Thursday, August 30, 2007

Weekend Open Thread....

Thanks for a nice week of comments and discussion. Since things have been getting too personal and stories of 'this blog' and the 'other blog' are now taking too much time, I'd mention my perspective on this:
  • It looks like a lot of folks are taking things too personally and responding in a way that's not 'too classy'. Well, all I can say (and this is from a 'bitter renter'), chill out! It's just business. Or may be not. For me, despite the home having all the appeal and all that, I try best not to let the nesting instincts overpower the financial and career priorities. I know a lot of people get attached to their 'homes' or their 'investments', but a disciplined investor avoids such tendencies. Emotional attachment to assets is 'sinful' in not only the religious way, but also in the way of a disciplined investor. As I've mentioned here a number of times, this blog and my observations of the Alberta real estate market are merely a learning exercise. And may be a bit of community service by providing a forum for discussing ideas that are(or were) otherwise ridiculed by the masses.
  • A lot of people have talked about the 'vested interests' of 'anonymous bloggers'. Of course, I've a vested interest. And my interest is to learn about markets and develop further understanding of the real estate industry. May be later on, once the era of cheap credit is over and financial sense begins to prevail, I might consider investing in real estate. The learning from this blog and observations of Alberta market will be very helpful when I'm ready to make such a move. In the meantime, should you ask your bloggers/realtors about their vested interest, other than of course the fat commission they make from the hard work they do in selling your homes? Something like how many properties they own as investors and if they are likely to incur any significant losses if the real estate market goes south. I know it's a touchy issue and that's why I've never commented on these before, but I think there's been a lot of talk about the 'vested' interests. We've never bought anything in Alberta so far because our long term goals do not include living here. Simple as that. If it gets too expensive, we'll just pack our bags and leave. Thankfully, our livelihood is not dependent on the price of oil.
  • One more time, there's no need to take anything personal here. Some people make money, others lose. Those who lose money gain experience and learnings for later. May be some people who did not buy in 2004 and 2005 realize that they could have bought something when things were cheaper. Perhaps, those who bought in 2006 and 2007 will realize that renting didn't suck so much after all. In any case, in the bigger scheme of life and things, it should be a small factor. But when you are over extended and highly leveraged, it's easy to develop bitterness and anger towards those who don't necessarily share your perspective.
  • By now you must be tired of all this sermonizing. So I would just stop even though I want to keep on writing.
  • The month end is upon us and we'll have the numbers for August available next week. What are your predictions for Edmonton and Calgary for August?
  • As someone suggested, where do you think the Edmonton and Calgary markets will be in a year from now? Please take this poll:

  • Have a terrific long weekend everyone and enjoy the last week or two of our ephemeral summer.

Tuesday, August 28, 2007

Reality sinking in.....

Somewhat, if not entirely....
First, today's Edmonton Sun mentioning on their cover page what we have been saying here for a few months. Edmonton is toast. The official MLS inventory is now over 9000 and although no sales numbers are available, they can't be great. Or we would have heard from someone....and anecdotal evidence strongly suggests otherwise. I've seen nothing sold in downtown Edmonton even though now listings continue to pile up, although the rate of increase has definitely slowed.
My take on the prices is simple- they are too high for this city. Tar sands, upgraders, cultural mecca, plethora of recreational activities and 'the most beautiful city on the face of earth' notwithstanding. If Edmonton Sun is openly talking about $40k reduction in home prices, how do you expect someone who bought in May this year-about the very peak-to react? Almost half of the down payment gone?
Or what's it going to do the balance sheet of ATB?
They believe that everything is going to be okay for them, as they have very limited sub-prime exposure. Where did we hear it the last time? Somewhere around 600 kms south of Edmonton.
They say "ATB mortgages do not exceed 90 per cent of appraised value." This has to be a really funny statement. First, what is the appraised value? Appraised by who? Greedy flippers? Or avaricious mortgage brokers interested in boosting their commission?
And secondly appraised at what time? May 2007? Or some other date.
But they are still a provincial crown corporation and they'll get bailed out of all the mess. No matter how bad they screw up.
And 'We are very different' Calgary has shown a very significant drop in the prices. The average price is down by $17k. May be Calgary isn't so different after all. The median, which has been falling for three consecutive months, fell by another $5k this month. But none of this will matter to anyone in Calgary as Calgary is just 800 kms south of the 'biggest resource discovery' ever made by humans. And only 300 kms south of the biggest refining/upgrading projects to be ever built. So what if Edmonton is toast. Calgary has mountains and it even had the Olympic games once. It's more like Vancouver, no a lot better than Vancouver because it has a stronger economy. So prices can't really fall here, just as they can't in Vancouver.

