I don’t have much time to blog but I’d like to just quickly put up a post regarding today’s news. This might be redundant, as most of you have already heard (in the MSM or on other blogs), the federal government is tightening mortgage lending practices. A slap on the face, if you will. Not extreme but it is certainly a step in the right direction.

According to the Finance Department announcement, the following changes will be made to the rules of government guaranteed mortgages:

• Fixing the maximum amortization period for new government-backed mortgages to 35 years;

• Requiring a minimum down payment of 5% for new government-backed mortgages;

• 45% maximum TDS ratio (Total debt service ratio - % of gross annual income required to cover payments associated with housing and all other debts and obligations, such as car loans and credit cards)

• Establishing a consistent 620 minimum credit score requirement; and

• Introducing new loan documentation standards.

All changes become effective on October 15, 2008 and affect all mortgage lending institutions.

I’m afraid that it’s too little, too late. About 62% of first time home buyers choose the 40 year mortgage route as affordability has been stripped in the past years during the real estate bubble. Is this the government’s own indirect admission that 40 year mortgages are kin of the famous subprime mortgage? No more liar loans with no downpayment, no authentic documentation and relaxed lending. This will certainly put further downward pressure on prices. In addition, the pool of buyers just shrunk dramatically. The implications of this announcement will be widespread. The government should have done away with the 35 year mortgages as well. The market will always correct itself. Those who forced affordability and bought in the last two years will have a nasty financial ending.

Now, the pressure will be squarely on the sellers. Those now wanting to get out because of the new changes will have to take a financial loss. Remember we are still at record inventory levels. To sell in this marketplace would mean to lower expectations and prices dramatically. On the already over-saturated condo front in Calgary, watch for more intensive promotions (free cars, free gym passes, free trips, first born children, free home entertainment systems, free kitchen makeovers, etc.).

Now I wonder if Ed Jensen will recant his statement in Creb’s June report that the market will pick up in activity in the Fall?

I’m expecting realtors (some who are struggling) across Canada to further increase their advertising/marketing budgets from now till October 15, 2008. With sales down 30%-40% yoy already, what will most of them do after that date?

I can already envision the new emergency marketing slogan:
“The best time to buy is now - before October 15, 2008.”

Go to Source

As posted in the comments section(h/t to bad) and noted at other places, the Canadian government has finally woken up and is trying to do away with the 40 year mortgages, as well as the zero down mortgages that are backed by the government (via CMHC and others). They’ll also enforce more rigorous documentation standards.

They specifically mention that this is being done to “reduce the risk of a U.S.-style housing bubble developing in Canada.” If you ever wanted a classic example of reactionary measure taken by bureaucrats, this could be it. The time to do this was in 2005 and 2006 when the mad rush was already reaching its zenith in Alberta and BC. Or even in 2007 when the frenzy was near its peak in Saskatoon/Regina. But in 2006, they were cheer leading the ‘affordability paradigm’ and passing laws to provide 40 year mortgages with zero down payment.

And while they abetted the bubble by offering these products, they are going to help deflate the bubble by eliminating some of these products from their offerings.
I’m pretty sure that this is only going to reduce the pool of buyers that could have otherwise obtained financing on on overpriced Edmonton condo using zero down, no document, 35 year term with credit score of 550.

How much impact will this have on Sales in Alberta? And to prices?

Go to Source

The city of Edmonton teaming up with Rohit, Landmark and the Edmonton Journal to build and market townhouses for stretched wage earners in a program called First Place Edmonton. The prices aren’t terribly cheap at $266,710 for a two bedroom townhouse in Millwoods. The land is valued by the city at $30,000-35,000 so Rohit could end up with $235,000 to build the structure of a two bedroom 906sqft townhouse with no garage and an unfenced yard. In the same area of Millwoods some townhouse prices appears to be competitive to these values. For Example:

This townhouse is fairly close to the development in Greenview. It is built in 1989 but unlike the City of Edmonton/Rohit townhouse it has an attached garage and a third bathroom. It has quite a bit more space (1345 vs 906 sqft) for a similar asking price of $274,900. The appliances, finishing and exterior appear to be fairly good from the photos.

This 1995 duplex with attached garage is close to the Canyon Ridge development at $279,000 is a few thousand more than the townhouse but has a back yard and more space.

The Edmonton Journal appears to be helping advertise these units for Rohit and Landmark developers in the article titled “First-time buyers catch a break in housing deal“

Under the new program announced Tuesday, 85 townhouses in the Greenview and Canon Ridge communities will be sold at a cut rate to qualified first-time home buyers.

The lottery is a nice touch as it is a well known marketing strategy used by developers.

In order to buy one of the 85 townhouses, applicants must enter a city-run lottery. There are strict guidelines on who can enter the lottery. Potential buyers must have a combined family income of $69,000 to $88,000 per year.

The qualifying metrics are outdated as they use the now defunct 40-year mortgage. From the First Place Edmonton site:

* Must be first-time home buyers in Canada
* Must be Canadian citizens or have permanent resident status
* Must be able to obtain qualify and have pre-approved financing (based on 5 % down payment, 40 year mortgage amortization, 32% gross debt service ratio and 42% total debt service ratio)
* Must be employed and have a combined income between $69,000 and $88,000, see your financial lending institution for more details.
* Must have a net personal worth less than $15,000, excluding a primary vehicle, locked-in or group RRSP and the 5% down payment required for the condominium unit.
* Applicants must agree to be full time occupants and residents of the condominium unit for the first five years.

Since this program was initiated 40 year mortgages have been discontinued by the Government of Canada because they pose too great of a risk to the financial system. It is interesting to note that the City of Edmonton suggested these mortgages to help Rohit and Landmark developers sell houses.

