Thursday, March 29, 2007

Going Condo Crazy... Edmonton with around 75 % jump in prices over last year. Wow!
Even Saskatoon is up by around 43%. Calgarians must be feeling pretty bad for seeing gains barely half of those in Edmonton.
I don't think anyone bullish on Alberta's real estate is any mood of throwing the towel in just yet.
And while everyone is waiting that there will be some impact of the turmoil down in the US on Canadian psyche, I guess Canadians genuinely think that we are different.
Especially in Alberta with recently rebounded oil prices.
As I've harped on numerous occasions in the past, this is all out momentum play. Condos are flipper favorite and 75% jump in condo prices in Edmonton is a testament to that. If the average Condo in Edmonton goes up by another 50%, we'll be at $350k. Who will be able to afford a condo then? Perhaps the army of those holding $10-$20 jobs that are so plentiful here being lured into 70 year mortgages.
Questions such as affordability, lax lending standards, rental value, risks etc do not have any meaning in this market. Yet.
There is perhaps more room for further price escalation and there is a mood for further inflating the prices, despite the inevitable consequences.

Wednesday, March 28, 2007

Some thoughts on Renting in Alberta

One of the most common arguments made by those feverishly bullish on Alberta real estate is that rents in Alberta will keep on rising. More like "To Infinity.....and beyond".
But those with more subdued opinion on Alberta's real estate know that it ain't going to happen. It hasn't happened anywhere else, even in the preposterously expensive locations such as NYC and London, UK.
Rents can't generally keep pace with the housing prices in a period of extreme price increases. In the last two years, while the average property has doubled in prices, the average rent has not. It's as simple as that. Our own rent, for example, has gone up by no more than 10 per cent in and this includes our experience in both Calgary and Edmonton in the last two years.
A typical non-neo-landlord (sorry for the phrase) accommodation has gone by no more than 30% or so. On the other hand, we see numerous rental listings as if Edmonton and Calgary have indeed become Manhattan.
This house in Edmonton for example. It is the second time this house has been listed after the expiration of the first listing. My belief is that in life you don't get what you want but what you deserve. Similarly, in the rental market, some of the neo-landlords are soon going to find out that what you get for your new house or condo is not what it takes to pay your mortgage/property tax/maintenance and other expenses (yes Virgina, there are other expenses too!). It is simply what typical renters in your location can afford to pay.
Unlike the dream of 'owning your house', having a roof over your head is a fundamental necessity. We all keep on hearing about the strong growth and new jobs and similar blah about Alberta. It's all true. But we don't have no very many jobs other than McJobs.
So what if someone offers $15 for a McJob? If the rent of a typical one bedroom apartment does go up to $1400 (as this flipper sure hopes), who will be able to afford it? We don't have an army of executives making $80k (even with that $1400-around 35% after tax income- for 1 bedroom is very steep and those moving here will have to very seriously consider the implications of their move).
So people do simple calculation-can they pay their rent, clothe themselves and put food on table-and still live in Calgary or Edmonton. If they can, they stay here, but if they can't, most will leave the province.
We have not seen too may egregious examples of these so far, because the rents have not gone up that steeply.
Plus, there is the strong competition from incumbents. Take these two town houses for example. This is a typical townhouse from a company that probably paid around $50k for it several years ago. It now rents for around $1000-1100. 2 years ago, in a very high vacancy market, similar units rented for around $700-800. This is based on our first hand experiences. This company knows its business and is simply milking the business based on strong market conditions.
Take this other townhouse.
Most probably acquired recently by a flipper for around $250-300k. Who is going to pay more than a $1100 premium for living in a newer building, especially when we live in a world when money paid in rent is considered 'wasted'.
Those acquiring properties purely for becoming 'landlords' will soon discover that even though rental market may not be very elastic till rents reach a certain value, it does become fairly elastic if rents do go beyond a certain point. People will show their 'elasticity' and move to cheaper locations. Or the wages will have to rise steeply, to keep up with the prices.
So if you are counting on minting money by acquiring a $300k condo and hoping it to rent it out for $1800 per month (and hoping for 5% perpetual increases in rent or 50% increase in prices), the end result may not be very pleasant.
The US is already waking up to this, and the sooner we do the lesser the damage. Is anyone listening here?