Thanks all for a wonderful week of discussion and useful links and tips (the links in this post are all fixed now).

Thursday, August 23, 2007

Weekend Open Thread....

Thanks for a week of nice discussion. Some thoughts for the weekend:
  • One of the chief defining characteristic of the real estate boom of the last several years has been the claim of each bubble city that 'we are different.' The most recent city to get afflicted by this characterization is Calgary. Bob Truman even changed the title of his most recent post to reflect that his blog focuses on 'we are different-Calgary' and not Edmonton. May be Calgary is different. But most likely it isn't. Vancouver, Victoria, Seattle...all have had this categorization for a while. I did not have enough time to research on this, but can anyone find any significant intervals (at least 6 months to year long) in the last 50 years when there was a divergence in the Edmonton and Calgary prices. That is Edmonton prices going south while Calgary prices going up. Or vice versa.
  • Inventory continues to pile up in Edmonton. MLS is close to 9000 and Comfree close to 3000.
  • Both the average and median prices for SFH and Condos are falling, as per the excellent statistics compiled by Bob Truman. If the price trend for August holds, we'll go all the way back to the prices seen in early spring. Inventory is around 8300 in MLS alone, and slowly catching up to the Edmonton levels.
  • There's been a noticeable surge in rental vacancy ads in Edmonton and Calgary. The ads that I placed over 2 months ago still get responses.
  • There's a bullish group of people in pretty much every major city in Alberta that is counting on a magical turn around this fall. But they are not alone. Alberta government is reporting sharp drop in oil sands land lease sales and revenue is down by over 60%. Last year's hysteria is slowly dying down. But, hopes of September turn around are alive: "The pace of land sales could pick up in September, FirstEnergy Capital Corp. said in a report earlier this month."

Monday, August 20, 2007

Noticeable price declines are here in Edmonton

Despite denials about the fundamentally changed nature of the market, the view from ground reflects something that we've all talked about here for months.

Take this example of a detached SFH in Ellerslie crossings. I distinctly recall viewing such places back in 2003. They were selling for around $175k (but on the west side of Edmonton). As late as February 2006, I remember visiting one of very similar show homes. The builder's agent said, "Price are going up very rapidly in Edmonton because of the very low vacancy in Calgary. Companies are now going to start shifting their head offices to Edmonton and that's why there's this sudden increase in prices." At that time, a similar home was selling for $225k. Of course, it was hard at that time to come out with any rational explanation for price increases and this was at least plausible. Of course, in the bigger back drop of speculators, flippers, 'real estate always goes up crowd', realtors, bankers and the main stream media, such excuses were superfluous. Of course, the world, or Alberta at least, as we know all changed somewhere around Feb-March 2006 when one of the biggest buying frenzies in Canada ensued in Edmonton.

Fast forward to June this year: this type of property would not be sold for less than $400k.

Two and a half months later, this property is selling for $360k. I doubt that the sellers would refuse a no-condition all cash offer of anywhere between $340k or $350k. May be some people will find it an attractive price, especially those who are contemplating paying anywhere between $250 to $300k for 2 bedroom condos in the same vicinity.

The question is: what's it going to do the condo/townhouses that are selling for over $300k to $330k just a few blocks from this place?

Friday, August 17, 2007

Weekend Open Thread...

Thanks for a wonderful week of discussion. This week has been the busiest for this blog with over 800 visitors averaging per day.

