Lower Prices

Regarding the Calgary Herald Article Entry-level buyers now driving Calgary's home sales

The report said that in Calgary improved affordability levels are bringing first-time buyers into the residential real estate market. Close to 60 per cent of year-to-date sales have taken place in the under $400,000 price point - a 20 per cent increase over last year.

My first impression is that a higher percentage of lower priced homes are selling because prices have fallen. At the risk of being painfully obvious I am going to go over an example. Suppose three homes sold in February 2008 at $300/sqft.

1. 1000sqft $300,000
2. 1500sqft $450,000
3. 2000sqft $600,000

In February 2009 three identical homes sold at $250/sqft

1. 1000sqft $250,000
2. 1500sqft $375,000
3. 2000sqft $500,000

In 2008 only one house sold for under $400,000 while in 2009 there were two simply because prices have fallen.

In addition I would like to add some context and insight to a related comment from Bob Truman's What's New page

Mar 5
SFH sales are down 29% over the past 30 days, but for homes priced at $400,000 or less, sales are actually 11% higher than they were last year. With an absorption rate of 3.1, homes in this price range are no longer considered to be a buyer's market but have now moved into balanced market conditions.

The sales price/list price ratio is about 95% so on average a home that sells for $400,000 would most likely be listed around $420,000. Homes listed in the $400,000-$420,000 are not included in the above absorption rate calculation. Also, I would assume the homes that actually sell are priced more competitively than those that do not. The above absorption rate does not include some of the homes that have a list price over $400,000 where the seller has an unrealistic expectation of the market. The problem with the above metric is it uses the listed price of inventory and the sales price of homes that have actually sold.

I do recognize that lower priced inventory sells more quickly, but I believe this has been true historically and does not reflect a new trend in the market.

**March 14th Update and Correction

I made an assumption that the sold price was used in the above calculation which is not the case. As Bob Truman points out:

The absorption rate is based only on list prices, just as it clearly states on the Table. If sales prices were used, the absorption rate would be lower.

The stat is more accurate than I had alluded to. You know what they say about assumptions. So in this case you can disregard my "context and insight"...
**

I will comment on the jobs report soon...

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 DailyStats.ca 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.

Truman - From the Archives

This is a post from Truman's blog dated June 21, 2007. It has been removed from his blog along with most other old posts but it remains in the web archives. Since then prices for SFH fell 80K for the average and the median dropped by almost 60K. Data from Mike's stats using numbers from December 1-27.

What were they saying last year??

It's interesting to look back one year, and see almost the same comments we're hearing today. These are all comments from the Calgarian Contrarian blog from 2006:

Jul 5: Buyers in Calgary are stupid. (Well, if you were one of those "stupid" buyers, you would have an extra $74,050 in your jeans today)

Jul 11: TD is predicting that oil will fall to $45/bbl by mid 2007 (it's $69 today)

Jul 11: When to sell? I have a feeling June 2006 may have been the top (As it turns out, June 2006 is now 20% below current levels)

Jul 16: Calgary is going to crash, just like the US markets. Maybe worse. (You didn't give us a date)

Aug 2: I think people are pretty dumb and will continue to buy well past the point where supply is greater than demand

Aug 20: Around my office, people from admin staff to engineers talk about buying a house right now as very stupid (What's your prediction today? We'll do the opposite)

Aug 22: This chart also shows the greed in this city and I'll be one happy person when the wheels come of this RE wagon. It's crazy what some of these properties are selling for. I'm sure we'll see a 30-40% price correction in Calgary within the next 12-18 months. (It's still possible if prices drop $210,000 on the average home)

Sep 13: A boom in Saskatoon? I'd be shocked. I wasn't aware of any major oil and gas developments near there and oil companies haven't liked offices in Sask ever since the NDP scared them away in the 70s. Has there been any large population growth there in the past few years? (Last week 81% of Saskatoon homes sold above the asking price)

Oct 8: I think we could be in for a hard landing.

