Happy Happy Joy Joy

An article from the Edmonton Journal takes a look at the brighter side. Local sunny break amid economic clouds.

So just where is E-town's economy going? Toward a period of slower growth, admits Tsounis, at an estimated 2.5 per cent this year, 2.8 per cent next year, and an average of 3.3 per cent between 2009 and 2011.

That's down from a red-hot five per cent annually between 2003 and 2007. But it's growth nonetheless, at a time when the U.S. economy will shrink, and Canada will struggle to stay above water.

I am not sure when this forecast was made. Was it before the market crash or after? I could only find a forecast from May 2007 on the city of Edmonton website here. There was a lot of optimistic economic forecasts including GDP.

2008 - 5.0%
2009 - 4.0%
2010 - 4.0%
2011 - 4.5%
2012 - 4.5%

The rest of the article was bright and sunny.

Feeling more cheerful yet? Good. There's more.

Let's start with oil prices. They fell to the $67-US-a-barrel range Wednesday, about $80 or 54 per cent below the July peak of $147. The worry warts will tell you we're heading for an '80s-style crash, but that's absurd.

Just as oil markets overshot on the upside, they're now overshooting on the downside. China and India haven't gone away. Once OPEC's proposed cuts take hold, the credit crunch eases -- as it's already showing signs of doing -- and recovery begins, demand will pick up. So will oil prices.

What did the author write just over 2 months ago? In the Aug 12th article Our housing market's correction is not a calamity:

Unless energy prices fall off a cliff, Alberta's economy should remain strong. And that should lead to a stronger housing market in 2009.

So what's a cliff? In my view, oil prices would have to skid to $75 US per barrel or lower for a sustained period -- rendering some oilsands projects uneconomic -- and natural gas prices would have to sink below $7 per million British thermal units (MMBtu), making drilling too costly to justify.

Despite the recent hiccup in commodity prices, I don't think that's in the cards. Now that the speculators are on the run, I'd expect oil prices to find a bottom in the $100-per-barrel range; natural gas should find support in the $8 range.

See previous post

If you don't read the newspaper you are uninformed. If you do read the newspaper you are misinformed.
— Mark Twain

Perras: Ridiculous Statements

The thing that is astounding about the Edmonton Journal and Marc Perras is how they can be so certain in their fabricated stories when they have been so wrong in the past. I am referring to the Edmonton Journal article Home sales spike as prices sag.

With downturn ebbing, buyers flood market that's 'not going to get any better'
Bill Mah, The Edmonton Journal
Published: Thursday, September 04

The term ' buyers flood market' was not brought up by the industry insiders quoted in the article but created by the Edmonton Journal, demonstrating their own bias.

Marc Perras, president of the Realtors Association of Edmonton, said the figures confirm what he's experienced in his own real estate office.

"I've been run off my feet," Perras said. "July was ridiculously busy and August has been ridiculously busy, and when it shows in the numbers, it's not just me."

These are the Edmonton sales numbers for August for the last several years. 'Ridiculously busy' is a great exaggeration at best. I have my own bias here so I will just present the numbers and the sales chart again (from Edmonton Real Estate Blog).

	August Sales
2003	1438
2004	1534
2005	1934
2006	2079
2007	1299
2008	1541

There were 9,612 residential properties in the inventory on Aug. 31, compared with 10,501 at the beginning of the month.

"The stats show buyers are confident with the Edmonton economy. It's a large selection to pick from right now, and I think they don't foresee a drastic dropping of prices, so they want to get into the marketplace and buy.

It is true that part of the inventory reduction is due to some recovery in the sales/listing ratio which is at 51%. What is not mentioned are listing that are removed or expired but did not sell. From the weekly update on the Edmonton Real Estate blog there were 692 delists last week alone. Another 'expert' chimes in:

"For buyers, it's not going to get any better than it is right now because of the supply, which is going to start to dwindle away," Goatcher said.

Sales will start to dwindle as well going into winter. Actually they already have, but you wouldn't have guessed it from this article. Honestly, I do not know what will happen in 2009 but I still get aggravated at the certainty which these statements are made.

Edmonton August Report

The August report is here. Sales were only compared to 2007's devastating numbers and not to other more "balanced" years. While its true that sales are up over 2007 consider some previous statements regarding sales:

“Near record January sales indicate that housing sales will remain strong in the Edmonton area as buyers and sellers adjust to the new pricing levels,” said Marc Perras, president of the REALTORS® Association of Edmonton.
Feb 5, 2008 (21% drop over 2007)

“We predicted that sales would be on par with the last ‘normal’ year that we had in 2005. So far the market is behaving as we anticipated.”
March 4, 2008 (32% drop over 2007)

Actually in the forecast released at the beginning of the year Marc Perras predicted sales to drop slightly. The actually number of sales this year will certainly be less than his forecast.