I just don’t see how these deals are remarkable. Other examples of townhomes can be found throughout Edmonton. A 2004 townhouse in less central but more “faux-posh” Summerside is listed for $288,000. This listing has more space, a double garage and has been on the market for some time so the market price may differ from list.

Just north of Ellerslie Road there are a glut of townhouses in this price range and lower lingering on the market. This is very apparent when using the REALTOR.ca website with map search!

Go to Source

Go to Source

Go to Source

Recently, CREB released it’s June summary package for the city of Calgary. In conjunction, Mario Toneguzzi released his June housing report.

********

RE: “Calgary home sales continue decline, prices hold steady,” July 2, 2008

Dear Editor,

I am disappointed at Mario’s inability to gather facts with prudent responsibility concerning accuracy of information. Provided that he writes articles where information is disseminated to the masses, journalistic integrity should be of utmost priority. This should be done to circumvent further financial entrapment of unprepared, unqualified and uneducated home buyers. The article does not challenge the facts presented by an association that’s main goal is to market the real estate market in an eternal positive light for only one reason, profit. It would have been deemed more efficient and similar in purpose if Ed Jensen had wrote the article himself.

CALGARY - Calgary’s residential real estate market in the first half of this year has been marked by declining sales, increasing listings and stabilizing average sale prices compared with a year ago.

…

And the average sale price in both markets is close to a year ago - up by 0.20 per cent for single-family homes ($472,163) and down by 0.76 per cent for condos ($312,460), according to statistics released by the Calgary Real Estate Board on Wednesday.

These proclamations on pricing are misleading to the public. Firstly, average prices are not stabilizing. They are declining. A simple comaparison of June 2008 and June 2007 numbers would show a declining trend. SFH average and median prices are way lower this year compared to last June. For June 2007, the average sales price for the metro area was $496,890. The median metro home price was $439,000. In contrast, June 2008 average price is $473,774 and the median price is $408,000.

That is a decline of $23,116 (-4.7%) YOY in the SFH average price and a $31,000 (-7.1%) YOY decline in median prices.

For the condo market, the June 2007 average price was $323,269 and the median price was $304,900. The June 2008 average price is $315,042 and the median price is $282,000.

That is a decline of $8,227 (-2.5%) YOY in the condo average price and a $22,900 (-7.5%) YOY decline in median prices.

The numbers offered by CREB in their report are year-to-date numbers. By quoting these numbers psychologically mitigates the tremendous drop in prices year-over-year. The reality is June prices are substantially down compared to a year ago. The element of “statistical camouflage” should have been more challeneged in the article.

In a news release, CREB president Ed Jensen said the sales numbers “reflect that more buyers are finding a home that fits their family’s needs. As we move into the summer months, it’s an excellent time for buyers to capitalize on the wide selection of homes, rather than waiting for the fall when things start to pick up again.”

From a historical trend, sales peak in the months of May and June. Sales never pick up in the fall season extending on to winter. Now quoting Ed Jensen (who I would assume has experience in the market and understands the past trends), that sales will pick up this fall is not conducive to objective journalism. Yet again, there is an omission of critical analysis.

Spring was supposed to be the best time to buy. Spring came and went. At that point in time, houses supposedly “went on sale” and summer was the best time to buy. Now that sales are still down YOY, the best season to buy will be fall. By fall, I can predict that winter is actually the best time to buy. Nothing like a new house as a Christmas present. Hopefully we don’t get any snow fall in Calgary because that would chase buyers away as it did in Ontario earlier did year.

Perhaps it’s time to find other sources for information where the cheerleading of the real estate market is dampened and not relied on for livelihood. This would promote a more pure and objective market perspective.

Afterall, journalistic mantra is such where one usually strives for the truth and challenges conventional facts and preconceived notions.

Regurgitating information from a single biased source is not the best form of journalism by any stretch of the imagination.

********
Hey everyone, I’m going to be involved in some big projects soon and blog updates will be quite slow for a bit. If anyone would like to write a guest post or submit photos, please email me: calgaryrebb@gmail.com

I look forward to hearing from you. Thanks for your continued contributions and readership.

Go to Source

The first tale is that of “stabilizing prices” as described in the Calgary Herald article Calgary home sales continue decline, prices hold steady

Calgary’s residential real estate market in the first half of this year has been marked by declining sales, increasing listings and stabilizing average sale prices compared with a year ago.

Stabilizing is present tense and indicates that prices are continuing to stabilize. Taking a year-to-date average of prices 2008 is comparable to 2007:

And the average sale price in both markets is close to a year ago - up by 0.20 per cent for single-family homes ($472,163) and down by 0.76 per cent for condos ($312,460), according to statistics released by the Calgary Real Estate Board on Wednesday.

However looking closer look at the trend prices are decreasing compared to a year ago not stabilizing. From CREB stats

YOY Average price change:
Jan: SFH +5.18% condo +8.33%
Jun: SFH -4.65% condo -2.55%

Note that median prices, prices are down over 7% YOY. Remember when the median was supposed to be the stat of choice?

Another tale is the notion of things picking up in the fall from Ed Jensen.

In a news release, CREB president Ed Jensen said the sales numbers “reflect that more buyers are finding a home that fits their family’s needs. As we move into the summer months, it’s an excellent time for buyers to capitalize on the wide selection of homes, rather than waiting for the fall when things start to pick up again.”

Fall with winter are typically the slowest seasons for sales. So its totally mystifying to predict thing starting to pick up then. See the chart below from CREB which i roughly highlighted September to December.

This clearly demonstrates that Ed Jensen is creating a false sense of urgency to promote sales instead of presenting information in a useful way.

