Edmonton is toast, Calgary is almost there....

...but the season of denial still continues. Despite record low sales, record high inventories, noticeable fall in prices, a lot of people still want to believe that this is a healthy, normal market. Wow!
And the seasonal trends witnessed during the last several years will return, despite the clear global liquidity crunch, an enervated oil and gas sector, clear signs of job cuts in the US and an overall change in the mood in the financial markets.
Why? Because we are in the very late phase of a bubble in which tales of stupidity woven by the 'vested interests' (media, banks, real estate agents, brokers etc) were taken to heart by thousands of speculators and 'investors' who could not see any problems with 50 to 100 percent YOY appreciations.
It's a theoretical possibility that someone will wave her magical wand and clear the still burgeoning inventory from Edmonton and Calgary in the next few months and give the much needed spring rally. I don't suspect it's going to happen though.
The fundamentals are totally aligned against this market yet both sellers and newbie landlords have totally unrealistic expectations from towns in the middle of vast prairie land.
But one cannot blame these real estate 'investors'. The real estate market bubbles take years to build and years to unwind. Unlike the stock market or commodity market bubbles which can wind and unwind more rapidly. Even more fundamentally, the 'mark to market' process for real estate is much slower and arbitrary.
After all, nobody can force someone to say that their property has fallen by 20%. People can continue to have delusions about their real estate wealth for long times after the paper wealth has disappeared. And this unfortunately prolongs a market turn around. Not that we are anywhere near that situation in my opinion.
Price declines will continue as lending standards tighten and the realization of a changed marked drives 'investors' and first time buyers away. There will still be plenty of knife catchers around though who will find that a detached 1200 shoe box in Edmonton has fallen by 25% and costs a mere $330k.
The shroud of secrecy around the monthly numbers will be lifted today and we'll get some more data to play around with. And I do like the idea of someone becoming a real estate agent for the sake of numbers. It's funny that in year 2007, a lot of organizations in our country still take pride in exercising authority by withholding information. I'm willing to chip in $100 to anyone who volunteers to become a realtor for the sake of giving us the daily/monthly numbers.

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?

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?