"The total number of residential sales in 2008 will probably drop slightly from 2007 levels. Perras expects that 19,100 residential properties will sell through the MLS® in 2008. There were 20,544 sales in 2007."
Jan 9, 2008

..There is more....

With the high inventory, demand was strong with residential sales near traditional volumes.
April 3, 2008 (34% sales drop over 2007)

April sales of all types of residential property through the Multiple Listing Service® were lower than the two previous years at 1,823 units but higher than the more typical years of 2004 and 2005.
May 5, 2008 (25% sales drop over 2007)

Sales were up 1% in April when compared to 2004/2005. See previous post.

May sales exceeded same month sales in 2003 and 2004 but were below May sales for 2005-2007 when the market was super-heated.
June 3, 2008 (36% sales drop over 2007)

This is a false statement. May sales were in fact below those of 2004. See previous post.

Don't get me wrong. Number are numbers and there were 18% more sales this August compared to last year. I just don't buy the spin. To EREB 2007 was off limits except when comparing to record low sales. This chart is probably the most enlightening way to look at the sales figures stolen from the Edmonton Real Estate Blog. It is laid out so it is easy to compare sales from each month to the last several years.

See the red line? Thats the sales surge the Edmonton Journal is referring to in this article: Edmonton home sales surge, prices dip.

There is still more. Marc Perras had to comment on price as well.

“Housing prices typically rise slightly through the fall,” said Perras. “We expect that the strong sales this quarter will support rising prices as we approach year-end.

This reminded me of a previous statement which I debunked in this post.

"I think it's a great time to buy now. If we're going to see any softening in prices, it's going to be in the second quarter, which is right now. This kind of inventory is going to thin out as we get into the fall."

.....

Ed Jensen's report for Calgary was less brutal and focused more on sellers. He still managed to call the Calgary market stable and had the same buyer's market charts.

Spotlight Edmonton Journal

Today I am just going to make comments on the following article from the Edmonton Journal: Our housing market's correction is not a calamity

EDMONTON - Is the city's housing market going into the tank, as it did in the 1980s? Or is it already showing signs of emerging from its year-long funk?

My guess? With the average price of a single-family detached home in Edmonton down to $379,224 in July -- nearly $38,000 or 9.1 per cent below the July 2007 peak of $417,150 -- the recent downturn is largely history.

Sales volumes are picking up, the bloated inventory of unsold homes is shrinking, new housing starts are down by more than 70 per cent, and current prices better reflect what buyers are willing to pay to live in what has become one of Canada's most consistently prosperous cities.

Regarding the comment about sales picking up and inventory shrinking it is technically true there are stats that can be used to show this. By comparing to sales from last year and to inventory from last month this statement is correct. Here is a chart showing sales and inventory from the Edmonton Real Estate Blog. Personally, I wouldn't make the case that recent trend.s in sales and inventory makes for a bottom

...But let's get a grip. Alberta remains an island of prosperity in an otherwise stormy sea. We've had a correction, not a U.S.-style housing market meltdown. And what a run we've had.

I like how "we've had a correction" refers to the it in the past tense as if we have already past it.

Since January 2002, the average price of a single-detached home in Edmonton has jumped by more than $216,000, or 133 per cent. And that's after taking into account the price declines of the past 12 months. Local condo prices have risen even faster, soaring 157 per cent since early 2002.

Those numbers reflect a sea change in the global economy, and a rise in commodity prices that remains intact, despite the recent correction.

What this article fails to acknowledge is why prices have fallen at all. Decreasing prices without a change in these economic factors demonstrate that something else responsible for the initial run-up. No details were given about what this "something else" would have been because that would mean discussing looser lending standards and speculation; Basically the same things we share, at least to some degree, with the States.

Still, it's easy to see why some naysayers expect the housing market to continue to weaken. Consider this gloomy headline, which recently appeared atop the front page of one national newspaper: "Housing slump stalks Western Canada."

The accompanying story, based on a report from two Toronto-based economists at Merrill Lynch, said house prices in the major cities of Saskatchewan, Alberta and B.C. are overvalued by 10 per cent, and a "sustained downturn" may be at hand.

The Merrill report is here. It says that those cities are overvalued by more than 10%, with Edmonton overvalued by 25%.

Well, here's the thing. That would have been useful advice a year ago. Not so today. As noted, Alberta's real estate markets have already corrected.

