Sunday, April 18, 2010

Upward-sloping supply curve

Listings have been running higher because the price sellers think they can get is inflated. In addition to low interest rates the market improved in 2009 because sellers understood that they needed fairly substantial discounts off peak price and buyers could find better value (relatively).

It no surprise that listings have increased as asking prices have. Consider a benchmark house I have previously covered. Approximately 1700 sqft 2-story house with double attached garage and bonus room in a newer south east Edmonton community of Ellerslie. In October 2009 I did a comparison of one that was priced at $374,900. I noted that the price to rent ratio was high at 220, but with the financing available at the time the buy vs. rent was closer.

Now the least expensive house that matches the same criteria is this $410,900 1701sqft two story. In this environment people are coming out of the woodwork to sell.

There are other similar houses asking more. Asking prices in general will need to fall to move the inventory that is accumulating.

Thursday, April 8, 2010

Edmonton New Construction Update

It has been awhile since I've posted about the new construction situation in Edmonton. The most important change has been the increase in single family homes under construction. The resale market for single family homes has recovered more after the "great financial crisis" than condos and this has spilled over into new construction market.

At the peak of August 2007 there were 6,528 single family homes under construction in Edmonton. Exactly two years later that surplus was reduced to 1,986 and has since rebounded to 3,169. SFH starts have jumped significantly (shown in blue) but have not reached the level of the boom.

The next chart shows all types of construction including housing that has been completed but not absorbed by the market. With these factors considered the recent bounce in new detached homes has been offset by the continued decline in condo construction.

At the peak in February 2008 there were 7,730 condos under construction in Edmonton (orange). The last month available, February 2010, this has been reduced to 2,220. Over the past two years the glut of condos constructed during the boom has mostly been completed and absorbed. There remains an elevated number of condos not absorbed but that has reversed slightly as completions slowed (dark gray).

There are several changes coming to the market soon; however, the relatively low level of construction compared to the boom may limit the severity of the next downturn.

Wednesday, April 7, 2010

Edmonton listings up more than sales

Similar to Calgary. Listings accelerating faster than sales resulting in a seasonally adjusted sales/listing ratio of 42%. Prices were strong (I believe this is partly due to seasonal patterns and monthly noise) but supply and demand indicates an environment of falling prices.

Thursday, April 1, 2010

Calgary: Even more listings

Sales in Calgary improved in March but are still below the pace set in the 2nd half of 2009.

Listings this month moved up closer to "stampede" - a rate equivalent to the first half of 2008.

The seasonally adjusted sales/listing ratio fell to 43%. The increase in listings was more significant than those in sales.

This should lead to an environment of falling prices but instead they were quite strong in March. I think the correlation between this ratio and prices will re-emerge shortly.

The fifth consecutive month of falling seasonally adjusted sales/listing ratio clearly indicates the market has weakened from the 2009 bounce. It will be interesting to see how new listings change when prices begin to fall. Will sellers be less motivated to sell into a weaker market similar to 2009 or will they continue to rush to the exists like they did in the first half of 2008?