I think the situation in Alberta is more complex. Speculative mania played a part in the boom for certain, but this combined with inflation and actual economic growth brought the peak housing prices.
Below I took Edmonton prices back in 1999 and tried to apply a rough guess of economic growth contribution and inflation to each year to see where average detached prices would end up in 2007/2008 in the absence of speculative mania. From the EREB archives in 1999 the average detached house sold for $133,442. Now "Justified Appreciation" here is an abstract number of how much economic growth contributed to appreciation assuming all participants were rational. I made an rough guess on this value and added on inflation each year to see where prices would trend. I started at $150,000 at 1999 assuming that prices were irrationally low during this time period. Since I make the case that markets can be irrationally overpriced then I also gave merit to the idea that market can be undervalued as well. These are all rough estimates, but i think it gives some tools of how to look at a market besides "The economy is hot so prices will increase" or "It was a speculative frenzy so prices will crash".
| Year | SFD Avg | Inflation | Justified Appr | ||
| 1999 | $150 | 2% | $3 | 1% | $2 |
| 2000 | $155 | 2% | $3 | 1% | $2 |
| 2001 | $159 | 2% | $3 | 2% | $3 |
| 2002 | $166 | 2% | $3 | 2% | $3 |
| 2003 | $172 | 2% | $3 | 2% | $3 |
| 2004 | $179 | 4% | $7 | 5% | $9 |
| 2005 | $195 | 4% | $8 | 10% | $20 |
| 2006 | $222 | 4% | $9 | 10% | $22 |
| 2007 | $254 | 6% | $15 | 10% | $25 |
| 2008 | $294 | 6% | $18 | 5% | $15 |
| Total | $55 | $89 | |||
In Edmonton the average detached price peaked at $426,000 in July 2007 and was at $381,384 this June. Assuming these wild guesses reflect reality the difference between the price above and actual price would be due to "speculative mania". This would include watching too much flip this house, or that Ty dude from Extreme housing Makeover, lax lending standards from the CMHC and this woman and unrealistic expectation of future appreciation. Breaking apart the components shows a possible breakdown of each contribution to appreciation between 1999-2008. Note that as prices fell and inflation marched onward the speculative mania component has shrunk since the peak.
$87,000 of speculative mania built in to current prices? That would bring detached house to $300,000 to purge the built in excesses. I dunno, my gut says more like $325,000 - I guess I am a timid bear.This is as close to a forecast I will post. Generally the theme of this blog will be to point out distortion from the real estate industrial complex and the media. I'm not an economist.
