100

So, we've hit the century mark! A big day in a blogs life, much like drinking your first beer, or discovering masturbation... not that I have any particular memories of either of those events, nor will I of this, but it's a milestone none the less.

Whodathunk someone with no particular ability to write, even less influence, and nothing especially interesting to say would fill so many pages?! Well, actually that pretty much describes most bloggers, so maybe I'm not so bad. After a little drifting early on, I like to think I fell into a groove and have carved out a nice little niche for myself in the blogosphere.

It's been about ten months, and a quite eventful ten months... yet it seems nothing has really been solved and the future is just as uncertain now as it was then. My perhaps naive and optimistic hope that we'd just accept that economic pain was coming and try to get it over with quickly proved politically undesirable.

Why flush out all the toxins in one fell swoop and get on with rebuilding, when you can dump money on the problems, make the short-term less worse all the while making the longer-term much more-so?! Really that could be said for our financial mess and the housing situation.

As per housing here, prices and sales plummeted, then prices rallied and sales soared. If you ever doubted the influence of interest rates on the housing market, you'll probably never see another period as good as the last six months to witness the effects of interest rates in a vacuum.

People went out en masse and were suddenly buying houses as a record clip, while incomes certainly weren't improving and prices were in the same range as just a few months earlier when sales were at record lows... all during the biggest recession since The Great Depression. Amazing what interest rates dropping can do, huh?!

Of course that shot my predictions for the year all to hell, but I knew that as soon as rates started getting slashed. I guess I should have took heed of that old economists mantra, "if you give a number, don't give a date... if you give a date, don't give a number". Oh well, doesn't seem economists heed it either.

In any case, my long term stance that we're overpriced remains, and that prices will eventually return to affordability. The trip is just going to be longer, and thanks to another wave of over-leveraged first time buyers that got swept up this summer, more painful.

I guess if there was one group of real winners of the resurgence in my opinion, they were the builders holding excess stock, this gave them one more chance to clear it out. There was a real big glut there and this would have helped flush at least part of it out. Though there still does appear to be apply attached inventory still out there, large portions of entire developments continue to show up occasionally on the multiple listings service.

Not sure anyone else is going benefit much from it in the long run. The problem that got us into the mess was too much debt, and we seemingly doubled down on it in an attempt to re-inflate the bubble. It worked short-term sure, but long term it's just made all the problems that much worse.

Whatever good effect that was experienced on the inventory front, will more than be erased by the resulting increase in defaults that will come. Lending standards have already been stripped, so many of these first timers were those that couldn't even qualify for financing before, thus required the low bar AND incredibly low rates to get in. Now we have a whole new wave of foreclosures waiting to happen, what was likely going to be at least a moderate problem before will very likely become a big problem in the coming years.

Of course interest rates aren't local, and neither was the '09 real estate boom, it was nationwide. In a lot of markets things just went wild... in Toronto for example the average price rose over 23% from January to October ($343,632 to $423,559). Many cities hitting all time highs as irrational exuberance reigned supreme. Misery loves company, now we have even more!

We here in Edmonton are actually sitting about the same as we were in January pricewise, perhaps lucky we had such a large glut of inventory saved us from returning to the multiple-offer/bidding wars that were all so common place during the run-up.

While little solace for those who bought recently when prices inevitably start to fall again, but it could have been worse. Fortunately our major boom had already played out, who knows the heights the may have been reached if we were still in the run-up, rather than two years removed.

The rocketing of real estate prices across the country became so pronounced, as the fall arrived the dreaded "bubble" words started to be bandied about in the major publications. Even some big players in political circles have acknowledged it, and no surprise the onset of finger pointing soon kicked off with Bank of Canada Governor Mark Carney calling out lenders.

As this thing unravels there will be more, lots more. As to who's to blame, we'll leave that for another day as I'm already running long. So buckle up guys and gals, it's gonna be a bumpy ride... and I have a feeling we'll be celebrating many more century marks along the way.

