The bubble model

The bubble model for home buyers in Alberta goes something like this:

A reckless financial illiterate buying simply for capital appreciation using the loan which allows for the minimum monthly payment.

For example this is from Garth Turners blog about how to tell you are in a housing bubble:

When the number of people taking 35-year amortizations explodes higher. Overall, these loans have doubled as a percentage of all mortgages in two years but that does not tell the true story, since today 5/35 buyers constitute an absolute majority of new originations. Of course, 35-year borrowers pay off virtually no principle for years and years which makes this akin to renting money. No equity means no ability to withstand a market correction.

From this mortgage market report 53% of new purchases are for amortizations 25 years or less. 29% are for 35 years or greater.

Another snippet from Garth's same post.

Some observers, bless their good hearts and large stones, had the courage to warn recent buyers with mortgages in the 2-3% range they could be in deep financial trouble before too long. But you know that. The reasons why have been beaten to death on this blog already.

To be fair in this case he didn't say that 2-3% variable rate mortgages are the norm. But going back to the mortgage report 5-year fixed mortgages are the most popular.

-73% of mortgages held by 18-34 year olds have terms greater than 4 years.
-71% of mortgages held by 18-34 year olds have fixed rates, 9% combination

Of new mortgages within the last 12 months shorter terms do appear more popular, but not the majority. 56% have terms greater than 4 years.

Of course there are a significant number of mortgages over 30 years at a variable rate and these will most likely cause some amount of turbulence during the next leg down. The model that typical Canadian buyers have been recklessly overbidding $300,000 for a shacks in downtown Toronto or Vancouver using a 35 year VRM makes for good entertainment but does not reflect reality.