Update on anonymous comments: Although I'm not a huge fan of enforcing strict controls over speech, requests from those who contribute on this blog and incidents like these helped me change my mind. You'll now need to be registered to post comments on this blog. Thanks for your feedback and discussion.

Saturday, March 24, 2007

Will Real Estate Prices keep on rising if there is no fall in oil prices?

Today, new sanctions were imposed on Iran. And oil market is likely to go up further following the nearly 5% jump in the last few days after Iran's arrest of British soldiers.
Due to heightened geopolitical tensions, it is possible that the oil risk premium
increases, causing further spike in prices. If nothing else, it is possible that in an environment of almost perpetual geopolitical conflict afflicting primary oil producing nations, oil prices remain close to their current level ($50-$70 range).
And even if there is no more political risk premium to be paid, there's always the story of increased demand from Asia. And the 2 billion new consumers theory has very respected champions like Paul Krugman(thanks bearclaw for the link). And he says this time is different, in the context of energy markets.
Perhaps it is. Perhaps oil prices have reached a permanently high plateau. We will never really know till the prices fall or remain high for the rest of our lives.
Let us assume for a moment that what peak oil theorists and Paul Krugman are saying is indeed right. We are running out of oil (actually we started running out of oil just after we drilled first oil well) and oil prices will remain high. I won't go any further in terms of consequences of peak oil. For our subject here is Alberta real estate.

Ask any Alberta real estate bull or flipper and they'll tell you everything going on in the Alberta market is built around Oil. No doubt. Oil is the only story Alberta has ever had (the so called Alberta advantage hardly brought any prosperity and even Paul Krugman advises Alberta to diversify) .
So the question is, if oil stays high, will real estate prices continue to climb higher? Is there any limit on how high the prices will go? Will we actually manage to go beyond Vancouver prices? Remember, at the time of last 'temporary' boom, Alberta actually had the distinction of being the most expensive housing market in Canada. Can we repeat the feat. Why not?
If BC housing market can no longer provide livelihood to flippers and Alberta is still less expensive than Vancouver and the oil story is way more sound than the Olympics story
why won't we have more 'investors' coming in from the BC market? Not that there is any shortage of any housing investors in Alberta. But those with leaky condo expertise will always have an edge!
Will the 'high oil prices' story be strong enough to mitigate the risks caused to housing market by the weakened US economy, the sub prime woes and a potential slow down in global economy?

Thursday, March 22, 2007

Wolf guarding the sheep....

And real estate boards guarding the statistics of their own industry. An interesting practice of repricing sold homes is exposed by an excellent globe and mail article.
(I found the link to this article in comments section of another blog. The article is a bit dated-from last year-but just as relevant).
If it's happening in Toronto, it is most certainly happening in rest of Canada as well.

While those who question the credibility of the real estate boards' numbers are labelled as paranoid, such an article in MSM really illustrates the inherent problems of this arrangement.
If consumers are given 'cooked up' numbers, how can they make wise investment, especially when they are bombarded by the non stop 'priced out forever', 'good time to buy', 'immigration increases', 'blah', 'blah' pitches.

What can be done to have at least accurate reporting of numbers:

  • Force opening up of MLS database to a few unbiased individuals/organizations
  • Let an independent organization keep track of stats-something like statscan.
  • Local city councils should publish such numbers.
What do you think is the best way to get accurate and 'uncooked' numbers from real estate industry?

Wednesday, March 21, 2007

What's going on in rest of Alberta

While we have been discussing real estate activity mainly in Edmonton and Calgary, rest of Alberta has been witnessing the same boom in housing prices as these two major cities.

First some quick numbers showing how prices are across the province:

Red Deer $335,698
Edmonton $321,307
Fort McMurray $459,140 (2006 prices)
Calgary $408,968 (recent average from CREB site, can't say anything for correctness)
Rural Central Alberta $ 255,619

Just for a little perspective, the average Ottawa home sold for $264,566 last month
So, average home in rural central Alberta is priced at the same level as an average Ottawa home. And while the federal bureaucrats and politicians might have some foul odor, there has to be something more than just that to explain this price parity!
I guess central rural Alberta is running out of land after all.