Signing off,
Kevin
DOCTOR OF BLOGONOMICS®^TM©

Ouch.... very ouch

Statcan released the October employment numbers Friday, and they they were fugly. Employment was down right across the country, and Alberta was one of the biggest losers. So, lets dive right in and start with the ever so high profile unemployment rate.

Unemployment in Alberta went up to 7.5% in October, up from 7.1% in September. That month-over-month rise wasn't as high as the other prairie provinces, but that is at least partially the result the labour force shrinking by 6,400, as the eligible population evidently continued to grow.

Bear in mind all these numbers have been massaged and modelled to within an inch of uselessness, but they're the best we have. In any case, we can see from the graph we're at a level not seen since the mid-90's, and sharing a trajectory eerily similar to the big recession in the 80's.

I'm not a big fan of the unemployment rate, as it can be skewed, like by the seemingly arbitrary drop in labour force last month. It also counts part- and full-time jobs equally, which I don't think is necessarily reflective as losing the latter for the sake of the former would typically not be deemed favourable.

Thus I derived my own little measure, dividing the number of those employed full-time, by the total eligible population (basically those 15 years of age and older). By this measure we're sitting at 56%, a drop of about 5% in the last year, and the lowest the rate has been since 2000. Again, this measure also shares a trajectory very similar to that of the 80's recession.

Now we'll look at the year-over-year change in full-time jobs. In the last 12 months the province has lost just shy of 90,000 full-time positions. This is the deepest drop ever, but remember that the population is significantly larger today then in '83, so proportionally we're not as bad off, yet anyway.

We can also see how good we had it from 2006-to-2008, when full-time jobs were coming on board at a record clip, topping out at about 140,000 at one point. Should have done an average/median for this one, but we'll save something for next month. It's also been requested to compare employment levels to real estate prices, so we may do that then too, or maybe even earlier if the spirit moves me.

Enjoy your weekend guys and gals!

A hill to die on?

Had another post planned for today, but in light of this emerging story that will no doubt be on the forefront for the next while, I figured lets run with this. So, the shit has kind of hit the fan this past week in MLS land, as the Competition Bureau concluded that the CREA has rules deemed anti-competitive.

While the specific details of the Competition Bureau's findings have not been officially released, there was news of a leaked CREA letter more or less detailing said findings. I've obtained a copy of the original, and you can view it in all it's glory via this link if you're so inclined.

Nothing particularly earth shattering about it, just kind of outlines the Competition Bureau's findings, which the CREA states they disagree with (duh!), the some possible ramifications of the requested changes.

Seems the CREA is leaning towards pursuing a settlement agreement, rather then face a Competition Tribunal... which basically translates to their not liking their odds if they had their day in court, and would rather try to plead it down rather then risk really having their asses handed to them at the tribunal.

But that is just the higher-up's position, the actual decision will be made in December when they're holding something of an emergency meeting where the members will decide on their ultimate strategy... I would think if they thought they had a hope in hell they'd probably fight this one to the death. If their is any hill this cabal would be willing to die on, these issues would be it as this would really draw the curtain back. So, it will be interesting to see what comes out of the meeting next month.

These are the items the Competition Bureau wants changed/removed from CREA policy:

Section 17.1.1.1: Agency
A listing REALTOR® must act as agent for the seller to sell the property and to assist the seller through the entire time of the listing contract.

Section 17.2.1: The listing REALTOR® shall receive and present all offers and counter offers to the seller.

Section 17.2.3: The mere posting of property information in an MLS® system is contrary to CREA’s Rules. A “mere posting” occurs when the listing agreement relieves the listing member of any obligations under the Rules, including the obligation that the listing REALTOR® must remain the agent of the seller throughout the term of the listing contract.

Section 17.2.6: Only the listing REALTOR® name(s) and contact information may appear on REALTOR.ca. The seller’s name or contact information shall not appear on REALTOR.ca or in the public remarks section of the MLS® system.

Basically it boils down to wrestling much of the control over dealings with the seller, and allowing the seller more options when it comes to what services they want (sort of like going from a table d'hôte system, to an à la carte one).