Another gem is from this article Calgary resale market seen as turning corner. Calgary resale market seen as turning corner.

“The inventory could normalize very quickly,” says Jensen. “There are several double listings out there — people who have listed both their existing home and their new home — and if one sells, they would pull the other one off the market.”

First there are no numbers available to what extent this is taking place and how this differs from historic norms. Even if this is correct it is not all positive for the market. Generally people with two homes are more motivated. They would be motivated enough to ignore their preference of moving into the new home to increase their chance of selling by listing both. I would argue that in some cases this could be considered speculation. For example boomers that instead of downsizing now have two full-sized homes.

There is another good read regarding the Calgary Herald, Ed Jensen and fairy tales posted on the Calgary Bubble Blog

From Edmonton Marc Perras from the EREB is also creating a sense of urgency:

“Some buyers seem to think that further discounts are possible and are delaying their buying decision unnecessarily. The market finds its own level and has varied within a three percent range over the last six months. REALTORS® have buyers who are staring down the sellers but sometime soon someone will have to blink.”

This is another tall tale which implies that Edmonton in a lull as buyers wait down sellers. This is not a new idea and has been argued before. From Carolyn Pratt, EREB President 2007 EREB Archives.

“Buyers have a large selection of homes to choose from and they are taking more time to make a
decision,”

Aug 7, 2007

Panicked home buyers were forced to make decisions quickly from a severely limited selection of houses and condos. At the end of the third quarter of 2007 buyers are more relaxed as they contemplate slightly lower prices and three times the choice of a year ago.

Oct 3, 2007

“Buyers, on the other hand, took their time selecting a property to purchase in the
hopes that prices would drop further.”

Nov 5, 2007

I have not seen once the argument that lower sales are the result of higher prices. You know ECON 101 stuff. This absence demonstrates a bias which is not surprising but should still be acknowledged. There is also a theme which is similar to Ed Jensen`s comments that buyers should be buying now. I don`t seem to recall this type of urgency in the normal market before the boom. This is trying to bring back the boom mentality of buying early to avoid escalating prices. However buyers should note that this time period was an anomaly and buying a home should be carefully considered in a normal market.

Go to Source

Go to Source

Occassionally we get phone calls from home owners asking why their home doesn’t have photos on MLS.ca, or why their listng doesn’t have the same information as another in their area - apparently some people think WE are the MLS! I can assure you we are not the MLS, we are just a small brokerage in West Edmonton.

That being said, we do have a very good understanding of how the MLS works and would like to clarify a few things. First off, MLS.ca has just been replaced by Realtor.ca! The old URL will still work but it will redirect you to the new site. There are some significant improvements on the new site, including interactive, searchable maps - yes, you can now search by map! You can also search by address and MLS number and more.

But just how does your listing in little old Edmonton get to Realtor.ca? It starts with a listing input form - your Realtor will fill out a very thorough 8 page listing input form and may ask you to check it for accuracy and sign the form. Some Realtors will then fax this form to the MLS department at the Realtors Association, who will then enter the listing into the Edmonton database within 1 business day. Other Realtors will “broker load” the listing directly to the MLS database in Edmonton, which allows the Realtor to control exactly when the listing goes into the database (more on that in a minute).

Listings are uploaded from the Edmonton database to the national database daily. In other words, there is a delay between your home appearing in the Edmonton database and the national database.

When it comes to photos…. if the listing has been faxed in, the Realtor needs to wait for notification that the listing is in the system, then they can go in and upload the photos for the listing. If the Realtor has “broker loaded” the listing they can add the photos to the Edmonton database immediately.

In my opinion, it’s very important that the photos are uploaded right away. Why? Because as soon as the listing is in the Edmonton database it is emailed out to all the buyers looking for a home like yours. If it goes out without photos you’ve missed your first (and very important) chance to make a good first impression.

Anyway…if all is working properly, once the photos are in the Edmonton database they should be uploaded to the national database as part of the daily upload but sometimes there are delays.

And just to be clear, the Multiple Listing Service® is a co-operative marketing program among members of the REALTORS® Association which ensures maximum exposure of properties to the greatest number of potential buyers. It is available only to REALTORS®.

Go to Source

Here is our update on the Edmonton real estate market. (Previous week’s numbers are in brackets). For the past 7 days:

New listings: 550 (558, 686, 627)
# Sales: 273 (321, 310, 257)
Ratio: 50% (58%, 45%, 41%)
# Price changes: 522 (563, 693, 628)
# Expired Listings: 787 (72, 74, 202)
# Canceled/withdrawn/terminated listings: 158 (163, 290, 62)
Net loss/gain in listings this week: -668 (2, 12, 106)
Active listings for single family homes: 4183 (4457, 4415, 4382)
Active listings for condos: 2882 (3094, 3111, 3105)

The monthly stats just came out yesterday so I’m going to keep this brief. That’s the biggest drop in inventory all year, and the highest number of expired listings. I guess people don’t have a big imagination when it comes to expiry dates. I would expect we will see a lot of those come back on the market, but I also am hearing a lot about sellers trying to rent out their “second” homes. Our thoughts on that are here…

As you can see inventory is dropping, sales will also drop as the year goes on. Please note I have changed the start date for the chart below to January 08 so it is only showing stats for this year now. Ineresting how the new listings and sales trends are almost parallel with about 400 more listings than sales on average.

Alright I guess I wasn’t that brief….sorry…have a great weekend!

Go to Source

Go to Source

Waterfront Anthem Properties - Stampede Lunch
Website: www.waterfrontcalgary.com
When: Wednesday, July 9th, 12pm - 4pm
Notes: invitation

 BREAKFAST SCHEDULE 2008       
Breakfast time 9AM- 11AM.

