Sept 2008 53% / 45%
Oct 1-14 2008 40% / 32%

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

Monday, October 6, 2008

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

Saturday, October 4, 2008

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



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)