Here's an interesting article on real estate situation in Lacombe. Same stuff going on here too-too much demand, too little supply.

Thankfully, the local media in Lacombe are not trying to create a panic to buy in Lacombe.

"For now, he advises those looking to break into the market to be patient, be aware of what’s coming and going on the market, and be in contact with your realtor on a daily basis."
“It’s a very big, long-term decision,” said Russell.

I do know a friend though who recently bought a 30 year old starter home in Lacombe for around $280k.

So why this mad rush to make 'investments' in the middle of prairie lands?

Tuesday, March 20, 2007

Non-Eventful news...

Not much in terms of news bearing any major impact on Alberta real estate. Still, there were a few items that were anticipated by both bulls and bears that could have some impact on the prices.

The anticipated capitals gains benefits never really came in the budget, so no great incentive for flippers to either accelerate or decelerate whatever they have been doing.

The Oil Sands tax tax deferral benefit will go away, but without impacting anything that is already there. All projects currently approved will go unaffected. So nothing like NEP redux. But it might have some impact down the road if oil prices stay at this level and more companies begin to look at oil sands investment.

Finally, inflation rate picked up quite a bit led by gasoline and house prices. Even the 'core numbers', including all the hedonic adjustments and removal of most essential items-food, energy etc-came in much higher. So in case the housing prices go down a little bit from here on, the rate cuts may not cut very quickly. One month doesn't make a trend, but these numbers are pretty close to inflation numbers in the US.
Hard to say if we will see an asset price deflation and cost of living increases at the same time.

On two different notes:

First, I came across this really funny post on Ben Jone's blog that says:

“It seems in Southern California now you need three breadwinners: husband, wife, and house. Unfortunately, the house isn’t making money like it used to.”
I don't think we are anywhere close to that in Alberta. Perhaps they are getting close to this in Vancouver or Victoria.

Secondly, just an observation of the very local condo market. I see that condos have stopped moving at a blistering pace in downtown Edmonton. Two or three building that I pass through on my way to work have the same 'On Sale' signs that were there more than a month ago. I don't have any statistics, so these could be isolated cases.

How are things moving in your neck of woods?

Saturday, March 17, 2007

A few macro trends worth keeping in mind

There is now a growing concern that environmental policy is likely to play some role in inter-provincial politics that directly impacts Alberta. And it is most certainly going to impact Oil Sands investments. Whether it is going to be just a temporary hold off, a minor economic impact in the form of reduced profitability or a full blown investment withdrawal remains to be seen.

Secondly, if the forecasted US recession does occur and there is a consequent slow down in Asia, $40 oil could become a distinct possibility. When that happens, the economic incentive to continue to invest in oil sands will reduce further.

Thirdly, we still have the US sub-prime meltdown going unabated and it likely to have some impact on us. Even though cheerleaders would let us believe otherwise. My question to them is simple: Did anyone in the US believe, even as late as just 2 months ago, that their sub-prime sector was in trouble? So it ain't going to concern anyone here till it hits here. Even if we agree that lending standards have been tighter than in the US, the same speculative elements are commonly seen here as well- leveraging against current equity to buy more real estate, novices holding multiple properties, bidding wars for run down properties -not to mention the rampant consumerism flamed by HELOCs.

The above items would concern any long term investor. But for a foolhardy flipper and newly minted landlord, this is noise that will go away soon. We will see how some of the real estate investors will emerge once everything settles down in a few years-a lot richer with increased confidence or a lot poorer with humility and experience.

Friday, March 16, 2007

Friday Open Thread

Thanks everyone for a great week of discussion. Please post any random links, off topic discussions, personal experiences, anecdotes, predictions and anything else good for a friendly discussion.