Thursday, July 3rd

CBC Annual Stampede Breakfast
CBC Building -1724 Westmount Boulevard N.W.
7 AM - 9 AM - Note special time!  
 
   
Saturday, July 5th

Marlborough Mall
Memorial Drive and 36th Street   

Points West Shopping Center
# 200- 5th Ave West  Under the Giant Canadian Flag
Cochrane Alberta   
   
Sunday, July 6th

Petro Canada Family Fun Day Breakfast
Calgary Stampede Grandstand
From 7:00 AM - 10:00 AM
Admission to Stampede Park -  Free Until 9:00 AM
 
Monday, July 7th

Beddington Town Centre
8120 Beddington Blvd N.W.  

North Hill Shopping Centre
1632 14th Ave. N.W.
 
Tuesday, July 8th

Market Mall Shopping Centre
Corner of 32 Ave and Shaganappi Tr NW 

Westhills Town Centre
300 Stewart Green Way S.W. 
 
Wednesday, July 9th

Dalhousie Station/Shopping Centre
5005 Dalhousie Dr. N.W. 

Southcentre
100 Anderson Rd SW. 
 
Thursday, July 10th

Southland Leisure Centre
2000 Southland Dr SW

Northland Village Mall
5111 Northland Dr NW (Map)
 

It is difficult to get a man to understand something when his salary depends upon his not understanding it” - Upton Sinclair

And yet, people expect realtors to give a ‘fair’, ‘balanced’ or unbiased perspective on the current market situation. It just can’t happen. It’s not unlike the old fable of Frog and Scorpion. No matter what the ‘realtor’ says, his or her motive is only one- to make the sale. And you can’t blame them. To not sell would mean to go out and look for another calling. So beware of the advice you get from those whose only interest is to sell more houses for commission.
On the market front, things are going almost as per the expectations. Demand and supply effect is now showing up in the statistical metrics for prices. Prices have resumed their fall once again, at least in Calgary and in Edmonton condos. Even though almost anyone on street could attest that prices through out 2008 have been lower than in last few months of 2007.  

After all, what would you expect with inventory close to all time highs, anemic sales volumes, rising inflation and banks about to unleash a wave of interest rate hikes?

For those who are planning to buy, there’s just one advice- WAIT. Renting is still a lot cheaper than buying and prices are expected to decline to get them in line with the historical trends. Read through the posts and comments on this blog and other places as well to make a well informed decision. Remember, mainstream media will mostly rehash the press releases of the realtors without an iota of original research or analysis.

My apologies for the less than frequent posting, but I’ve been busy with a new project and taking time off to enjoy the weather.

Go to Source

Go to Source

Allison Chiclo & Jessica Sorrell

CBC News

 http://www.astoriaon10th.com/ ~35 storey mixed use condo tower …

A luxury penthouse condo is on the Calgary market for an unprecedented price of $10 million, propelling the city into a lofty real estate realm.

The west-facing, two-storey, 4,400-square-foot unit is part of the Astoria on Tenth Tower under construction in Calgary’s Beltline neighbourhood.

The sticker price makes the 34th- and 35th-floor condo the priciest ever in Alberta and the third most costly in Canada, after listings in Toronto for $25 million and Vancouver for $18 million, Arcus Developments said Tuesday.

A second penthouse, which faces east, has already been sold to a private buyer for an undisclosed amount, according to Caren Crisp, the company’s marketing and communications manager.

“The Astoria on Tenth penthouses are a sign we’ve arrived as a city,” said Gerry Mendyk, president and director of Arcus. “The city’s never seen anything like them, and we feel now is the perfect time to introduce them.”

The penthouses boast solid marble and ebony, crystal chandeliers, nine-metre arched windows and five balconies. The developer also highlighted luxury features including an 860-bottle private wine vault, media and billiards rooms and priority elevator service.

The building on the 900 block of 10th Ave S.W. will also have a movie theatre for owners, said Mendyk.

The developer said more than half of the building’s 225 suites have been sold. Occupancy is scheduled for 2010.

Last week, a six-bedroom house in Crescent Heights sold for $7.5 million, breaking the record for the top MLS residential sale in Calgary.

The previous record was set in May when a Mount Royal bungalow sold for $4.8 million.

Bank Of Canada Jolts Economists With Stand-Pat Rate Decision Amid Inflation Risk

“Holt said one possible explanation is that the Bank of Canada and the U.S.
Federal Reserve are co-ordinating policy in an effort to bolster the American
dollar and “take the froth” off of commodity prices.”

Back in March I blogged about Serfdom Life and the continuing risk of interest rate slashing in the US and it’s influence on Bank Of Canada to do the same. Times have changed. From the housing bubble evolved the food bubble and now the energy bubble. Some bullish real estate “investors” were in the mindset that in the new financially reformed 21st century, it would be impossible for interest rates increase as we now live in a “credit society.” Those who can’t realistically afford an object of desire could purchase on credit.

In the big picture, the pendulum which swung the way of big spending is now finally swinging in the opposite direction with purpose - to spur society back into a savings mode.

Inflation is back with a vengeance. With high energy prices, there is nowhere to escape for the average consumer.

Bernake looks like he is done cutting rates in the US. Will this be the direction of the Bank Of Canada. Interest rates will have to rise to curb runaway inflationary pressures. Banks will not hesitate to raise mortgage rates accordingly as it means more renenue.

Falling house prices, higher interest rates, rising property taxes, rising mortgage rates, high energy prices, high food prices, highest CPI and inflation in the country. It’s certainly a fun time to be overextended or specuvesting in this marketplace.

Once again, it’s the perfect storm folks. Take another 40k off or more and get out now while you can!

