News

Bullish Hopes Sputtering

June 5, 2008 – 11:43 pm
CALGARY 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 ...

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Bold Predictions

June 5, 2008 – 11:43 pm
CALGARY REAL ESTATE BUBBLE BLOG 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 30It 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, ...

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False Sense Of Affordability

June 5, 2008 – 11:43 pm
CALGARY REAL ESTATE BUBBLE BLOG 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 ...

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Offending Economists Around The World

June 5, 2008 – 11:43 pm
CALGARY REAL ESTATE BUBBLE BLOG 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 ...

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More Negative Equity On The Horizon

June 5, 2008 – 11:43 pm
CALGARY REAL ESTATE BUBBLE BLOG 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 ...

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City Vacancy Rates Jump to 4%

June 5, 2008 – 11:43 pm
CALGARY REAL ESTATE BUBBLE BLOG 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 ...

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Back to Fundamentals

June 5, 2008 – 11:43 pm
Alberta Bubble 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 ...

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

June 5, 2008 – 11:43 pm
Alberta Bubble 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 ...

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Is housing influenza infecting Calgary?

June 5, 2008 – 11:43 pm
Alberta Bubble 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 ...

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Fantastic Hopes

June 5, 2008 – 11:43 pm
Alberta Bubble 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 ...

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Weekend Open Thread

June 5, 2008 – 11:43 pm
Alberta Bubble It isn't Friday yet but we are crazy busy getting ready for our move. I've been meaning to do some posts but didn't have the time. Here's a compressed version of some items of interest that would normally require a full individual post of their own. - Very early in January, we questioned "Where are the buyers? And the answer given was- they are all sitting in front of their fire places and hiding from the cold weather. That weather is largely gone but the buyers haven't come yet. The question therefore merits repetition. Where are the buyers? It's end of March and so far sales are off by more than 40 percent YOY and barely equal to the Feb 2008 levels. Is this the turn around everyone was counting on? Is rest of the buying season going to be different? - The more things change, the more they ...

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Inflation or Deflation

June 5, 2008 – 11:43 pm
Alberta Bubble The steep fall in commodity prices in last few days, especially for gold and oil was not entirely expected. At least by the inflationists. Is it possible that this is the beginning of the unwinding of the ‘great commodity bubble?’ The simple scenario could play out this way- If we get deflation instead of inflation, commodities are going to fall. It may take a while for them to unwind, but they will fall. How fast and how hard is difficult to say. On the other hand, commodities will be a good play if inflation or inflation expectations remain high. This has been the primary reason for recent run up in gold, oil and other commodities. Should the US enter a severe recession, the demand for oil is likely to fall quite a bit (the 3.2 per cent YOY fall is an example). The BRIC economies ...

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Bitter Renters etc

June 5, 2008 – 11:43 pm
Alberta Bubble I was traveling all over North America during the last couple of weeks. Too much stuff going on and too many observations. I will try to post some of these in the coming weeks. But for now, the new ‘blog on the block’ caught my attention. The vehement bitterness along with their gratuitous mentioning of our headquarters. We took offense to the rather dilapidated structure they showed as our headquarters and decided to do something about it.For now, we have done one thing- we are saying good bye to our current apartment and moving on to a much bigger place.The ‘bitter renter’ part in me was getting such a sweet deal that we had to take it. We just got a brand new house (2000 square feet) in South Edmonton for a princely $1500 per month. Very similar houses are on sale in the price range of $400 ...

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Intuit moving its head office

June 5, 2008 – 11:43 pm
Alberta Bubble First it was Dell, then TD and now it is Intuit. The crown jewel of software development in Edmonton- Intuit Canada-is shifting its head office to Toronto. No prizes for guessing the reason-it’s too hard to find talent here and too hard to sell Edmonton to potential employees from east and rest of the world."It used to be one of our big sellers that people could come out and start a family here, but the cost of living is working against us now." A recruiter friend of mine says that it used to be an easy sell to bring someone from Halifax or Toronto- same or better wages and lower cost of living. Now one part of the story has changed drastically-same or somewhat better wages but much higher cost of living. Of course, higher cost of living is predominately higher cost for ...

