Tuesday, September 18, 2007

Market Review

A lot is happening in the market right now, but it's like the growth of the bamboo tree
and it is still under wraps. The changed nature of real estate market will be perceptible in the masses in the coming months. My flipper friend has already pulled off couple of his properties off the block. He is paying around $1000 from his pocket just to pay the mortgage and property taxes. There are probably thousands of 'investors' like him out there. And all of them fervently hope that the market will turn around in 3, 6 or 12 months. May be it will, but most likely it won't.

Inventory continues to grow in both Edmonton and Calgary. Inventory growth in Edmonton has slowed down though the total inventory is still at an all time high of around 9400 in MLS and 3000 in comfree. At the current rate of sales, that's almost 10 months of product. And that is not a great absorption rate.
Calgary is no better. In fact inventory growth in Calgary is now accelerating and the total inventory has reached an all time high. Look at this chart provided by one of diligent readers:
It's interesting that the 'bulls' talk about market fundamentals and think that the market is going to turn around because we have the all new, oil sands powered Alberta Advantage. Except for the oil sands story, Alberta has nothing at this point, except for an economy that's super charged due to real estate spending. Not unlike BC. Consider the following factors not related to the Alberta real estate market:
  • Natural gas market is dramatically different from the market of a few years ago. Prices are sharply down and the drilling activity is down by a third.
  • Loonie is approaching parity with the dollar, reducing revenues for both the industry and the provincial government.
  • US recession is a possibility though the extent and severity of its impact on Canada will have to be seen.
The buy versus rent option is still hugely in favor of renting. A lot of readers have posted comments doing the analysis of buy versus rent, so I won't get in there again. For the typical property in this market, it costs almost twice to buy than to rent the same property. And this is in a falling market- when a typical property is losing close to $500 every day. Why should anyone buy?
Here's an open challenges to the real estate bulls of Alberta-make a convincing case for buying in the market and I'll post it as a separate post on this blog. Send it to albertabubbleblog@gmail.com and I'll respect your anonymity if you so desire.
Of course, everyone will be able to comment on it as usual.
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