American and Canadian House Prices

Metro Area	Median
Saginaw-Saginaw Township North	$61,400
Youngstown-Warren-Boardman	$70,700
Lansing-E.Lansing	$86,600
Toledo	$88,300
South Bend-Mishawaka	$88,500
Decatur	$88,500
Canton-Massillon	$89,300
El Paso	$94,500
Grand Rapids	$97,100
Cape Coral-Fort Myers	$98,000
Ft. Wayne	$102,500
Ocala	$102,700
Erie	$102,800
Akron	$107,200
Rockford	$108,700
Palm Bay-Melbourne-Titusville	$109,500
Topeka	$111,100
Dayton	$111,600
Springfield	$113,800
Binghamton	$114,200
Springfield	$114,400
Davenport-Moline-Rock Island	$115,600
Cleveland-Elyria-Mentor	$115,800
Waterloo/Cedar Falls	$118,200
Buffalo-Niagara Falls	$119,700
Indianapolis	$120,200
Wichita	$120,400
Florence	$121,300
Rochester	$121,500
Cumberland	$122,100
Amarillo	$122,500
Appleton	$123,500
Chattanooga	$124,100
Pittsburgh	$124,600
Syracuse	$125,200
Peoria	$125,200
Gary-Hammond	$126,600
Deltona-Daytona Beach-Ormond Beach	$126,700
Spartanburg	$127,200
Mobile	$128,300
Memphis	$129,300
Atlanta-Sandy Springs-Marietta	$129,400
Greensboro-High Point	$131,700
Cincinnati-Middletown	$131,700
Charleston-North Charleston	$132,000
Tulsa	$132,100
Little Rock-N. Little Rock	$132,500
Elmira	$132,800
Beaumont-Port Arthur	$133,600
Kankakee-Bradley	$133,600
Lincoln	$133,600
Montgomery	$134,200
Green Bay	$135,300
Louisville	$135,600
Saint Louis	$136,400
Sioux Falls	$137,200
Tampa-St.Petersburg-Clearwater	$137,400
Omaha	$137,600
Corpus Christi	$137,800
Gulfport-Biloxi	$138,000
Las Vegas-Paradise	$138,500
Champaign-Urbana	$140,600
Jackson	$141,200
Knoxville	$142,000
Fargo	$142,100
Columbus	$142,600
Phoenix-Mesa-Scottsdale	$142,700
Columbia	$144,000
Oklahoma City	$144,100
Lexington-Fayette	$145,000
Jacksonville	$145,700
Cedar Rapids	$145,700
Tallahassee	$145,900
Greenville	$145,900
Kansas City	$146,200
Columbia	$148,800
Dallas-Fort Worth-Arlington	$150,500
Pensacola-Ferry Pass-Brent	$151,700
Hagerstown-Martinsburg	$151,900
Shreveport-Bossier City	$152,300
Glens Falls	$152,400
San Antonio	$152,800
Birmingham-Hoover	$153,300
Boise City-Nampa	$154,700
Reading	$156,400
Des Moines	$156,600
Bismarck	$157,200
Bloomington-Normal	$157,200
Orlando	$157,900
Yakima	$158,400
Houston-Baytown-Sugar Land	$160,600
NY: Newark-Union	$164,300
Baton Rouge	$166,900
Riverside-San Bernardino-Ontario	$168,100
Gainesville	$171,800
Kennewick-Richland-Pasco	$172,200
Tucson	$174,000
Spokane	$177,600
Salem	$180,400
Albuquerque	$183,500
Durham	$184,300
Minneapolis-St. Paul-Bloomington	$184,800
Sarasota-Bradenton-Venice	$185,200
Farmington	$186,500
Sacramento--Arden-Arcade--Roseville	$186,600
Austin-Round Rock	$189,100
Reno-Sparks	$192,200
Charleston	$195,100
Colordo Springs	$195,100
Albany-Schenectady-Troy	$195,400
Springfield	$195,400
Milwaukee-Waukesha-West Allis	$199,500
Charlotte-Gastonia-Concord	$199,600
Dover	$200,000
Pittsfield	$200,500
Portland-South Portland-Biddeford	$202,800
Eugene-Springfield	$206,600
Kingston	$206,600
Raleigh-Cary	$207,900
Chicago-Naperville-Joliet	$210,100
Virginia Beach-Norfolk-Newport News	$215,000
Miami-Fort Lauderdale-Miami Beach	$217,000
Norwich-New London	$217,100
Madison	$217,900
Salt Lake City	$218,900
Atlantic City	$223,000
Worcester	$224,100
Philadelphia-Camden-Wilmington	$227,500
Denver-Aurora	$229,100
Providence-New Bedford-Fall River	$229,700
Allentown-Bethlehem-Easton	$230,500
Hartford-West Hartford-East Hartford	$237,500
Manchester-Nashua	$237,600
NY: Nassau-Suffolk	$241,300
Portland-Vancouver-Beaverton	$244,500
Baltimore-Towson	$261,100
Trenton-Ewing	$291,200
Barnstable Town	$319,700
Seattle-Tacoma-Bellevue	$321,500
Washington-Arlington-Alexandria	$324,700
Edmonton Area	$328,043
New Orleans-Metairie-Kenner	$343,800
Los Angeles-Long Beach-Santa Ana	$345,600
Boston-Cambridge-Quincy	$348,000
Boulder	$358,300
San Diego-Carlsbad-San Marcos	$378,100
New York-Northern New Jersey-Long Island	$384,900
New York-Wayne-White Plains	$385,400
Calgary City	$388,721
Nashville-Davidson--Murfreesboro	$389,100
Bridgeport-Stamford-Norwalk	$398,200
New Haven-Milford	$449,700
Anaheim-Santa Ana	$498,800
San Francisco-Oakland-Fremont	$538,100
San Jose-Sunnyvale-Santa Clara	$566,000
Fort McMurray (avg)	$600,970
Greater Vancouver (benchmark)	$710,892
Kalamazoo-Portage	N/A
NY: Edison	N/A
Richmond	N/A
Danville	N/A
Detroit-Warren-Livonia	N/A
Honolulu	N/A

Canadian dollar @ 0.9481 November 12, 2009
Sources
http://www.rebgv.org/
http://money.cnn.com/2009/11/10/real_estate/latest_home_prices/index.htm
http://www.ereb.com/REALTORSAssociationOfEdmonton.html
http://www.creb.com/
http://www.woodbuffalo.net/AboutCostHouse.html

Edmonton New Construction

The past two years residential construction in Edmonton has been in decline as the result of some overbuilding during the boom and from weaker demand since then. The glut of housing under construction has been mostly absorbed and going forward will contribute less to overall supply. Single family starts slowed rapidly after the market peak in the spring of 2007 and since then the amount under construction has fallen substantially. Single family houses under construction have decreased from the peak of 6528 in August 2007 to 1764 in April 2009. This has bounced back recently to 2216 in September 2009 as starts have picked up again.

The chart below shows the amount under construction from all types of residential housing. While single family homes have bottomed, apartment condos (shown in orange) continue to decline. I added inventory which has been completed but not absorbed in gray. This does not make up a terribly significant portion, but it is interesting to note that SFH spec homes have been cleared while condos have accumulated.
In general the number of completions should be roughly in line with the number of starts only delayed. We have seen completions exceed starts for quite some time resulting in a decrease in the amount under construction. Right now the 12 month moving average for starts for all residential is 403 while still 795 for completions.
I expect completions to decline going forward contributing less to overall supply.