Go to Source

According to Statistics Canada’s 2006 Census of Population and Housing, 73.1% of Albertans own there “dwellings.”

What does this mean?

It translates into the fact that the pool of remaining buyers in Alberta’s real estate market is small. During the boom years of 2006 and on, many Albertans were “hyped up” to purchase properties to catch the fad of eternal property appreciation. It was a vacuum phenomenon, pushing home ownership levels to new highs. The real estate marketing machine was huffing and puffing, sucking in all buyers, qualified or not.

Now that the market is softening, speculators are in a state of debt shock. For sale signs are sprung up in a weed like fashion to attract potential buyers. The problem is the negative sentiments realised by the public towards home ownership. Reality has set in. House prices do increase forever and ever.

With sales already down 30%-50% yoy, and an inventory gluttony epidemic - who is going to save the sellers now?

Apparently, few are left with those heroic abilities.

The key to salvation - a conversion of the masses of “bitter” renters and “basement dwellers” into potential home owners. This would increase the pool of buyers in the market. To accomplish this would mean for realistic price reductions in the market.

UPDATE (June 4, 2008):
Home Ownership At Record Levels … So Is Mortgage Debt.

“In total, Canadians owe an amount fast approaching $850-billion on their homes, more than double what it was a decade ago, with percentage growth in double digits in recent years.

If trends continue as expected, the value of all outstanding mortgages will surpass the $1-trillion mark some time toward the end of next year.”

Home Qwnership And Mortgage Debt Highest In Decades: More are buying outside their means

‘The rise in mortgages likely reflects more incentives now available to entice first time home buyers, said Jim Rawson, regional manager for Invis in Toronto.

“Younger people are stretching themselves,” he said in an interview, although he said they are still qualifying for the mortgages.’

Go to Source

Real Estate Type : Single Family
Building Type : House
Bedrooms : 1
Bathrooms : 1
Interior Floor Space : 925.70 sqft
Storeys : Bungalow
Built in : 1926
Land Size : W:8.840m D:36.580m Shape:REC
Title : Freehold
Location : 112 9 Av NECalgary, AB T2E 0V2
MLS®: C3322995

Aren’t post grow-op properties supposed to be a good deal?

This is more evidence that the Calgary real estate market is out of touch with reality. The seller of this property is looking for $320k for a post grow-op establishment. The house is most likely extensively damaged and is currently being evaluated by the Calgary Health Region. The MLS listing makes reference that the purchase would be more land motivated (even though the lot is in an ambiguous location).

It’s still astonishing to see the level of denial that still exists in the marketplace.

Go to Source

Chicken soup won’t help. Not doom and gloom but rather reality.

Calgary inventory at all time record highs (7127 SFH + 3373 Condo), sales/new list ratio in the tank, sales down yoy 30%-50%, median price down yoy, average price down yoy, days on market up yoy.

As of May 16, 2008 there are 10500 properties on sale, sacrificial offerings from many financial tight rope walkers who are losing balance. Sellers are in a mixed progression mode from fear, desperation and panic. Capitulation soon to follow this summer when sales are further reduced as stressed out Calgarians partake in $ummer vacation$ and the $tampede. The financial arithmetic no longer computes in purchasing real estate in Calgary, unless the “low ball” technique is engaged. Yet, there are still a few suspended in a perpetual state of denial - hoping.

“I’m standing my ground on this one. There is no subprime lending in Canada even remotely similar to that in the USA. Not even close!”
The great hope that we avoided the same pattern of lending as seen in the US. But in Canada, we have our own diseases. 0 down, 30, 35, and 40 year mortgages are just some typical examples of unconventional lending practices (ticking time bombs)recently introduced in the market in the last two years. Not covered is the potential of higher mortgage rates in the future. As house prices plateau and soon decrease, buyers who forced affordability will face impending financial apocalypse. Again, not an overnight phenomenon. One that will present itself gradually over time.

“There is a good possibility that many of these buyers will be coming from Ontario and Quebec.”
The great hope of a locust-style provincial invasion of laid off Eastern workers. The seller loses all focus and care for human condition. Forget the sheer emotional drain of losing your livelihood. Come to Alberta, so specuvestors can unload their ill advised lifetime debts. The hope of naivety, that is their goal. But this story has been written before and the ending resulted in net negative migration away from Alberta in late 2007 and early 2008. What will be different this time around? Nothing. If positive migration occurs it will be once again temporary. The top priority of a laid off employee is not home buying. Is the labour shortage in Alberta more of a function of net negative migration (high cost of living) or a booming economy?

“The gloom and doom prognostications predicting a correction as in the U.S. will not come into fruition as long as oil is over 100 USD.”
The empty validation that if oil is at a high price, the world is fine. This topic as been beaten to death, revived and beaten to death yet again. Bloggers on the Alberta Bubble Blog have empirically concluded there is no direct relationship between the two variables. As per Radley77, there is a divergence of Alberta’s GDP versus the recently increase in house prices. Only the naive still believe that Calgary’s house prices are sustained by oil and gas. The high price of oil is a result of hedging against the dropping value of the greenback. High price of oil favours no one. Peripheral expenses will increase as a function of this. Transportation costs become more cost intensive, food production costs increase, etc. Disposable income is further stripped away from already debt-ridden Calgarians. High prices translate in to reduced demand (humans will adapt). Oil was a false validation that the real estate marketing machine integrated in their campaign in the recent years to “fog” and “bait” buyers.

Go to Source

We’re almost approaching the midway point of 2008. With the spring rush come and gone, will the following bold predictions hold true till the end of the year?

Here is a compilation of predictions for the Calgary real estate market made at the beginning of this year. Keep in mind, some of these predictions seem formulated with an absence of supply-demand economic fundamentals (severely weakened sales and record high inventory).