While the average price of a single-detached home in Edmonton fell 9.1per cent through July, on a year-over-year basis, comparable homes in Calgary fell nearly 10 per cent, to $456,380.

So when referencing the Merrill report for Edmonton it uses 10% instead of 25% overvalued. Now that prices have dropped 9% it's "all corrected, time for dessert". Well even then the Merrill report attempts to account for the correction which it had modeled Edmonton at 34% overvalued in 2007 which has decreased to 25% in 2008 with price drops included. Note to Edmonton Journal - READ THE REPORT!

The rest of the article I agree with regarding Saskatoon and Vancouver entering into a downturn. They are going to git hit worse than Edmonton going forward. But I didn't read anything convincing in this article that tells me Edmonton is done.

Lies, Damn Lies, and Statistics

Apparently prices in Edmonton in Calgary are stable. This from the Edmonton Journal Article Housing-start decline not a sign of dying market

First, consider overall housing prices in Calgary and Edmonton. In both cities, prices in June are off only slightly from the peak record highs reached last July. They're down 3.6 per cent in Calgary, and 3.8 per cent in Edmonton -- hardly a sign of collapsing prices. In fact, for a full year now, prices in the resale market have been remarkably stable.

Let;s look at Edmonton here. The statistic used is for average price for all properties which dropped from $354,718 to $341,376. However a look at prices by most any other measures would totally invalidate the article.

Some other numbers of price drop July 07 - June 08 from

Realtor Association of Edmonton (Edmonton CMA)

SFH Average $417,150 to $381,384 -8.6%
SFH Median $395,000 to $365,000 -7.6%
Condo Average $271,908 to 262,365 -3.5%
No Condo Median available

From Bob Truman's site (Includes Edmonton, St Albert, Sherwood Park, Spruce Grove, Stony Plain)
SFH Average $442,753 to $399,604 -9.7%
SFH Median $410,000 to $368,000 -10.2%
SFH Price per square foot $321 to $280 -12.8%
Condo Average $275,905 to $261,318 -5.3%
Condo Median $269,000 to $245,900 -8.6%
Condo Price per square foot $285 to $257 -9.2%

Here is a breakdown of Edmonton regions YOY price change. I didn't hav access to July 2007 regional prices.

Edmonton Regional Prices for June 2008 (detached)
		2008	2007
NORTHWEST	AVERAGE	338135	346172	-2.38%
NORTHWEST	MEDIAN	318000	348000	-9.43%
NORTH	AVERAGE	356462	405401	-13.73%
NORTH	MEDIAN	346250	385000	-11.19%
NORTHEAST	AVERAGE	297946	355189	-19.21%
NORTHEAST	MEDIAN	295450	343000	-16.09%
CENTRAL	AVERAGE	290966	278306	4.35%
CENTRAL	MEDIAN	252500	270000	-6.93%
WEST	AVERAGE	428566	511958	-19.46%
WEST	MEDIAN	402500	430000	-6.83%
SOUTHWEST	AVERAGE	457560	566179	-23.74%
SOUTHWEST	MEDIAN	419600	515000	-22.74%
SOUTHEAST	AVERAGE	356244	431395	-21.10%
SOUTHEAST	MEDIAN	339000	399950	-17.98%
ST. ALBERT	AVERAGE	449903	514678	-14.40%
ST. ALBERT	MEDIAN	424000	478700	-12.90%
SHERWOOD PARK	AVERAGE	443069	480363	-8.42%
SHERWOOD PARK	MEDIAN	423500	451000	-6.49%
LEDUC	AVERAGE	347915	401140	-15.30%
LEDUC	MEDIAN	330000	373450	-13.17%
SPRUCE GROVE	AVERAGE	377174	418583	-10.98%
SPRUCE GROVE	MEDIAN	361324	402500	-11.40%
STONY PLAIN	AVERAGE	390452	401990	-2.96%
STONY PLAIN	MEDIAN	364500	395000	-8.37%
MORINVILLE	AVERAGE	354745	345309	2.66%
MORINVILLE	MEDIAN	353000	335000	5.10%
FORT SASKATCHEWAN	AVERAGE	371281	381228	-2.68%
FORT SASKATCHEWAN	MEDIAN	355000	370000	-4.23%

Remarkably stable.

I wanted to rip on the article more... but I really don't think anyone takes the Edmonton Journal seriously anyway.