Thursday, March 15, 2007

Housing affordability continues to deteriorate

No surprises RBC report points out.
As anyone with some experience in financial and real estate market can attest, prices cannot and will not increase forever. If housing becomes really expensive in Alberta, why would people want to move here? Especially considering the fact that we have people moving to Alberta for purely economic reasons.
The two very important questions everyone wants to have answers for are:
1. When will we reach the peak of this market?
2. Once the peak is reached, what will be the decline like? A "soft gentle landing" like they are having in the US or something totally different?

Wednesday, March 14, 2007

Revisiting the Fundamentals...

As frenzied buyers try really hard not to get priced out forever from the Alberta real estate markets by assuming huge debts, we should ask some basic questions again.
I keep on repeating some of these posts with the basic questions because it is so easy to get confused and lose your judgement and perspective when you are surrounded by the
cacophony of flippers and 'proud' owners. If you refer to the comments here, you will hear the almost deafening noise of Canadians proclaiming 'It's different here'. The US is different. There is no mortgage fraud here. There is no speculation here. Our banks are smarter. Our builders are smarter. And only fools buy Nortel at $120.
This is a contrarian signal saying that the end must be near for Canadian Real Estate, but you never know. This much of positive sentiment often ends abruptly, but it can also go on for a while.
I also saw this the other day at this blog where the blogger was almost trying to convince himself to buy. It is not an unexpected reaction given what is going on in the market in Canada.
They are loudly proclaiming victory before the implications of the melt down in the US have
been fully felt, even within the US. This too is a contrarian sign when long time bears begin to have doubts about their own judgement. I remember that during the equities bubble of late 90s,
long time bears like George Soros capitulated in 1999 and 2000 and entered the tech stocks in a big way. And lost major amounts of money subsequently.
Investing requires discipline-belief in yourself and your investing/moral principles in face of extreme adversity. Contrarians are often ridiculed for their beliefs and investing contrarians are no exception.
Having said this much, here's my stance on the housing market in Alberta, again.
Real Estate in Alberta is overpriced as per pretty much any measure such as

  • Relative historic norms.
  • Earning capacity of Albertans
  • P/E ratios using rental yields.
  • Traditional metrics of real estate valuations (multiple of monthly rent of 100 to 120 times)
Even though there is short term shortage of quality accommodation in several cities in the province, there are hundreds and thousands of vacant condos awaiting further flipping. The flipping will have to stop at some point of time and someone will have to assume the role of 'landlord' and start chasing after tenants and collect rents.

Out of province buyers and new immigrants who are not familiar with 'good' and 'bad' locations of a city are buying the worst homes at worst locations due to the extreme fear of being priced out forever. They don't realize that once this mania ends, they'll be stuck with assets that will simply be illiquid.
They may have to give those away as no body would want to live in those parts of the city.

At the same time, many new 'landlords' and first time buyers are unaware of true costs of ownership. Their decision are being made on the basis of fear and greed and not rational thought. I have seen people who have barely lived in this country for a year go on and buy $250 homes with 5 % down payment. May be their immigrant work ethic will save them from trouble, but did they really have to buy?

So anyone who is about to capitulate, here are some questions you should honestly answer yourself:

Assuming you can discount(no pun intended) the above mentioned valuation reasons , do you really need to buy?
Are you buying because you think you will get rich?
Are you buying because you think you will be priced out forever?
Do you think real estate prices will always keep on increasing?
Do you think the rent for a 2 bedroom apartment in Edmonton and Calgary will hit $2000?
Do you think you might get better opportunities of work by moving to some other place?
Do you think you can create a small business by moving to a much cheaper place?
Do you think you can take a $20k pay cut and move to a cheaper place?'
Does renting really suck so much?
What will be the impact of 10-15% annual rent increases to your bottom line in the next few years?
Do you think assuming a debt of over $300k for 30 years will make you happy?
Do you have skills as a minor 'handyman' to fix problems with the 27 year old townhouse you are about to buy?
Do you have time to shovel all the snow that will be on your driveway and sidewalks?

I think if you answer these questions honestly, your urge to give in and buy will be reduced. Mine sure did :)

Will this be the Peak?

Canadians are on a house buying rampage, totally bereft of what is going on in the US.
May be Canada is different. After all, it is so insualted from the US that merely 80% of its exports go to the US!
Is this the top before the slow down begins? Prices can't keep on climbing forever.
What do you think? Is this THE peak for this cycle?