“Jan 30
It speaks to the amazing strength of the Calgary economy that in spite of decreased sales and increased inventory, the price is remaining stable, or even rising slightly. If prices stay where they are now, and I fully expect them to, within a +/- 5% range, the buyers will appear. People have been waiting to see what would happen in January and now they know. My phone is busy, and many other realtors I’ve talked with, report plenty of interest. Sales will be down considerably this year compared to the frenzied activity of 2006 and 2007, but it seems to be a non-issue. When you compare this year’s sales to the years when we had a normal balanced market, we’re right on the average.

Will my prediction come true?
I predicted on Jan 30 that Single Family Home prices would fluctuate this year within +/- 5% of the January price. That would mean we could see a drop in median prices to as low as $389,500, and average price to $432,532.”
-Bob Truman, First Place Realty (source: What’s New Section)

“The average sale price of a single-family home in the city will flirt with the half-million-dollar mark this year, according to the Calgary Real Estate Board.

Total sales will dip by five per cent for both the condo and single-family markets, to 7,700 and 17,500 respectively, compared with 2007.”
-Ed Jensen, President of CREB (source: Calgary house prices to inch toward $500,000)

“We’re looking at about 5.5 per cent moderation in MLS sales and our price growth is in the same ballpark. We’re looking around the 3.5 to five per cent level, too,” said Louie. “There is a lot of supply out there. Going into the last part of the year we saw demand ease off. Some of that was because of the higher prices, but also there is a lower level of net migration that we’re seeing coming to Alberta.”
-Lai Sing Louie, senior CHMC Calgary market analyst (source: Calgary house prices to inch toward $500,000)

“And in the long-term, real estate here looks great, says Campbell, adding year-over-year average house price gains in Calgary should be in the 11 per cent range this year.”
-Don Campbell, President of REIN Canada (source: Is housing influenza infecting Calgary?)

Update:
“The CMHC’s Spring 2008 Calgary Housing Market Outlook, released Thursday, said the average residential price for a resale home in the Calgary census metropolitan area will hit $429,000 this year (3.6% increase), increasing from $414,066 in 2007.

Also, new listings in the resale market are expected to rise by 14.4 per cent this year to 62,000 from 54,202 in 2007. But they will drop by 9.7 per cent in 2009 to 56,000.”
-CMHC’s Spring 2008 Calgary Housing Market Outlook (source: Housing gains take breather)

Go to Source

This might be old elementary news, but over the last couple of years during the inflation of the Calgary real estate bubble many home buyers were “tricked” (yes, I dare say it) into affordability.

A conventional and financially rational mortgage would follow a 25 year amortization period. A down payment requirement of 25% would be a solid foundation. In addition, a single income stream would the norm.

Since February 2006, CHMC has introduced 30, 35 and 40 year mortgages to allow prospective buyers a chance into the real estate market. In conjunction to low interest rates, a well oiled real estate marketing machine, and a booming economy this created the present bubble dynamic.

Recently, the essence of 40 year mortgages has been questioned.

“Canadians are flocking to 40-year mortgages, often without a down payment, and the rapidly developing trend is beginning to ring alarm bells for policy makers in Ottawa.

Both the Finance Minister and the Governor of the Bank of Canada are expressing concern about the situation, as the U.S. economy continues to reel from a crisis triggered by mortgage holders who were in over their heads.”

The shocking statistic found in the article is that around 40% of new mortgages are of longer than conventional 25 year periods. Furthermore, 15%-20% of first time home buyers are opting for no down payments and 40 year mortgages. Since Calgary lead the sudden incline in prices, unconventional lending practices may be more pronounced in the market.

Instant applications to a life of serfdom and financial tight rope walking. Longer term mortgages cost thousands more just in paying interest and last much longer. They are only beneficial to your bank, mortgage broker and anyone in the real estate “money supply chain.”

“The bigger question is what happens as you go off two, three, four, five years from now, and it’s no longer just a significant share of the new applications, but it’s a significant share of the outstanding market,” said Derek Holt, an economist at Bank of Nova Scotia. “I think we’ll be in uncharted waters as to the sensitivity to shocks that most households will find themselves facing.” If there is a shock in jobs, interest rates or commodity prices, “unless you see the arrival of 60-year mortgages, then you’ve got a household sector that’s really backed itself up against the wall.”

If the current state of affordability is defined as minimal down payment on a mortgage longer than 25 years, the cold reality is much different. You can’t afford the house (wait for the price correction).

The most dangerous lifetime financial decision is “force feeding” affordability in a bubble real estate market.

Go to Source

The preceding graphic was the housing market in the US where prices eventually crashed. Early symptoms included a decrease in sales and high inventory levels.

Notice the very “shocking” similarities to the trend of the Calgary real estate market. In Calgary, home sales are plummeting 30%-40% YOY. Inventory has risen to all time record highs (~7000 city SFH, ~3200 city condos). By exhibiting the same symtoms, it seems that the Calgary real estate market will suffer the same illness.

According to this article, CREA is forecasting the resale market in the province will drop by 18.9 per cent to 57,900 units this year and experience a further five per cent drop in 2009 to 55,000 MLS sales. Interesting to note, the report says the average sale price in Alberta will rise by 4.7 per cent to $373,000 while it will only go up by 2.8 per cent in 2009 to $383,300.

So how exactly does retracting sales contribute to rising prices?

As a commodity, real estate is rather complex. But don’t be fooled, real estate is still bound by the same simple economic fundamentals of supply and demand. The price function isn’t perfectly elastic (but rather “sticky”), therefore price fluctuations will take more time to develop.

