Thursday, May 3, 2007

April Numbers are out...

And they paint an interesting picture. Prices have gone up, but in what should be busiest month of the year, the sales have gone only modestly up in Edmonton and have actually gone down by 11% in Calgary relative to March 2007.
Sales down and prices up with higher inventory is usually the first sign of an approaching 'inflexion point'. If this trend continues for a few months, price rise nothwithstanding, we could see a top in the coming months.
Based on what I've personally heard from a few of my flipper friends and read about some would be buyers, not too many people are expecting any more magical increases. Even regualr Joe owner is talking about "who can afford this stuff anymore". This could be a classic contrarian signal as well. If too many people start expecting prices to fall or stabalize, it may not actually happen.
Long term Albertans have heard of, if not totally cognizant of the risks involved with Alberta real estate. Who can forget the nadir of last cycle when townhomes used to sell for $45000 (yeah the same ones that sell for close to $300k now). Or that there are absolutely no jobs when the commodity cycle turns the other way round. Such people could be flippers or long term holders of such properties, but they would not go on and buy for the fear of getting priced out. You need totally different breed of people for that to occur. Recent immigrants and those moving from other province comprise this group. They have only seen one side of Alberta and they don't even know that there's another side. That's why they are buying starter homes for $400k in the not so great locations in Edmonton and Calgary. Just like the kids fresh out of college making $70k during dot com boom thought that you don't have to work to make such a wage!

Should there be a 'risk premium' built into Alberta real estate to allow for these events? Just like there's a risk premiumbuilt into junk bonds- Great yields, but a higher potential for default. It's great to compare Edmonton and Calgary with Toronto and other big cities, but those other cities are usually not one trick ponies. In case one sector goes down, others keep on going.

Sorry for the not so frequent posting during last month. I've been going through a major repriortization of things in my life at this point and have been consumed with a number of other things. And to answer one of the comments, I don't have any plans of shutting down this blog.
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