Tuesday, March 13, 2007

Is Alberta isolated from rest of the world?

As the markets tumble across Canada and the US and the sub-prime meltdown continues, and the US readies for a recession, we should pause for a moment and think whether any of these events are likely to have any meaningful impact on Alberta's real estate.
The 'specuvestors' will continue to believe that Alberta is different and in its own league and the entire world wants to live here and oil prices will always remain high. Their arguments may have had some merit if the market were playing on some fundamentals. As I've mentioned a number of times before, for a market that is no longer connected to fundamentals (300x monthly rent is the typical valuation these days in Alberta), any change in the underlying fundamentals simply won't matter. At least in the short run in which the real estate market has acquired a momentum of its own.
I think this market is driven a lot more by speculation, easy credit, equity locusts from BC, lure of easy money, fear of being priced out than by oil prices or trade/mcjobs. I also suspect that it will be the BC Real Estate market that will soften and then fall before Alberta experiences any real weakness.
If the MSM in Canada start talking about a US recession and a consequent Canadian recession, the falling housing market in the US, a lot of people are going to get worried. And I don't think very many Canadian banks will continue to dole out those 40 year zero down mortgages for too long.
A bull market that took over ten years in the making won't change direction or even weaken overnight.
And I will try my best to be around when all this unfolds-not so much for Schadenfreude
but for the experience it is going to provide to any observant student of markets.

Monday, March 12, 2007

The Real Cost of Home Ownership

While the media, banks, builders and Realtors wants you to own a place (or more than one) at any price at pretty much any place or otherwise be priced out forever, most people never purchase homes for purely financial reasons. Unless there are the primal feelings of fear or greed.
A very pertinent article at the right time from WSJ Journal explains the same point that others like Kiyosaki ('Rich Dad Poor Dad') have been saying for a while. Your house is not an asset and if it is one, it should not be considered an 'investment'.
In my opinion, a house is a consumer and lifestyle item, just as a car is. No doubt, every woman's dream is to own a beautiful home, have a nice family and probably have kids. Having a nice home and a loving family almost completes life from a materialistic perspective.
But this decision to own a home should not be confused with the economic realities of home ownership.
There is generally a price to be paid for home ownership. And that is more than the mortgage and down payment. It includes the property taxes, insurance, maintenance, snow shovelling, title insurance, mortgage insurance, heating and other utilities and lots more.

As we are going through this mania, I wonder how many people are actually even thinking about costs of home ownership. And whether this is the right time to buy given their life priorities. They have only seen the prices going up, never faced a real recession, never seen homes getting sold for a buck. And perhaps not fully realized the costs of selling a house in a 'buyer's market'. And how they are tied to a place and can miss on exciting opportunities that could be offered by relocation.

The funny thing is that WSJ article mentioned above would not have been printed two years ago at the height of the real estate bubble. Just a couple of years ago, you could not go wrong with real estate and now they are questioning the fundamental premise itself-whether you should buy a home at all?
How long before Globe and Mail runs a reprint of that article or does something similar?

A quick look at Edmonton affordability

The usual suspects have been claiming how a Scotiabank study (pdf) 'proves' the strength of real estate market, especially in Edmonton.
And how it is based on fundamentals.
Without getting into the usual bullish reasons, that we have covered in the past, let us just look at the fundamentals .
Average Edmonton family income: 57, 360
(these are 2003, numbers so we'll inflate these by around 15% for current values)
Current Family income in Edmonton: 65,964
Average Housing Price in Feb 2007: 321, 307

Number of years required to own an average property at average salary: 4.87

And what does the average property look like? While this would be extreme scenario, this is more typical.

Just last year-Feb 2006, the average dwelling sold for $211,536, giving the number of years to own at 3.35.
In 2003, the number would be between 2 and 2.5 (I don't have the average sales numbers for 2003. If someone has it, I can plug those in here)

Affordability has been falling for Edmonton very sharply, especially in the last 2 years. Anyone who is trying to buy in this market knows how it has fundamentally changed from the market just a year ago. Rather than simply saying that things are going a 'little crazy' here, they continue to cite studies and create spin to confuse the masses.
But I wonder why we even bother asking the truth from 'the insiders'.
Would tobacco industry ever say that its products are injurious to health? Or would pharma companies ever say that their drugs can cause problems? Or would a realtor ever say that it is a bad time to buy?