This type of reporting should be insulting to any economist. By CREA’s estimation, economists around the world should be going back to their post secondary institutions and demand for refunds on their educations. Adam Smith is rolling twice over in his grave. Insulting the intelligence of the common person will only cause CREA and its members to further lose credibility.

Contrary to real estate perma-positive pumping reports, increasing inventory and decreasing sales will reduce property prices.

It’s inevitable.

Go to Source

The much anticipated “spring rush” has been a complete disaster in Calgary’s real estate market. This is well documented in the MSM these days. It was during this period that sellers were hoping to unload their anvils of debt to unsuspecting greater fools. The hope and anticipation were met with retreating buyers. In analyzing historical trends, sales should dwindle further during the next coming summer months propagating further price declines.

In July 2007 we saw the peak for Calgary SFH market hit an average price of $505,920 and median price of $439,000 (achieved in June 2007). This was followed by months of declining prices. The year ended in December 2007 with an average price of $444,769 and a median price of $406,788. Summer buyers would already owe more on their mortgage loans than the value of their homes.

Suffice to say, we may start seeing month-over-month price declines as early as this month. This means the price declines will be longer and more painful for sellers this time around. With inventory at record levels and low sales, the price declines this year will be magnified.

By the end of this year, there is potential that a high percentage of home buyers during the last two years will in a negative equity position. Negative equity, an element in the real estate game that your friendly real estate “professional” did not address during the frenzied buying hysteria. But is has now become a reality for most home owners in Calgary. In combination with being “house poor,” many bubble buyers will be in a constant state of financial duress. This may mean not having enough money to send your real estate “professional” a Christmas card this year.

As negative equity builds, market exit strategies for sellers are minimized and financial losses will be greater.

Those who are overextended could possibly tip the rest of the market into a severe correction.

…

A new reality in Calgary. Overextended homeowners will use creative ways to find tenants to help cover mortgage costs on multiple homes.

Go to Source

The once white-hot Calgary real estate market boasted a vacancy rate of 0.5% back in 2006. According to this article, alot has changed in the past 2 years. Inventory has slowly built up to uncontrollable levels and property sales have dissipated. This has resulted in rising vacancy rates in Calgary to as high as 4%. Earlier this month, CHMC had forecasted the vacancy rate to be at 2%. It’s currently double the forecasted level. With so much inventory available, the “bitter” renter has more options to choose from.

The pendulum is clearly swinging the other way. With vacancy rates much higher than anticipated, many landlords will have to be competitive (ie. lower rents) in order to attract tenants. By lowering rates, their carrying costs are adversely increased with reduced rent revenue. A quick peak at rentfaster.ca/calgary.php will reveal a plethora of rental listings.

The augementing vacancy rate is simply just another symptom of the real estate market heading into a (severe) correction.

Stay tuned.

To read previous posts, please click http://crebb.wordpress.com. Thanks!

Go to Source

Quite a lot has happened in macro economic world since I wrote the ‘deflationary scenario’. While there are still quite a number of deflationary proponents holding there ground, the mainstream economists and pretty much all the central banks are getting perturbed over rising commodity prices. And for once, their words have some meaning as demonstrated by Bank of Canada holding interest rates steady, increasing the probability of rate increases in future. Just a couple of months ago such a scenario would have been unthinkable amidst all the talk of the global credit crunch.

Clearly, Central bankers in Canada, UK and the US are afraid of 1930s style deflation, but they are also not comfortable with the 1970s style stagflation. I guess they are stuck at a Morton’s fork point- raising rates will further worsen the housing market and create problems but keeping status quo will further raise prices making things much worse for them.

The implications will not be salubrious for the health of Alberta and Canadian real estate. Inventory is at highest levels ever seen, sales at levels close to the lowest levels for this time of the year. Meanwhile, new product is still coming to the market at a pace far faster than markets can absorb. Meanwhile, the nouveau landlords are learning some painful lessons on the ‘joys of becoming a landlord.’

One of the scenarios that was often discussed on this blog was a disruption in the oil sands development in Alberta (environmental issues, commodity bubble bust etc) leading to a significant deterioration in the Alberta real estate market. The inflationary scenario, if it bears fruition, will lead to a direct impact on the real estate market. It could make properties that are ‘barely breaking even’, bleed cash profusely. As interest rates go up, a lot of speculators and double property holders who are somehow holding on to their properties in anticipation of a rebound of prices to Spring 2007 levels will likely capitulate.

Rising interest rates could expedite the widespread decline that has been so far avoided.

How likely do you think is a rise in interest rates?

Go to Source

I’ve been silently watching the “blog drama” that has been going on for the last few days. I really have nothing to say on it, except that everyone should be polite and when not in agreement, respectfully disagreeable.

Also, there were some false ’spam flags’ on this blog causing it to be locked out. That’s why there were no new postings in the last few days. And google blogger takes its own sweet time to manually review the blog(over a week in this case). Perhaps a lot of people clicked on the ‘report objectionable’ button at the top of this blog! There are may be quite a few people who want this blog to be shut down.

Closer to the real topic, inventory is gradually inching upwards while the statistical measures (median, ’special case median’ etc) have moved slightly downwards. But bulls are still clinging to their original stories of “we’ve reached a permanently high plateau of prices.” Or perhaps, according to them the current prices are entirely in line with fundamentals. That is fundamentals of the ‘high energy prices’, ‘recession in Ontario’, ‘real estate always goes up’ variety.

I came across this very valuable study from OECD that compares Canadian real estate prices to the real fundamentals-yes, the stories without the price of oil or weather in them-the price to rent ratio and price to income ratios.

