Bullish Hopes Sputtering
June 5, 2008 – 11:43 pmCALGARY REAL ESTATE BUBBLE BLOG
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.