Sunday, March 11, 2007

Alberta Prosperity and Real Estate-Tail wagging the dog?

In the last two years, the number of luxury cars you see in downtown Edmonton or Calgary has gone through the roof. Almost all the restaurants worth anything are completely packed in downtown Edmonton even on a weekday.
Some clear signs of Alberta prosperity right. Yes, but what is the source of this prosperity? Stupid question some would say. It's obviously oil sands and natural gas wealth.
I wouldn't quite agree. I don't really have any numbers to prove my hypothesis, but I'll write it nevertheless.
I think most of the conspicuous prosperity in Alberta is not due to the commodity boom but due to real estate boom. And by conspicuous prosperity, I don't mean trades jobs or McJobs, but the $50k cars, $5k plasma TVs, $200-300 dinners and the stuff. Or perhaps the $400k cars.
I think the average Albertan who is not in business for herself/himself or does not (did not) receive a huge oil/gas bonus would not have become richer but for dramatic rise in real estate. Most Albertans have been touched by this boom, but primarily in terms of expensive real estate. I have not heard of very many stories where any one's wages increased by even 10% over the last few years. No doubt at the lower end, minimum wage climbed from $7 to $12, but someone making $30 didn't suddenly start making $45. And most newcomers struggle with housing and other necessities and would not be creating the conspicuous boom, other than helping boost province's red hot real estate.
As I mentioned in one of my earlier posts, every mania is based on a 'story' and in this case, the Alberta real estate market is based on the oil sands story. It is a plausible story and most average Janes and Joes have bought the story wholeheartedly.
And why not? If the story made them richer by $150k (average increase in their home values), why should they dispute it? Especially when they didn't have to work for an hour to do so. It's free lunch.
So while everyone is talking about Alberta's prosperity being rooted in the oil boom, it is possible that its conspicuous prosperity for average Albertan is actually rooted in real estate.
People are feeling richer not because of the $400 cheques they received a year ago but because of the tremendous increase in real estate. And I don't have any numbers again, but I am pretty sure Albertans are feeling confident because their net worth has gone up quite a bit in the last 2 years. And they must be withdrawing from their 'home ATMs' , as they are so found of saying down in the US, and keeping the Touareg's on street and the restaurants busy.
What will be the impact of this on the Alberta economy when real estate market fizzles? Will it be business as usual if we see moderating/stabilizing oil prices and a declining real estate? In my opinion this is a fairly plausible scenario in the coming months.

Thanks everyone for a wonderful week of discussion.

Saturday, March 10, 2007

Can the MSM really influence the market hiding bad news? In financial terms, that would tantamount to withholding information from buyers of a product/service. Or the case of information asymmetry. But if the 'participants' themselves are the masses, we should not be surprised. They probably really want to hear nothing bad, other than the usual squabbles between liberal and conservatives. But I am digressing here.

There wasn't really any news coverage in the last few days of the mortgage fraud in Calgary that we covered yesterday.
The Mainstream media are covering only the positive stuff:

I wonder to what extent can this type of coverage continue to keep people away from reality. Is this really deliberate attempt to not focus on any potential negatives of the housing market?
After all, it's really a very symbiotic relationship between banks, Realtors, builders and mainstream media. Everyone from this group gains if the housing market is strong, except for the poor buyer who gets the opportunity to get enslaved by a 40 year mortgage.
In the US too, things went on like this for quite a while before the MSM finally began reporting stuff more transparently. They had to as things just could not be pused under the carpet.
I wonder what will bring the day of reckoning to Canada. When will the bad news be 'big' or 'bad' enough that it will have to be reported. We'll have to wait and find out.

Thursday, March 8, 2007

Yes, the stink is same here....

