Saturday, June 19, 2010

Just a blip

Diane Scott, president of the Calgary Real Estate Board, called the May MLS data "just a blip."

"We still expect a steady market for the balance of the year," she said.

Calgary Home Sales take May hit
Monthly data viewed as 'just a blip'

June 17th, 2010

Increase that 'blip' to 5 months because sales have been weak since January. This is what I had to say about sales several months ago:
Calgary stats for January have been posted by Bob Truman and it is clear they have deteriorated on a seasonally adjusted basis. Normally we could expect a 27% increase from December to January, but instead sales were flat. They have moved closer to a rate equivalent to the six months of the financial crisis labeled scorched earth on the chart below.

Even Gregory Klump is less delusional about the sales slowdown.

Greg Klump, chief economist with CREA, said the combination of changes to mortgage regulations in April and rising mortgage rates pulled forward a number of sales into April that would have otherwise taken place at a later date.

"From the standpoint of afford-ability, we see sales activity softening going forward because of marginally higher interest rates as well the strength of activity in the first half of this year will be at the expense of sales activity in the second half of this year," said Klump.

From Mike Fotious site June sales look really bad yet again, as in another month of "scorched earth". Make that sales blip six months and counting.


Radley77 said...

I think it is what TD Economics had coined as a "demand-driven overhang". Sales during the boom, were artificially high, compared with demographic demand so to expect that sales will be more that the historical average over the preceding 10 years seems folly to me. Couple that with that interprovincial migration is very low, and there really isn't a case for large amounts of demand.

My expectations for the new normal for the foreseeable future is that sales will remain between 10 year historical average and "scorched earth" for some time.

squidly77 said...

when sales have fallen to levels not seen since the mid 90,s and considering that calgarys population has grown over 300,000 since that point, the only logical conclusion I can come up with is that its all crashing hard

Radley you have been posting for a long time, so I mean no insult here, but when things go so far from the norm such as sales falling over 40%, all charts and previous data can be tossed out, long term charts dont mean a damn thing in the case of an inflating bubble or a bursting one

no chart or person could have predicted that Phoenix homes would fall 60% in value or that California homes would fall 50% in value, well almost no one

BearClaw said...


Can you define "crashing hard" in terms of yearly price drops?

Mike's stats for the first 15 days of June show SFH sales are about the same as 2000, but much lower than peak (~43%).

Phoenix sales were down more than 50% from peak for 2007 and 2008.

But I don't think the story is entirely in sales. Calculated risk did a post of unemployment and delinquency rate. The state of Arizona had a deliquency rate of 18.6% and at I believe nearly half of the recorded sales were foreclosures.

FYI, peak to trough price drops for American cities range from 18% (Boston) to almost 55% (Phoenix). They have bounced some to a range of -14% to -51%, it remains to be seen whether a new bottom will be formed (I think its possible the U.S. may experience a legitimate rebound in housing in a couple years, based on level of construction and price to rent ratio combined with low interest rates)

Calgary declined about 15% from peak to 10% now. I would guess we will bottom about 10% below the previous 2009 trough a few years from now (2012-2013? total decline from peak ~25%). This is based on some assumptions:

Continued weaker sales maybe bouncing slightly above where they are now
No massive construction glut
Stable or slightly improved job market
Relatively low interest rates
No mortgage market crisis
Low but positive inflation

I could be wrong but this is how I see things right now.

squidly77 said...

Hi Bear

There is no price drop, at least not yet, only a very large sales drop.

There's over 12,000 homes for sale in metro Calgary, some need to sell and some don't

The ones that need to sell will drop their asking price, while the ones that don't stand still

The ones that drop their prices will sell their homes at a lower price, thus lowering the value of all the other comparable homes for sale that don't sell

Next month, rinse and repeat.

And here's the double edged sword, when there's a glut of used homes for sale the last thing that should be done is to build more homes, but if you stop building new homes you need to lay people off, that's how it all unwinds and its impossible to stop.

As uncontrollable as the run up is to control. the run down is just impossible to control, it has to run its course, prices will drop to unbelievably low prices, just like campbell's soup when the superstore has 5 aisles devoted to it, its on sale for 2 for 1.

Radley77 said...

Absolutely, I do think that the drop in sales, coupled with a rise in new listings is indicative of a market that is falling on a seasonally adjusted basis. The absorption rate of 6 months is indicative that properties listed will be have to be priced incredibly competitive to attract bids (insert giant down error here).

Bearclaw's points are pertinent, particularly if you look at leading indicators and find analogies. EHB is missing part of the puzzle in it's latest post due to lack of data on average household assets is equally as important as it's liabilities. Furthermore, it comes down to affordability. These form the basis of cash flow analysis and review of balance sheet to determine if the housing market is healthy.

squidly77 said...

Radley, there is nothing seasonal about a 40% yoy sales drop, one more month of sales like this, and humpty falls off his wall.

Radley77 said...

It should read that the market (or prices) are falling on a seasonally adjusted basis. 6 months of inventory is too much.... Most of my charts indicate that in Calgary an absorption rate of greater than or equal to 4 on an annual basis is indicative of a falling market. Or as you might say I think Humpty has ALREADY fallen off the wall (we just aren't seeing it yet due to seasonal effects).

Schroedinger's Bull said...

Sorry...Is this Radley, Bearclaw AND Squidly77 agreeing on something?

Jebus, I'm gonna go get me a .22 and some squirrel skewers.

LSigurd said...

As someone who has recently inherited a house (and its mortgage) through marriage, let me tell you it sucks to watch this market right now. Somewhere between 5-6 months inventory, slowing sales, falling lumber prices (I suspect new homes are going to get cheaper) and the global economy is just not looking good... the whole thing is ominous.

I wish there was a way to hedge your house. A short to go with the long. Unfortunately there isn't, so unless you are willing to move out and rent (a decision that is much harder in reality then it is in theory), you have to just hope that the price fall doesn't wipe out all the equity put in.