Some items worth discussion:
  • Edmonton Comfree inventory up to 2800. MLS is over 8600.
  • Calgary MLS is over 8000. WeList is over 2300.
  • Fed apparently panicking, two days after saying that there's no panic. Consequently, the stocks and oil prices jump. It's a strange world we live in. Fed is panicking because things are getting weaker and the market are rejoicing that rates will now be lower. So much reminiscent of the 2000-2001 behavior.
  • Are interest rates going to go lower? Will that lead to reinvigoration of real estate in Alberta?
  • Toronto real estate prices are down because "people are on cottage and so on..." Are these guys so lousy and hopeless that they can't come out with a better excuse than a school boy's "My dog ate my homework...." excuse.

Monday, August 13, 2007

Edmonton overvalued by 30%?

Well, given the recent turmoil in the markets and the sunny day forecasts by numerous banks and financial institutions in the past, should we really trust the Merrill Lynch study that says Edmonton is over valued by 30%?
May be 30% is the right number, but given the lack of actual link to the study and the basis on which they define the 'true value', it's a tough call.
Just for a little perspective, visit this site of an Edmonton realtor. For some reason she has properties from 3 or 4 years ago still listed at the then selling prices. Look at some of the prices. 1500 sq feet Semi-detached homes selling for less than $150k. Even going as far back as 2005 and early 2006.
It's just amazing how people tend to lose perspective on where things were just a year ago. Or two years ago, never mind going any further back. Here's a refresher on the Edmonton home prices again:

Will prices fall by 30%? Perhaps. Will they not fall at all and only remain the same for the next 10 years and let inflation do the trick? It's a possibility. Will they go back to the levels seen in 2005 or 2004? Why not?
Does the above graph provide any answer on how hard the fall can be?

Saturday, August 11, 2007

Season of Denial

Public mood has changed somewhat due to the extreme volatility in the markets and the consequent measures by the central banks.
And you are less likely to be ridiculed if you talk about the irrational real estate prices in Alberta.
Yet, the general response to Alberta real estate boom is that of denial. No, it can't happen here. We are different. There's no sub prime exposure here. Our economy is rock solid. Oil prices will not fall. Massive investment is being put into our province. We are cheaper than Fort McMurray or Vancouver. Calgary is the Energy super power.
Still, all these and a multitude of other responses reflect an important shift-from ridicule to denial. People can now at least 'imagine' the possibility of serious price declines. And the possibility of such declines that is contemplated in private is denied in public.
Anyone who has been around Alberta for a long time knows the true worth of this place. And how some of the properties that sell for $400k would not fetch even $125k a few years ago.

As I've mentioned (like so many others here and elsewhere), energy boom is just one little story that made the real estate mania more palatable to the masses. The real reason for the boom was the period of easy credit that lasted way longer than it should have. That season of credit expansion has come to an end as hedge funds and big banks scramble to meet their immediate cash needs. Almost anything is possible in this world, but I don't really expect a repeat of stories like those of my flipper friend who bought 11 properties with a $70k income. In fact, he has at least 3 properties in the market (others are still under construction) with $10 to $15k chopped off the prices. Still no takers. I doubt that he's going to be able to sell those properties unless he does something drastic like chopping of the prices by $50k to $75k.
Inventory is continuing to pile up in both Edmonton and Calgary. Edmonton now has 8400 properties in MLS and 2800 in Comfree. That's close to 11,200 properties for sale in a city of less than 1 million.
Calgary has 8000 properties in MLS and around 2000 in Welist. This is happening while the Sales are falling and we are past the peak selling season.
And let's not forget the 'true deniers', who know for sure that things will suddenly brighten up as the plains of Alberta welcome the first coat of snow.
Sales are slow because the sellers have unrealistic price expectations. As the credit market tightens, it will be progressively harder for first time buyers and upgraders to obtain the gazillion thousand loans on median wage. Prices are going to fall, it's just a matter of time.