Oct 31: it is typical for condos to be overbuilt the most during the boom and experience the largest correction in price during the downturn that invariably follows. (Condo prices are up 23%)

Nov 3: President of CREB states: "buyers may lose out by waiting until spring."
This comment to me sounds like the "just wait until the spring rally" that the US National Association of Realtors was putting out last year at this time. Many US markets peaked in the summer of 2005 and then the fall is when sales started to drop and inventories started to build. At that time, every pundit was saying it was simply a lull before the "spring rally". Well, the spring rally never came.
Is Calgary different? Are there enough new buyers to overtake new supply and continue to push up prices from their current levels? (We know the answer is a resounding "YES" and Calgary is "Different")

Nov 3: the ponzi scam seems to be over in edm too (Edmonton prices have risen more than Calgary's this year)

Nov 3: I'd love to know what entry point all of the people who are waiting for prices to fall have chosen. 10% decline? 20%? 40%? Or, were they afraid to buy three years ago, really afraid in the summer of 2005, and terrified now? Do they think they are bright enough to call the market bottom? (November)

Nov 7: can you not see that inventories are 110% higher than nov 2005 and will probably be 230% higher in dec compared to dec 2005 (Dec 2006 inventory was 78% higher)

My blog was not in operation until November, but it's interesting to go back and look at the predictions. The most accurate was from our beloved Al Bundy:

"I think we're in for another crazy time in real estate in Calgary starting Jan. 2. I'm sticking to my guns here, and predict a further price hike in Calgary of 15-20% in 2007. Call me a nut case if you want to, but that's what I see. That's what the math tells me."

Al, you were dead-on. As it turns out, someone flipped the switch on Jan 2 and it indeed did go crazy again.

Posted: Thursday, June 21, 2007 9:43 AM by Bob Truman

Truman Prediction Follow-up

This post will do a follow-up on one of Truman's predictions followed by a random but awesome 80s music video.

Back in January he made a predictions that prices would stay within +/-5% and a statement on the strength of the Calgary real estate market. He has followed up a few times on this 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.

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)

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).

In the Calgary Herald yesterday, it said "Much attention, understandably so, is being paid to economic experts and what they have to say..." It goes on to say, "They get it right only 40 per cent of the time."

Now to answer your question of why I know better than the pros. I don't really consider it a part of my job description to predict the future. I take no credit for an accurate and lucky guess, but I do operate at a different level of consciousness than they do. They are entrenched in the structures of existing institutions which imprison the mind, and they continue to perpetuate the dysfunction in their work.

November numbers are now available from Mike Fotiou. The median fell below $389,500 or 5%. I also compared the other price measures to January and all except one fall outside the 5% range predicted.

SFH	January	Novemeber	%Change
Average	$455,297	$435,471	-4.4%
Median	$410,000	$387,300	-5.5%
$/SF	$302	$281	-7.0%
Condo	January	November	%Change
Average	$311,232	$285,820	-8.2%
Median	$290,000	$251,800	-13.2%
$/SF	$313	$281	-10.2%

Failed predictions are not hard come by but the gloating by Truman in October makes this post-worthy.

...Anyway i'm in good spirits despite all the political and economic turmoil so one that note here is Herbie Hancock and "rockit" from 1985. Enjoy.

Calgary Market Update

Cheap Post:

Sales price per square foot has decreased in July. For condos and houses the amount paid per square foot has decreased to the lowest point of anytime since Jan 2007. From Mike's stats:

SFH --- July 1-24: $289 ($298) June: $305 ($309)
Condo - July 1-24: $297 ($305) June: $303($309)

Also from Bob Truman's blog Sales continue to improve I would like the point that looking at YOY change only in sales can be confusing.

Single family home sales volume, after being down 34% for the first five months of 2008, showed an 18% drop in June, and July sales are down 12% compared to 2007.

What Bob fails to mention is that some of that difference is attributable to the deteriorating conditions throughout 2007. So while the may have been some seasonal improvement late this spring there is also the fact that we will begin to compare to sales at the beginning of the downturn. See this chart showing how sales in 2007 compared to 2006. Consider also that smaller year over year losses still show year over year losses!

Remember comparing to ridiculous five year averages or ignoring "boom" years when looking at sales this spring? Sorry can't find the links maybe someone can help me out?

Bob Truman is #1

By critizing Bob Truman I let him know that he and his website are #1. It is my way of showing appreciation of a Calgary REALTOR for performing structured queries on a database I do not have access to and posting the numbers on his website.

Mostly I find that he has a 'sophisticated' way of presenting stats to lead readers to some pre-determined conclusion, with some examples below.

Days on Market.