Mortgage fraud in Alberta. In Calgary?
" The RCMP Commercial Crime Unit say five per cent of all Alberta mortgages are fraudulently obtained." I wonder to what extent this has been playing a role in all the bidding wars.

Were we not supposed to be different? The boom in Alberta is based on solid fundamentals. There is no speculation here. There are no excesses here. There are no lax standards in lending.
It smells eerily similar to what's going on in the US, though I wonder how long would it take before we see similar stuff from RCMP or CHMC.
It's really hard to tell the magnitude of this, but in cases of financial irregularities and cockroaches, if there's one, there's going to be more. We'll have to just wait and see how big a news it's going to become. And how many other cities are impacted. I won't be surprised if there's similar stuff going on in Edmonton.
But such occurrences will only highlight what so many bloggers and participants on this forum and others have been clamoring for a long time-irrational exuberance and rampant speculation. And now there's outright fraud.

Thanks to a wonderful bunch of people who contribute to discussion here and are ever vigilant of the news and post it here.

You are all making this blog so much more useful for everyone.

Housing Starts are down sharply

And for the first time in a while that they have fallen below seasonally adjusted 200,000
But one month doesn't really make a trend. We'll have to wait and see how this changes in coming months. It could just be the weather or may be some builders are getting a clue of what is going on in the US.
Here in Edmonton though, at least in downtown, I see cranes everywhere around. I'll try to do a post in coming days on condos that are going to be available in coming months in Edmonton and Calgary.

Wednesday, March 7, 2007

Are these just isolated events....

Like this cancellation by CNRLOr do they indicate a bigger macro trend? That is some hesitation on the part of bigger corporations on environmental and financial/cost overrun risks with new oil sands investments? We'll have to wait and see.

But if some of these massive investments fizzle out, what is going to support these high prices in Alberta? Thankfully, we have been blessed with wonderful weather that would easily attract thousands of retirees from across the globe :)

On a totally different note, does this ad for condo indicate a sign of things about to come? I mean, we are Edmonton where there are bidding wars going on for property and here we have someone throwing in a 7 year old Merc with a condo. It's not Florida, yet!

Tuesday, March 6, 2007

Where will the Markets go from here

Interesting discussion going on in the previous post about where the prices are headed. Here's my take on the direction on prices.
I don't really know where the prices will be in a year from now or even in six months.
Honestly. If I have learnt anything from my previous experiences, it is that Mr Market has his own mind. Markets will be 'irrational', 'stupid', 'crazy', 'maniac', 'wow', 'wonderful','bullish' or whatever you want to call it for as long as people are willing and able to pay the current prices. We could be very close to the top or we could merely be beginning. After all, Calgary can easily beat Vancouver in housing prices. And so can Red Deer or Grand Prairie. There's really nothing stopping the prices from going that high or 'crazy'.
At the same time none of the bulls or real estate agents know much about prices either, except for their guess on general direction. Late last year, bulls and Realtors were talking about an orderly 15% or so advance in the prices in 2007. We have already covered that much ground in the first two months. Could 2007 be a repetition of 2006? Why not. Or could this be the year when everything finally ends, like it did in the US last year? May be.
Nobody can authoritatively predict the future course of a market that has been disconnected with fundamentals for this long.
I remember during the equities bull market of 1990s, a lot of long term bears were frustrated and humbled for several years before the bear market finally began. A lot of them called the market top in 1996, 1997 and 1998. The 1998 Asian crisis was dubbed as 'The Correction' when it proved to be merely a blip and equities marched with vigour never seen before. Were the bears right in complaining about markets during 1996-1999? Absolutely. Were they too premature? You bet.
But will those prices reflect any fundamental value? That is the question, value investors ask. If Oil prices were to fall to $20 (not that any one's cow expects that to ever happen, but a value investor must ask such questions), would the investment still be worthwhile? Would they incur huge losses if that were to happen? Most momentum investors or flippers don't think in these terms. Most don't even understand the basics of real estate market.

Obviously, no self respecting value seeker in real estate (or any other) market would be buying in Alberta at these prices.

It will be interesting to see how far momentum will take us.

Are people becoming more cautious?