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Wow! Prices are rising and it’s time to buy again…

June 5, 2008 – 11:43 pm
Alberta Bubble ...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 ...

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Where do we go from here?

June 5, 2008 – 11:43 pm
Alberta Bubble Last year housing prices kept on marching upwards despite rising inventory. The trend continued until the middle of summer when prices stopped climbing- the basic supply and demand variables starting to take their toll. Are we seeing a repetition of this pattern? Perhaps we are. Despite sharply higher inventory, the commonly tracked average/median prices have been inching upwards. But it’s not unexpected and most certainly not unseen in other bubble markets, especially south of the border. Prices continued climbing upwards even as inventory continued to balloon in places like Phoenix, San Diego and of course Florida. The commonly given reason for this phenomenon is the smaller number of transactions occurring at the lower end of the market, thus pushing both median and average numbers higher. It certainly sound plausible. We are close to the end of February and sales are off by around 40 per cent ...

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Weekend Open Thread

June 5, 2008 – 11:43 pm
Alberta Bubble Please post links, comments and other relevant thoughts. Some contributions from my side:The blog is almost one year old now. Thanks for your support and valuable comments. Hopefully we have saved at least a few people from seeking advice from the new 'Aunt Abby' about 'approaches to deal with falling prices if you bought last year'. I suspect that in the not so distant future, the readership of such columns will be expanded to include buyers from year 2006.'Shoe box' starter homes in Edmonton suburbs are now selling for less than $300k. Of course, it would have been preposterous to even suggest such a price last year. My take is that these homes are overpriced by at least 50 per cent. So over time, either the rents will have to rise quite a bit, prices have to fall or inflation has to do the work. We can probably ...

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Guest Post- Why I am bullish on Alberta real estate!

June 5, 2008 – 11:43 pm
Alberta Bubble As mentioned in my last post, any bull or bear who is interested in making a guest post to this blog is more than welcome. Of course, your identity will be kept anonymous if you wish to do so. This post was contributed by a poster who particpates on this blog as 'linnaeus'. Contributions are welcome at albertabubble@gmail.comLet me start off by saying there is no attempt at spin here. I am not a real estate agent. I grew up on the edges of the business since one of the things my father did to support us was house appraisals and he started teaching me how to do it while I was still in elementary school. Eventually I did appraisals on my own. We currently rent in a gorgeous neighborhood where we can walk or take the bus everywhere. We pay less than fair value ...

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January Numbers and other thoughts

June 5, 2008 – 11:43 pm
Alberta Bubble We are experiencing the best of the times in this province. Looking around, there are signs of prosperity. Everybody is happily employed or has the best shot they ever had at getting some jobs. Some people have high paying jobs. Lending is still pretty lax and people are still getting their HELOCs based on elevated values of their ‘residential portfolios.’ Yet, the houses are not selling at the pace witnessed in 2005, 2006 or 2007. The sales to listings ratio is close to the lowest levels in many years in both Calgary and Edmonton. Perhaps, we are slightly past the best of the times in this province. While the media and the usual suspects are trying desperately to make a trend of an almost statistical aberration in the change in median prices (average isn't the favorite of creb itself), the reality is that if you ...

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On Realtors

June 5, 2008 – 11:43 pm
Alberta Bubble Realtors are commissioned sales people who make their living by selling their services and ‘advice’ to home buyers and sellers. The higher the price of the goods they sell and the higher the volume, the higher their commission. Is there anything complicated in this that people do not understand? If the market volume falls and/or market prices fall who loses the most? You guessed it right. It is Realtors and pretty much everyone else in the real estate value chain. So why do people have any expectation that Realtors or the associations that represent them will put anything but a positive spin on everything. The case of David Lerah and the US real estate associations is all too well known. Do people really believe that CREB, EREB or any of the Realtors talk about on this blog really wish for lower prices or lower sales volumes? No.They really want ...

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