A big pile of dirt

I think Fort McMurray will be hardest hit in 2009. Prices were high even considering the strength of the economy. Optimistic case even if a slowdown brings a "mild normalization" to their economy house prices should take a substantial hit.

Consider oil prices compared to house prices in Fort McMurray. Currently light sweet crude costs $40.83 US/bbl and the Canadian dollar is at 0.8419. In Canadian dollars oil prices are at $48.50.

That means the average Fort McMurray home at $656,051 is the equivalent of 13,527 barrels of light sweet crude.

Its even more extreme when considering how much actual sand that represents. From Wikipedia each barrell of oil requires two tons of tar sands:

The bitumen is then transported and eventually upgraded into synthetic crude oil. About two tons of oil sands are required to produce one barrel (roughly 1/8 of a ton) of oil. Roughly 75% of the bitumen can be recovered from sand. After oil extraction, the spent sand and other materials are then returned to the mine, which is eventually reclaimed.

So each house is the equivalent of 27,054 tons of tar sands.

I am not taking into account that bitumen is priced lower than light sweet crude. According to this chart for oil prices bitumen @ Hardisty was 56% the price of Light Sweet @ Edmonton in December. Another point is that the energy inputs to produce one barrel of oil.

So maybe 50,000-75,000 tons of tar sands is equal to one Fort McMurray house at current prices.

From memory one of the trucks above holds about 150-200 tons. That means 250-500 super-trucks of tar sands.

Something to think about anyway. I'm gonna be busy for the next while so I will be taking a blogging break for 3 weeks or so.

Paid obfuscators

Obfuscated definition:
Darkened or cast in the shadow or background; obscured by withholding proper light or emphasis; hence, confused, bewildered or lost sight of.

Obfuscation refers to the concept of concealing the meaning of communication by making it more confusing and harder to interpret.

Lets look at the Calgary Herald:

MLS sale price falls first time in 12 years

Market eyes stability amid higher listing

...average price increases peaked for the province in close to mid-2006 and they've become smaller ever since." The province is following a general trend being experienced in Calgary as well with falling sales, stabilized prices and increasing listings

Lai Sing Louie, senior market obfuscater in Calgary for Canada Mortgage and Housing Corp.

Reality:
Average price increases have become smaller, then reached zero and are now negative.

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"The reason you've got a month-over-month decline (in Alberta average prices) is that the sales price in April last year was extraordinarily high, It has come back just a little bit but it has stabilized."

Gregory Klump, CREA's chief market obfuscater

Reality:
People paid too much for houses last April in Alberta.

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But... but.. look at Fort McMurray!

"The one market where there's still a lot of price strength is in Fort McMurray (Wood Buffalo region). If you look up there, that real estate market still seems to be rising there,"

I also have a comment on the increasing prices in Fort McMurray. I can only present theory and conjecture but I still think it is useful. Here me out:

Even if the Fort McMurray's economy continues to boom, which many expect it too, it is still possible for real estate to stabilize or fall. Consider a $420,000 mobile home for a moment. Even a price of $320,000 would require an insane economy and more importantly insane rents. So even if you are sure the boom will last "at least another 10 years" there is an equilibrium price for a mobile home - and its not infinity. Look to Edmonton which has demonstrated a strong economy and falling prices.

I also want to hear from fort McMurray locals. I see "offer pending" on many questionable listings and I presume its some REALTOR method of creating hype and drama. What is a pending offer?

See previous post on Relaxing Housing Prices