Marketing Synergy

The city of Edmonton teaming up with Rohit, Landmark and the Edmonton Journal to build and market townhouses for stretched wage earners in a program called First Place Edmonton. The prices aren't terribly cheap at $266,710 for a two bedroom townhouse in Millwoods. The land is valued by the city at $30,000-35,000 so Rohit could end up with $235,000 to build the structure of a two bedroom 906sqft townhouse with no garage and an unfenced yard. In the same area of Millwoods some townhouse prices appears to be competitive to these values. For Example:

This townhouse is fairly close to the development in Greenview. It is built in 1989 but unlike the City of Edmonton/Rohit townhouse it has an attached garage and a third bathroom. It has quite a bit more space (1345 vs 906 sqft) for a similar asking price of $274,900. The appliances, finishing and exterior appear to be fairly good from the photos.


This 1995 duplex with attached garage is close to the Canyon Ridge development at $279,000 is a few thousand more than the townhouse but has a back yard and more space.



The Edmonton Journal appears to be helping advertise these units for Rohit and Landmark developers in the article titled "First-time buyers catch a break in housing deal"

Under the new program announced Tuesday, 85 townhouses in the Greenview and Canon Ridge communities will be sold at a cut rate to qualified first-time home buyers.

The lottery is a nice touch as it is a well known marketing strategy used by developers.

In order to buy one of the 85 townhouses, applicants must enter a city-run lottery. There are strict guidelines on who can enter the lottery. Potential buyers must have a combined family income of $69,000 to $88,000 per year.

The qualifying metrics are outdated as they use the now defunct 40-year mortgage. From the First Place Edmonton site:

* Must be first-time home buyers in Canada
* Must be Canadian citizens or have permanent resident status
* Must be able to obtain qualify and have pre-approved financing (based on 5 % down payment, 40 year mortgage amortization, 32% gross debt service ratio and 42% total debt service ratio)
* Must be employed and have a combined income between $69,000 and $88,000, see your financial lending institution for more details.
* Must have a net personal worth less than $15,000, excluding a primary vehicle, locked-in or group RRSP and the 5% down payment required for the condominium unit.
* Applicants must agree to be full time occupants and residents of the condominium unit for the first five years.

Since this program was initiated 40 year mortgages have been discontinued by the Government of Canada because they pose too great of a risk to the financial system. It is interesting to note that the City of Edmonton suggested these mortgages to help Rohit and Landmark developers sell houses.

I just don't see how these deals are remarkable. Other examples of townhomes can be found throughout Edmonton. A 2004 townhouse in less central but more "faux-posh" Summerside is listed for $288,000. This listing has more space, a double garage and has been on the market for some time so the market price may differ from list.


Just north of Ellerslie Road there are a glut of townhouses in this price range and lower lingering on the market. This is very apparent when using the REALTOR.ca website with map search!

Edmonton Journal's Take

The Edmonton Journal gives The Edmonton Real Estate Board too much credit in the article: Declining supply firms up prices at year end

EDMONTON - Edmonton home prices are up 12.1 per cent from one year ago after gaining 1.5 per cent in December....

Those figures were close to Pratt's prediction last January that prices would rise 15 per cent by year end.

This year, she foresees low interest rates, a strong economy, full employment and a good year for real estate.

However the same author quoted Carolyn Pratt in the following article written in April: House price hits $500,000 in Edmonton.

In only the first three months of this year, average home prices have climbed 12.4 per cent, so Pratt has abandoned her earlier forecast of a 15 per cent increase for the full year.

"We're predicting that prices will continue to rise until August, at four to five per cent per month, then at two per cent per month," she said today.

The author also wrote an article in September quoting a two year old study stating Edmonton was affordable: Average up 27% in single year despite $10,000 hit

Economist Carl Gomez, at TD Financial Group, in the latest issue of his quarterly Housing Bubble Watch, has written that "Edmonton still remains the second most affordable" large Canadian city in which to own a home.

He compared home prices to rents, saw "little evidence of speculation" and found a "very low" risk of an Edmonton housing bubble.

TD "Bubble Watch" Study from July 2005

NEWSFLASH: It's not 1992

There is an article in the Edmonton Journal titled Buy sooner rather than later. The writer was bold enough to buy a townhouse in Edmonton for $55,000 in 1992 and uses this example to make the case for first time buyers to get on the property ladder.

Regardless of the boom and the city you live in, buying your first home is always tough.

However, In the 1990s buying a home in Edmonton was easier. And if you waited a year or so it was no big deal. Below is a chart of % after tax household income dedicated to mortgage payment from RBC Housing Affordability study. Note how all property types are currently less affordable now than at any other time in the chart range.


