Tuesday, December 30, 2008

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.

Sunday, December 28, 2008

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

Thursday, December 18, 2008

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!

Friday, December 12, 2008

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.

Wednesday, December 10, 2008

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

Saturday, December 6, 2008

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

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