While none of that seems like particularly egregious requests, agents are resistant because this would effectively shine a light on a region of their dealings that they benefit greatly from a tacit agreement from their ranks to toe the party line and keeping the public in the dark.

Even with the recent emergence of reduced commission brokers, while they may get on MLS, they are still often shunned by regular agents, or potential buyers are scared off those properties by the prospect of paying their agents commission directly out-of-pocket (though, it's effectively coming out of there anyway). The entire process is kind of ambiguous to the general public, whose real estate transactions are few and far between... which is advantageous to agents, as knowledge is power, and the less the public has the better it is for you.

In my opinion, I think the Competition Bureau's requests would actually be beneficial for both the public and agents. As it stands now when taking on clients, agents bear all the risk. The listing agent goes out of pocket for all the listing and marketing, and only gets paid if the property sells. Same goes for the buyers agents, they do all the leg work, and again only gets paid if there is a sale.

If there is no transactions, the agents end up eating all those costs, fiscal and their time/effort. The commissions currently being earned are excessive (IMO), but they are in no way guaranteed... commission sales can be highly compensated, but remains a tough and risky gig.

So, assuming the Competition Bureau gets its way, I think we'll see some very distinct changes to the operations of these outlets. We'll probably see a lot of specialization, some outfits will just get you listed and a lockbox and charge a flat fee (sort of like ComFree does now)... others will offering marketing services, again for a fee upfront. Which for the sellers will transfer all risk and reward onto them.

On the buyers side, we may see commissions stay, or a move toward charging an hourly rate, and/or some hybrid(s) of the two... but I think the payments will eventually be coming directly from the buyers, rather then the current situation. Probably also see even more focus on certain areas/segments of the market.

Ultimately I think these changes will be good, for the consumer and the industry. Services should improve, transparency definitely will, and highly competent agents would probably make just as much and have the added bonus of dealing with others of their ilk, as hopefully the increased competition would weed the bad ones out.

What effect will all this have on prices? Probably not much. Sellers may be a bit more willing to negotiate from their asking price, but in general they'll still be looking to get every penny they can. Just look at ComFree, those listings don't tend to be any cheaper then those on MLS. The benefits would be felt in the processes, not in the prices.

October numbers are in....

The October resale numbers were released today, and it was a much different story then we've been hearing about the last few months, and even what happened in Calgary last month. While sales were down noticeably from September (as is normally expected given real estates seasonality), they were still very strong for October... yet prices were down in a big way.

In all categories prices fell, and rather significantly for month-over-month movements. Condo's, single-family-homes and the residential averages were all down about $8,000 from September (3.2%, 2.2% and 2.5% respectively), and the single-family-home median was down $3,900 (1.1%).

An unusual softening given relatively strong sales, but as I've hypothesized in the last few months, this could be further evidence of the return of high levels of speculation. As they typically buy at the low end of the market, that would explain the strong sales and movement of price... or could just be wishful thinking.

Curious that Edmonton and Calgary tend to mirror each other, yet Edmonton had a significant drop while Calgary had increases. Could just be an aberration, or we could see one eventually follow the other.

As previously mentioned, sales were down month-over-month (-9.9%), but strong for this time of year (1,535). Inventory also continued it's typical autumn decline, and now sit at 5,530. Finally absorption rate stayed about the same at 3.6, as sales and inventory fell off at similar clips.