This number takes into account wages and interest rates so it is a good picture of relative difficulty of getting into the market. It assumes a 25% down payment which is much more difficult to get now because of the appreciation of the last few years. The author of the article was prudent enough to save $10,000 or 18% down payment in 1992 and gives the following advice:

Buy what you can afford: I know you might think it's tough in this market but don't push yourself to the limit.

Too many people are stretching amortization periods and putting down very small down payments.

The cheapest 2 bdrm townhouse in west Edmonton is currently about $200,000. An equivalent 18% down payment today is $36,000. How is it possible to buy sooner rather than later and save up that kind of money? To illustrate see the following average price chart for Edmonton showing both nominal and inflation adjusted prices. A certain percentage down payment will be proportional to the nominal amount and its relative size in terms of buying power would be proportional to the inflation adjust series.


Bottom line is the article is simply not applicable in 2007 Edmonton.

Fort McMurray: triple REIC filtered for your enjoyment

I am having trouble finding MLS stats for Fort McMurray. I suspect year over year sales are down but I can only find information heavily filtered by the Real Estate Industrial Complex.

The Edmonton Journal qualifies any downward indications with quotes from a local REALTOR.

'Seasonal slowdown' for home prices in Fort McMurray

"It's a seasonal slowdown, which is normal before Christmas," Milly Quark, president of the Fort McMurray Real Estate Board, said Wednesday.

Prices in this northern Alberta centre also dropped slightly in October 2006 -- then rose for 11 consecutive months. "Canada Mortgage and Housing Corporation is predicting a price increase next year," Quark said.

On the supply side, "land is at a premium," Quark said.

Building lots are selling for $345,000.

"I understand they are going quickly," she said.

Then there was another news item linking to some real estate investment site:

News Release

Capital appreciation is currently very high at around 20% pa meaning investors are faced with a wholly positive real estate outlook. Investing now will allow them to ride the wave of success that Ft. McMurray is enjoying and should guarantee very significant returns.

Executive Suites

Gross yields up to 26%
1-bed Apt (56sqm) = C$ 350,000 (~£176,768)

With average prices for SFH at $625K is it still reasonable to assume that the 20% yearly appreciation will continue? Is there an equilibrium price even with fast-paced oils sands development or do prices continue upwards?

Based on the price for this investment the gross yield is extreme. With a price of $350K the rent would need to be over $7500/month or $250/day for the stated 26% yield. Rents and even hotels rooms are far below under these amounts.

Still looking for monthly stats i stumble upon more advice

An Important Note for Fort Mcmurray Real Estate Buyers

Many times Fort Mcmurray Real Estate buyers avoid using the services of a REALTOR under the mistaken belief that it costs them money - or that they will be able to negotiate a better deal directly with the seller or seller's real estate Broker. This can be an expensive mistake when buying a home.

Are there any Fort McMurray stats published online? Just numbers.

Update: Thanks Laura for the link http://www.woodbuffalo.net/AboutCostHouse.html

Edmonton Comfree Sales

Comfree recorded 146 sales for the month of October in Edmonton. There is currently 21 months of inventory on Comfree with 3108 active listings at current sales rate.

21 months.

Compared with September's total of 201 sales are down 27%.
Compared with last October's total of 354 sales are down nearly 60%.

Comfree moved less than half the homes as they did the same month last year.

October Report

With current inventory at 3108 Comfree has over a BILLION dollars of inventory and 52 million dollars of sales in October.

Note that they do not include the mystery stats "sold to listing" or "sales success".

Builder Incentives and Arbitrary Pricing

A home builder is offering the following incentives in an advertisement found in the Edmonton Journal:

• 3.95% 3-year fixed mortgage
• No payments until May 2008

They value these incentives at $37,317 Based on the following:

• sales price of $519900
• 10% down, 40 year amortization
• compared to a rate of 6.05%.

With a $52,000 down payment and ignoring the months effected by the incentives, the monthly payment would be $2,566*. For 40 years!

What happens if we lower the price and reduce the amortization to 30 years?

• sales price of $482,583 (original price - incentive value)
  
• same $52,00 down payment
  
• 30 year amortization
• Rate of 6.05%.

The monthly payment would be $2,575. Virtually the same as above. Bottom line is a lower price is much more useful to the consumer than incentives. In this example a person could use the estimated cash value of the incentive to pay off the mortgage 10 years sooner.

Why use incentives then? With prices being arbitrarily high the psychological effect of incentives valued at $37,317 is greater than a price decrease. On paper the difference between $519,900 and $482,583 does not get as much attention. Also the incentive may cost the builder less than the estimated value in the ad.


*using TD's mortgage calculator.