Back to School Sale-35 Per Cent off in Calgary

As you might have noted in the Daily stats. We have heard several stories of people getting more than 20 per cent off properties of interest to them. But 35 per cent means either the property was seriously over priced or the seller was pretty desperate. Or could it be an error like the ones you find in the Sears catalog?
But in any case, August 2007 was a slow month, yet this month is likely to be slower still, at least in Calgary with approximate monthly sales of 1175.
No spring rush, no summer rush, no bottom and the Sale has just started.
The markets will be good to those who wait for the right time to buy.

Okay, the market kind of sucks, but how about some spin!

If you enjoy the headlines at the realtor sites, you'll probably not like the one I've used.
But I guess when your bread and butter depends on making an earnings by selling homes, you've got to master the art of seeing the positive in the sea of negative news.

So what if we have inventory that's close to all time high and it's only the end of April.
So what if have sales that are amongst the lowest in the last several years.
So what if we have the key benchmark price used by EREB and CREB down noticeably since last year.
So what if at the peak of buying season we have got dismal sales to new listings ratio.
....
We will still hold on to our fantastic interpretations of data. Because it suits us.
We cannot possibly go on and say with a straight to all the people who bought at the peak last year that real estate always goes up.
We made big suckers out of all of you (and ourselves included, after all we strongly believe in consuming "our own dog food") and it was great while it lasted.
We don't really know what's going to happen and we are running quite scared.

Wow! Prices are rising and it's time to buy again...

...if we go by the conclusions of the usual suspects. Btw, Bob you are doing a great job in providing the numbers and it's all much appreciated, even though we may not agree with your conclusions!
Bob writes a list of reasons why the prices are going up- Here's a list of reasons given:

1. We're just pulling these numbers from thin air, and they don't make sense when you do that.
2. Buyers are insane.
3. Buyers haven't found out about the bubble blog.
4. Calgarians have too much oil money to throw around.
5. We want to be different from the U.S.
6. We could be in danger of having year-over-year price decreases next month, so we're happily paying more for houses to avoid that embarrassing scenario.
7. People have a lot of confidence in Calgary's future. Justified or not.
8. With the rise in prices over the past three years, affordability has been eroded, and that may account for the lower sales.

Well Bob, I'll make things easier for you-there's perhaps another reason and it's called a change in Sales Mix. That is, possibly, there were fewer lower end properties sold and more sold at the higher level. Such a scenario would easily push up the median and average prices even though the prices did not actually rise for the typical property.

This is clearly illustrated in the Edmonton numbers where we see falling $/sq ft numbers for SFH and stagnant for condos. Despite this, the median and average prices for both Condos and SFHs actually rose.
So while Edmonton prices have risen, its most likely due to a change in sales mix and most likely not due to the start of another buying frenzy.

Of course, affordability is a valid point, but it has been valid point for quite a while. Affordability was certainly lower in March, April, May, June, July and August 2007, yet the sales were a lot higher. And whatever happened to the 40 year mortgages with zero down?

The big number is of course the massive fall in Sales. Comparing sales to 7 year old numbers is just a statistical convenience- why not compare to a 20 year average and show that 2007 sales were stronger than a 20 year average (if at all)?

So despite the spin, the reality is quite different-

• Sales volumes are at multi year low for this time of the year.
  
• Inventory levels are at all time high for this time of year and near all time highs.
  
• Sales to new listing ratios are at lowest levels for this time of the year, perhaps closer to all time lows for this metric for this month of the year.

Last summer, prices kept on rising for a while despite the massive surge in inventory. So while it's entirely possible that the market turns around from here and we attain new highs(never underestimate the potential for market irrationality) this summer, it's quite unlikely given the massive inventory levels and new listings rapidly being added.

March 2007 prices 'reintroduced' in Calgary?

Thanks as usual to Bob Truman for the stats. We are back to March 2007 levels by pretty much any statistical measure (average, median) for old and new criteria, SFH or condos.
The condo average price seems to be the only aberration to this pattern.

Putting things into perspective, prices have fallen for SFH by a whopping $50k since end of July. That's almost 10% drop in just 3 short months. And as per CREB, July was the best time to buy, as were August, September and most likely October will be. But will any agency that's supposed to protect the interests of its realtor members going to say "please hold on, this isn't the time to buy. Wait for a few months or may be a year and let air fizzle out of this massive speculative bubble.' I very much doubt it would ever happen.


The big questions:
-Are we going to see more falls in the next two months brining the total increase for 2007 to zero (and negative in inflation adjusted terms)?
-If this does indeed happen, are we going to see to see the first YOY decline as early as January 2008?
May be it's going to be a little bit longer.
On that note, here's another poll.

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.

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.