As always, here are the hard goods (note, this will be the last month townhomes are included. They make up such a tiny portion of the market and are so frequently lumped in with condos there isn't much point including them, but if so included you can still look them up in the EREB releases):

Sales = 1,530
Since two years ago = +20.3% (+259)
Since one year ago = +22.7% (+284)
Since last month = -9.9% (-169)

Active Listings = 5,530
Since two years ago = -42.3% (-4,047)
Since one year ago = -35.1% (-2,995)
Since last month = -8.3% (-502)

Single Family Homes Median= $346,000
Since peak (May '07) = -13.5% (-$54,000)
Since one year ago = +0.9% (+$3,250)
Since six months ago = +2.7% (+$9,000)
Since last month = -1.1% (-$3,900)

Residential Average = $318,969
Since peak (July '07) = -10.1% (-$35,749)
Since one year ago = +0.4% (+$1,185)
Since six months ago = +2.2% (+$6,842)
Since last month = -2.5% (-$8,266)

Single Family Homes Average = $363,694
Since peak (May '07) = -14.6% (-$62,334)
Since one year ago = +0.1% (+$420)
Since six months ago = +2.9% (+$10,308)
Since last month = -2.2% (-$8,253)

Condo Average = $237,601
Since peak (July '07) = -12.6% (-$34,307)
Since one year ago = +0.0% (+$11)
Since six months ago = +0.7% (+$1,581)
Since last month = -3.2% (-$7,945)

Townhome Average = $299,843
Since peak (Oct '07) = -18.5% (-$68,121)
Since one year ago = -2.4% (-$7,335)
Since six months ago = +3.0% (+$8,775)
Since last month = -0.0% (-$121)

Bank of Canada Rate

Greeting all, hope you all survived Halloween and are saving up for the next trip to the dentist. During our discussion about exchange rates last week, it was requested I take a look at the Bank of Canada Rate and it's influences, so today we're going to do just that.

Here is a look at the historical Bank of Canada rate, going right back to 1935. Seems to chart a pattern much like the mortgage rates we're familiar with, but that's no surprise and we'll touch on that again toward the end.

Of note, we can see that currently it sits at it's lowest point in history. The prior low had been 1.22%, hit for one month, July of 1958. Before that it had an extended run at 1.50% in the mid-to-late 40's, toward the end of WWII and immediately following. The high was August of 1981, when it hit 21.03%, which was the only time it eclipsed 20%.

Now we'll take a quick look at how the bank rate effected the exchange rate (with the US). There doesn't appear to be much rhyme or reason to the movements, though after the big recession in the early 80's through the turn of the century there does appear like there could be some relationship, but not so much since.

To get a better picture I think we need to include the American equivalent, the Fed Funds Rate, as just looking at the Canadian rate in a vacuum against another currency could be misleading.

So, here is how those two chart out. As I've said here before, we tend to move lockstep with the US, so no big surprise that we share very similar patterns. Over the above period, the Bank of Canada rate averaged to be 0.93% higher, for what that's worth.

Now we'll take a look at how the spread between the Bank of Canada Rate and Fed Funds Rate relate to movements in exchange rate... and I really can't say I see much of anything on that front. This shouldn't really be a surprise, as our policy tends to follow theirs very closely and can adjust very quickly in that regard.

So, for the most part it appears that exchange rate movements are more dependant on stimuli other then central bank rates. That's not to say they couldn't be, but because we're tied to the hip to the US, and our economy dependant on exporting to them, maintaining consistent policy (and thus exchange rate) is often viewed as desirable.

Finally, we'll tie this back in to housing by comparing the Bank of Canada Rate to the average five-year-fixed mortgage rate and prime lending rate (what variable mortgages are tied to).

They seem to be fairly consistent in their behaviours, tracking together with the bank rate the lowest, the prime rate shifted above that, and the five-year-fixed rate another shift above that, with the odd deviation here or there. Noticably, in the mid-50's there appeared to be a larger spread then since, and there was a lot of turmoil during the runaway inflation of the 70's and resulting recession in the 80's, but the pattern largely persists.

Since 1951, the prime rate has averaged to be 1.42% higher than the bank rate... and the five-year-fixed rate 1.34% higher than prime (or 2.76% higher than the bank rate). It's remained in that ballpark over the last 20 year, and 10 year periods as well in case you were curious.

So, hopefully that answered any questions you may have had about the Bank of Canada rate! On tap for later this week will be the October resale stats release, and a long-term look at fixed vs. variable mortgages, and which performed better. Enjoy what's left of your weekend!