At least slightly, as per this news item.
May be the genuine home buyers are becoming more cautious because they really want a home. To live in. To raise a family.
The speculators on the other hand don't really care for fundamentals. It's pretty much a momentum play for them. If they buy a 30 year old townhouse after fierce bidding for $300 k, it doesn't really matter. All they want to do is flip it for $350 k or $400k in a few months. And they don't care much for the risk because they teamed up with a few other fellow flippers to mitigate their risk.
I've heard several stories where enterprising 'landlords' (some of who were not even born in 1980) team up with people of similar profile and start bidding wars.
The prices we currently have in Edmonton and Calgary are almost becoming highest in Canada. But on what basis? Especially in Edmonton.
What does this city really have? A few years ago when it was termed as 'Deadmonton' by a British reporter, a lot of denizens became angry. But they just couldn't really offer anything other than 'big sized trucks' and 'world's largest mall' in terms of refuting the 'Deadmonton' claim.
Edmonton is a good city to raise family. But it has very few job opportunities that can support the current housing prices. How many people can really afford a starter $400k home here? It doesn't even have the head office/corporate jobs that Calgary has. There are thousands of low end McJobs, but with those jobs you can barely afford to pay the rent.
The absurdity has to give in. When will it happen is the gazillion dollar question.

Monday, March 5, 2007

There's still a lot of steam in this market

Despite CREB's error as reported by some very astute observers of Calgary market (thanks squidly and others),  both Calgary and Edmonton registered  impressive gains
It is too early to say whether the continued trouble with mortgage industry in the US will have any impact on the frenzy here. I guess not. 
I think most buyers, sellers, realtors and even the cows in Alberta firmly believe that if oil prices remain high, nothing wrong can happen with Alberta real estate. 
But oil prices were higher than what they are today at time of hurricane Katrina. But real estate was roughly 50% cheaper.
What do you think will bring an end to this bubble in Alberta:
  • An oil price collapse to $30-40 range?
  • Unwinding of Yen Carry trade?
  • The bursting of global credit bubble?
  • A recession in the US?
  • Nothing will go wrong with Alberta real estate for several years?
  • It will self deflate?

Sunday, March 4, 2007

Edmonton is the new Vancouver....

or so it seems....
"The cost of a 1,000-square-foot, new, two-bedroom condominium concrete highrise is rapidly moving towards $500,000 in this city," Goatcher says. "That's Vancouver prices."

As more condo conversions hit renters, a lot of people will really have to give up their Alberta dreams....

I was reading somewhere that around 25 years ago, at the time of last mania, Edmonton was THE most expensive place to live in Canada. Can it happen again? We just need another year of 50% increase and we will be there....

Saturday, March 3, 2007

Is this normal, or do I just see too many listings?

While enjoying the warm weather in Edmonton today, I came across 'more than usual' for sale signs.

Too many units to sell or too high a price. I remember visiting this place around in 2004 when a 2 bedroom condo after renovations was selling for $80,000 or so.

Another in Millwoods where selling price should be upwards of $200k. These are absolutely run down units. But if someone doesn't buy these, they'll be pretty much homeless.

This complex was completed a month or so ago in downtown Edmonton and there are already 4 condos for sale here. There are no more than 30 units in this complex. Most of the new condos in downtown Edmonton are for flip fun, I think.

If you have some any nice pictures of the bubble from anywhere in Alberta, please send it to

Friday, March 2, 2007

Friday Open Thread...

This is open thread for Friday, March 2 2007. Post any off topic/other discussion items or links here. Any suggestions for future topics are welcome.

Thursday, March 1, 2007

The Choices for a young family

As the mania continues in full swing in Alberta, what is a young family(or anyone looking to buy) supposed to do? I think there aren't really a whole lot of choices:

  • Continue to rent and wait for sanity to return to markets. But rental market is tight and rents are rising in Edmonton, Calgary, Red Deer and pretty much rest of the province. This could tantamount to putting your 'life on hold' while market returns to some normalcy.
  • Move to some more affordable place like London, ON or Ottawa. Or even Saskatoon. A lot would be dependent on the jobs available in a city and the career position.

What is the best course of action? What are your thoughts?
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