Friday, January 23, 2009

Phantom buyers

It seems "Alberta Real Estate Watch" is now mainstream. So now I feel like I'm kicking the industry when they are down instead of being some sort of renegade blogger. To see what I mean have a look at the comments the Calgary Herald article Calgary's MLS sales price to drop by 2% for homes, 5% for condos
Posted by 'Disgusted'
This article is completely irresponsible, wreckless manipulation aimed at coercing people into buying into a market that is headed for much lower prices. There are people who will be hurt by this - young people who have never seen this type of market before, older people who are hanging on in desperation seeing their retirement dwindle and others hanging on by a prayer hoping beyond hope for a recovery. Where are the facts to support this ridiculous prediction when all the facts point to a failing economy and lower housing prices. I am disgusted by the self serving message by the PRESIDENT of CREB and would urge everyone who feels the same to contact CREB to voice their complaint. At the very least I would like Ms. Wegewich to back up her comments with some realistic facts ilustrating her conclusions. Which of course she could never possibly do.
January 22, 2009 - 10:46 AM
So what does this mean for Alberta Real Estate Watch? I just put on some Vietnam jungle boots.

Yet again we are waiting for the buyers as we have since the boom ended. I put together a compilation of quotes from Calgary Realtors talking positively about interest from potential buyers.

Q: Has the market hit bottom?

A: All of a sudden we're seeing some buyers come out again and start looking for houses. I think they want to buy before the market starts to go up again.
Bonnie Wegerich, CREB president
Incoming real estate chief expects return to stability
Calgary Herald
Jan 21, 2009
(sales between Jan 1-15 are down about 60% from the same period last year according to Mike Fotiou)

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"
CBC News Fail
December 10
(December SFH sales fell 47% YOY)

"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."

While he says the number of sales won't be anywhere near the record levels of the immediate past, "most cities in the world would cry for what is still forecast for here."
Don Campbell,
Calgary resale market seen as 'self cleaning'
Calgary Herald
March 1, 2008
(The bank of Ireland is trading at $2.12 down from about $60 in March 2008)

...Sales will come, he says.

It is already happening, says Tim Crough, a realtor with Prudential Toole Peet. "We're starting to see the starter home market pick up, predominantly in condos, but also lower-end singles."
'Breather' for market
Calgary Herald
March 1, 2008

Sunday, January 18, 2009

Quick post

So much for blogging break...

A quick comment on the Calgary Herald article "Return to normal predicted for market"

Yet another of article of baseless reassurances.

"The start of 2009 is poised to signify the end of the downward movement in Calgary's real estate market," says Ted Zaharko, broker/owner of Royal LePage Foothills Real Estate Service. "Over the past few years, the city experienced explosive growth followed by a significant correction period-- but a turnaround to normal market conditions is imminent."
No claim substantiated. No reflection why the same idea brought up in the past was proven wrong by the market. Take a look at this article from the same author, Realtor and paper from January of 2008: "Return to 'normal' predicted for 2008" . See previous post

After more sweet nothings from another industry insider the Herald prints:

There is a growing feeling within the industry that the low has been reached, particularly with the way the Calgary economy is operating.

This is total ignorance of the past by the Calgary Herald. This implies that at one point the industry was less sure of a bottom and falsely gives them credibility where none is deserved. The industry continues to feel a low has been reached, as it has since the downturn began.

Saturday, January 10, 2009

A big pile of dirt

I think Fort McMurray will be hardest hit in 2009. Prices were high even considering the strength of the economy. Optimistic case even if a slowdown brings a "mild normalization" to their economy house prices should take a substantial hit.

Consider oil prices compared to house prices in Fort McMurray. Currently light sweet crude costs $40.83 US/bbl and the Canadian dollar is at 0.8419. In Canadian dollars oil prices are at $48.50.

That means the average Fort McMurray home at $656,051 is the equivalent of 13,527 barrels of light sweet crude.

Its even more extreme when considering how much actual sand that represents. From Wikipedia each barrell of oil requires two tons of tar sands:
The bitumen is then transported and eventually upgraded into synthetic crude oil. About two tons of oil sands are required to produce one barrel (roughly 1/8 of a ton) of oil. Roughly 75% of the bitumen can be recovered from sand. After oil extraction, the spent sand and other materials are then returned to the mine, which is eventually reclaimed.
So each house is the equivalent of 27,054 tons of tar sands.

I am not taking into account that bitumen is priced lower than light sweet crude. According to this chart for oil prices bitumen @ Hardisty was 56% the price of Light Sweet @ Edmonton in December. Another point is that the energy inputs to produce one barrel of oil.

So maybe 50,000-75,000 tons of tar sands is equal to one Fort McMurray house at current prices.

From memory one of the trucks above holds about 150-200 tons. That means 250-500 super-trucks of tar sands.

Something to think about anyway. I'm gonna be busy for the next while so I will be taking a blogging break for 3 weeks or so.

Sunday, January 4, 2009

Quote of the year

2008 quote of the year goes to the chief economist of the Canadian Real Estate Association. The following statement appeared in the Calgary Herald regarding Calgary real estate. [emphasis mine]
"It's clear looking at the data that I'm looking at, that in terms of the prices, they've stabilized," he said. "Anyone expecting a continued decline in average price will be surprised and disappointed."

Gregory Klump, July 16, 2008

I think this takes the cake because it comes from the CREA's chief economist who makes assertions with such certainty without explaining to the public what data was used or how he came to his conclusion. The confidence was there without any reflection on what was said in the past.

Anyway I update the chart a had posted earlier this year. Enjoy.

Thursday, January 1, 2009

Bob Truman - Changing Criteria

This will be a follow-up of a previous post regarding Bob Truman's prediction from January 30, 2008 and how it has been changed and promoted 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.

Initially the prediction was that prices would remain within the range without using any specific measure. From Mike's stats all price measures fell outside the range of stability to the downside by December.

SFH January December %Change
Average $455,297 $417,397 -8.3%
Median $410,000 $380,000 -7.3%
$/SF $302 $272 -10.0%

Condo January December %Change
Average $311,232 $274,919 -11.7%
Median $290,000 $254,000 -12.4%
$/SF $313 $272 -13.1%

On June 4th he returned to the original prediction focusing on the median price for single family homes. The criteria remained that the price would stay between a +/-5% range.
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)

Results as of Jun 11:

Yes. It is accurate 55%
No. Median will rise higher than $430,500 11%
No. Median will drop lower than $389,500 33%

On October 30th the wording was changed to rise and fall by the boundaries of his earlier prediction for a particular measure. Not surprisingly, at this time the median was very close to the lower limit.
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).

After reflecting back on the year he then changed how he would define if the prediction was accurate. In January it was for stable prices within a +/-5% range. In June it was for a particular statistic but still within the range. By the end of October it was for a chosen stat to rise and fall by certain amounts. Note that he did not make an actual dollar figure prediction instead defined a range of stability, and even after changing criteria throughout the year it did not end up being accurate.
Jan 1
Now that 2008 is in the books, let's look back at the Predictions. Considering the volatile year we've just been through, who would have ever been able to forecast the final outcome with any degree of accuracy? It turns out that was very accurate. In fact, no one on the public record made a more accurate prediction, but I congratulate all who had the courage to make an actual dollar figure prediction in such a tumultuous year.