The rental market has changed as well. There are about 30 to 40% more ads on craigslist rentals for both Edmonton and Calgary. Rentboard has also shown a similar increase. I occasionally put out ads for rental properties in Edmonton and Calgary and I still get responses for ads that were placed over a month ago. Why are they not able to rent properties? The rents are too high.

So both landlords and owners have very high expectations of what their properties in Alberta are worth. They could be right, but I doubt that. There are vacant properties-waiting for good renters and good buyers. I don't think Alberta is churning out jobs to sustain either the rental or real estate prices.
As flippers and speculators find it harder and harder to sell their properties and the season of denial fully blossoms, a lot of them will try to rent their properties. Pretty soon, there will be some competition for good, quality renters resulting in lower rents.
Of course, this is all based on the best case scenario-that oil prices stay high, economy remains robust and there is no global financial upheaval. If something bad happens, well.....
On a different note, our traffic has been increasing almost everyday. We now get close to 700 visitors every day. Thanks for your continued support and effort.

And finally, one little note to our dear friend Al Bundy from Bob Truman's site. You have not been banned from this site. Nobody has ever been or will be banned. Nor do I delete any comments. I used to do that until a month ago for inappropriate language, but I don't do it anymore.

Wednesday, August 8, 2007

Why are comfree and MLS so divegent in Edmonton?

Comfree in Edmonton reported much lower sales level in Edmonton, just as MLS. There were only 277 sales in July as compared to 454 in July 2006. This is quite a plunge in sales volume.
This is not the whole news though. Comfree also reported a significant slide in average prices with prices falling to
$373,600 from $391,300 in June. They don't report the median prices so we can't assess how the median prices changed. I can't help but wonder if EREB is going to quietly publish an update on average prices.
But total inventory is up to 2696. Which means Comfree now has roughly 10 months of product at the current rate of sales. Despite all the denials, things have changed significantly in Edmonton.

Tuesday, August 7, 2007

Edmonton is sinking fast.....

... despite the futile attempt by the EREB and realtors to hide behind the average price. Anyone with even little understanding of stats knows that median represents the typical item in a sample of items a lot better than the average. Yet, average is still used by a lot of agencies to report their numbers, like the EREB or CREB. Of course, it helps them hide the weakness in their markets.
Sales are at a 5 year low in Edmonton. Inventory is at an all time high of 8183. The median SFH prices are down 2 months in a row (that is the making of a trend if not decisive). EREB doesn't report on the median condo or median combined price. Too bad that they won't publish raw data for anyone with interest to do further number crunching. Indeed, these agencies are living in the dark ages of technology when it takes them 8 days just to compile simple sales numbers.

At least they are admitting that "The housing market is changing rapidly right now..."

Is the average price rise going to convince sellers and buyers that things are all hunky dory? Or are some people really going to smell some nasty things coming to the Edmonton market. With almost 6 months of inventory (and rising) only in the MLS, I don't expect things to magically turn around. After all, it looks like this ship is now sinking and it's not easy to rescue such a giant sinking ship....

Wednesday, August 1, 2007

Prelim Numbers

Thanks to Bob Truman for the numbers.
So median prices down across the board and condo prices down for 2 months in a row. And 2 months down is generally a trend unless you are a perma bull. Still, Calgary is holding on a lot better than Edmonton.
Edmonton has at least 6 months of inventory (some economist said 9 months) at over 8000 MLS and 2600 Comfree. Too bad, some of the recent acquisitions in the oil sector have discounted the Alberta Advantage entirely. As per Marathon Oil:
"Capital costs to refine an incremental 80,000 barrels per day of heavy sour crude at the Detroit refinery will be less than half the investment needed to build an equivalent capacity upgrader in Alberta."

What will happen to the gazillion dollar real estate plans of Edmonton if a few other companies follow suit? For the moment though, the water cooler talk hasn't been about the falling real estat prices. I guess the second month down in a row will probably have some people whispering about the changing real estate market.
Anecdotally, I've seen only two listings with Sold signs in downtown Edmonton from amongst hundreds.
We'll get the actual sales numbers in a few days. Stay tuned.
Real Estate Blogs - Blog Top Sites