Thursday, January 10, 2008

Where are the buyers?

Real Estate buyers in Alberta sure seem to be taking longer than expected vacations. While close to a hundred properties are being listed every day since the beginning of the year, the buyers are simply not showing up. The sales to new listings ratio is sitting at a pitiful 20% in Calgary and below 30% in Edmonton. It's very early days in the new year, but it still makes you wonder.

What could be the reason?

Those who frequent this blog obviously know the answer. Prices are expected to decline. This is what the buyers expect. And you can’t find fault with that. Last year at this time, you just couldn’t keep the buyers contained. There were ‘bands of investors’ , borrowing money from anywhere to get a piece of the action. Then there were those who had seen it all, ‘seen banks go bankrupt’ in the last Alberta bust, but twenty five years hence, they were lining up to be a part of the mania that had engulfed Alberta once again.

Where have all those buyers gone?

Where are the ‘going going gone....’ Signs?

Inventory has resumed its steady climb again and if the sales don't catch up quickly or inventory addition slows down, we could enter the spring season with close to ten thousand properties for sale. That won't be pretty for a lot of 'upgraders' who are renting their 'previous' property while hoping that someone paid for their 'upgrade'. Speculators won't be happy either. And the developers who plan to complete the sales of over ten thousand properties under construction won't be sitting pretty either.

But what is going to cause a rebound in the sales?

Interest rate cuts? But mortgage rates are still climbing.

A decoupled world in which demand from India and China insulates us from a US Recession? But US is our biggest trading partner and the biggest importer oil in the world. So we shouldn't pin too many hopes on decoupling either.

Dollar is still at parity and it's hurting pretty much every export dependent section of our economy.

We already have negative inter provincial migration numbers.

The one bright spot that is keeping expectations (or hopes) high is the oil price. Should anything happen to it, well....(but we know nothing is ever going to happen to it, right).

I think the real estate demand witnessed between fall 2005 and summer 2007 had a huge speculative component in it. Builders, developers and the speculators themselves took that demand to be real. The builders and developers are still building at ferocious pace, not unlike those in the tech industry who based their projections in circa 2000 on demand of years 1999 and 2000. That demand was fueled by the lax investments made by venture capitalists in lame startups. We all know what happened to the tech companies that were counting on such demand. Nortel probably rings a lot of bells to Canadian investors.

Closer to the real estate domain, we know what’s happening in Florida, Arizona and Vegas. It’s hard to say the extent of damage that will be done here in Alberta.

May be the speculators will all show up from somewhere and start bidding up prices again, come spring. After all, the world just got a new source for an unprecedented demand in Oil- the $2500 car unveiled in India that would push crude oil prices to $200.

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