First let's look at some history from Andrew Kyle
May 2006 Bottomed at 14
Dec 2006 Peaked at 43
April 2007 Bottomed at 24
Dec 2007 Peaked at 51

See a pattern? As this number fell from its December high following the seasonal pattern of the last few years Bob Truman posted the following in What's New:

Feb 20
With 4690 single family homes on the market, we have more than double the inventory compared to Feb 2007, yet prices continue to rise and the time required to sell a house has gone down dramatically. Over the past week, it took an average of 37 days for a home to sell. In January, the average was 50.

DOM so far in May have increased to 51 for condos and to 42 for SFH from Mike's Stats. There is has been no mention of any increase of the DOM or of the seasonal pattern.

Earlier posts on this subject here and here.


Balanced/Buyers Market.

When the consensus finally arrived that Calgary was in a buyer's market (when it was written in Calgary Herald) Bob claimed to have been saying this all along. A look at his previous postings shows that he continually referred to a "balanced" market in step with the CREB. link.

Million Dollar Sales.

So far this year Bob has given the impression that million dollar sales are down. This is important because when prices were falling from their July 2007 peak there was extra emphasis on the impact reduced sales over $1million on the average price.

From What's New:

Aug 16
This is very interesting: There was lots of concern on my blog last month that sales of homes over $1 million were distorting the average price. When you delete the million dollar sales from the mix, average prices this month are the same as July. See Under $1 million stats.

Aug 17
The Calgary housing market, while down slightly, is weathering this so-called global financial crisis very well. I have been expecting a small decrease in prices for the past three months, and this is the catalyst that finally set it in motion. Depending on how you read the stats, prices have changed very little from July. It's just that there are fewer million dollar homes selling.

Aug 21
While average prices are down considerably, the SFH median price is only $400 below July at $434,600. The condo median price is $3100 over the July number. When you delete million dollar sales, the SFH average price is only $2,000 under July.

Sep 10
Despite sensational headlines that make it appear the sky is falling, the fact is SFH average prices remain unchanged from July when you take million dollar homes out of the equation. See Under $1 million. Sales of million dollar homes are very slow this month, with only 6 firm sales in the books.

Fast forward to 2008:

Jan 28
Sales of single family million dollar homes are going to be down this month compared to 2007. So far, there have been 21 sales this year. For the entire month in 2007, there were 34 sales.

Since total number of sales dropped considerably in 2008 I am going to compare the % +$million homes that sold each month (SFH% / Condo%) from CREB monthly stats. This will be a better indicator of how these sales skew the average price. In January he was indeed correct but it was fairly close.

Jan 2008: 2.12% / 0.22%
Jan 2007: 2.27% / 0.27%

Mar 2
Sales of high-end homes in Feb were down compared to last year. There were 27 sales for $1 million or more compared to 32 last year.

In fact there was a higher percentage of million dollar sales in February.
Feb 2008: 2.00% / 0.36%
Feb 2007: 1.50% / 0.34%

Mar 29
Sales of million dollar homes will be down dramatically this month compared to last year. 38 sales so far in March 2008 compared to a total of 61 in March 2007.

Instead of being down dramatically sales of $million homes increased slighly as a propotion of total sales,
March 2008: 2.75%/0.35%
March 2007: 2.69% / 0.00%

Apr 14
Total sales of million dollar homes is down this year. To April 14, there have been 110 sales. Last year, there were 146 sales.

Sales of $million homes doubled in April and were up year to date.
April 2008: 3.08% / 0.34%
April 2007: 1.50% / 0.36%

April 2008 YTD: 2.53% / 0.32%
April 2007 YTD: 1.99% / 0.23%

I conclude that sales of million dollar homes are having a greater impact on avaegr price this year so far than last.

See previous posts: here and here

He also started tracking sales below 425K as in the "low-end" range. I find it insulting to refer to sales below this amount in this way and it shows how out of touch REALTORS have become regarding the value of money. $425,000 is a lot.

Well-timed posts.

Apr 13
Last year, sales of SFH dropped from March to April. This year, April sales are 7% ahead of March sales. Condo sales are 24% ahead of March. Condo prices are on the upswing this month, and looking at SFH pending sales(avg price is $500,243)SFH prices will be heading that direction soon as well.

Here are the month end results for sales in April:

SFH sales 1363 -34.7% YOY / -3.9% MOM
condo sales 581 -30.8% YOY / +2.8% MOM

The intended impression of the post was to indicate a non-seasonal sales surge while what happened in reality is that sales were flat for the month and down considerably from 2007. Prices were basically flat except the condo median fell $3000. See post here.