Here’s the link to the actual data

(http://www.oecd.org/dataoecd/6/5/2483894.xls)

It only goes back to 2006, but it should tell us a lot about the state of the market inasmuch as we do know how things were like in early part of 2007.

It doesn’t focus exclusively on Alberta, but on Canada as a whole.

Price to rent wise, Canada as a whole is only slightly better than the biggest bubble places of all-Spain. We are far worse than the UK or even the much maligned US.

Of course, as mentioned numerous times, the real estate game is that of patience. That is if you are not a get rich quick speculator spoilt by the markets of last few years. Reversion to mean is a common place occurrence in all markets, and it will happen one way or the other- either prices will drop or prices will stagnate for a long time to erode all the gains of last several years.

Go to Source

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.

Go to Source

No, no and No, as per this Calgary Herald article. Of course, MSM is losing its relevance with every passing day and such senseless rehashing of REIC perspective will only hasten their demise.

“I don’t see a lot of price decline on a year-over-year basis in Calgary. I think we’re still a pretty healthy economy and still a pretty healthy housing market,” says Legge.

By which metric, one has to wonder. Median prices. Down. Average Prices. Down. Median price for condos, down? Pick any metric and it is down YOY.
Can they actually find a property that has increased in value since last summer?
All I see is a glut of inventory and a lot of reductions in prices.

Someone has to tell them that it wasn’t the healthy economy that drove prices to stratosphere. It was the worldwide credit bubble abetted by the local tales of ‘we are different here’ that drove prices this high.

The other perma bulls are still throwing their wild predictions:
“And in the long-term, real estate here looks great, says Campbell, adding year-over-year average house price gains in Calgary should be in the 11 per cent range this year.”

Obviously, in the days of easy credit, liar loans and speculation driven mania all such predictions hold true. But when it costs 2 to 4 times the rent to buy, the average income can’t afford the average house, there’s a gluttony of inventory and houses are still being built like it’s 2005 and credit markets are tightening worldwide, it’s an act of desperation to make such statements.

Why do all real estate stories have the happy ending of perpetual 5 to 10 per cent annual increases? Are such increases a divine revelation? Why is there such a belief in this? Such patterns have been repeated at numerous other places in a lot of different eras. Especially, when they all believed that their city or locale was different.

On a different note, It’s been quite a while since I wrote the last post. I’ve been busy with numerous usual things, but I’ve been impacted by a few serious illnesses in my close circle of friends and family. That distracted me quite a bit from the real estate stuff and made me prioritize a few things. Yes, real estate is important, money is important, too much debt is bad, 40 year mortgages are bad; but poor health is worse than all these. Warm weather will hopefully come sometime this year, so when it does arrive, do take the time to go out and enjoy some outdoor activities that you like. Quality time with family and good health are two things that should be at the top of our priorities, certainly way higher than blogging, for both bulls and bears.

Go to Source

Spring is here, at least in the real estate context. But the spring hasn’t quite sprung sales wise. Inventory continues to pile up and the pace of new construction is still frantic.
The bulls claim that everything is perfectly fine except for a little ‘inventory problem.’ If only we could get rid of the excessive homes, things will be all fine.
This is not unlike the problems in the US. If only they could get rid of excessive inventory in Phoenix, Miami, California and pretty much most of the US, there will not be a housing crisis.
But the more fundamental questions are never raised, at least in the ‘bull’ or even realist camps. Why do we have such excessive levels of inventory? Did we over build based on speculator driven demand? Did we build assuming tremendous rises in rent? Did we over build based on an unending supply of greater fools? Did ‘investors’ buy properties without really having any understanding of the real estate market and valuations?
It shouldn’t require a lot of effort to figure out answers to these questions.
There was a massive run up in prices in Alberta real estate between Fall 2005 and Summer 2007. This had very little to do with the fundamental factors-‘Alberta Advantage’, oil prices, investments in projects, strong economy, job growth etc. It had almost everything to do with two things- tremendous speculation and easy credit.
The spring is here but the rebound has not arrived. So one of the bulls’ wishes has not been granted by the real estate gods. The next strong wish for the bulls is that the inevitable-a significant drop in prices- will be deferred permanently.
Right now, the mood is still very positive in Alberta. It’s keeping expectations and hopes high for most sellers. I know at least half a dozen ‘landlords of greed’ (including our current landlord), who have chosen not to list their properties this year and decided to rent out their properties, even at the cost of several hundred dollars a month out of their pockets. The reason- expectation of prices recovering to spring 2007 levels. Given a choice between selling their properties for big profits-an easy $100k over original purchase prices-or waiting for this ‘price recovery’ and renting out in the mean time, they are choosing the option of subsidizing the renters in the expectations that the prices will rebound to the all time highs again.
What they don’t realize is the possibility that in real terms prices may never rise to those levels again. Nominally yes, but in real terms, those prices may have been the all time high. Not unlike the loonie touching 1.10 to the US dollar. Not saying it can’t happen again, but anyone who had the opportunity to sell Canadian dollar at that point and did not will have to wait for a long time before the opportunity arises again. Perhaps 97 or 98 cents won’t look too bad for the loonie if we take a long term perspective. The Spring 2007 Alberta real estate prices horse has left the barn and is not coming back.
The match is now on between the fantastic hopes of the sellers and the patience of buyers. Assuming no external shock, slowly and steadily the weight of inventory will bring down the prices. If there’s an external shock (lending issues with banks, severe recession, environmental issues with oil sands, commodity price collapse), things will get ugly.
In the meantime, all the bitter renters out there should take advantage of the ‘landlords of greed’ and let them subsidize your rent for at least a year. Patience is an under rated virtue and will be rewarded.

We are almost settled in our new place and postings should become a little more frequent.

Go to Source