As you may have came across in the news, or on the blogs, Demographia released their 5th Annual International Housing Affordability Survey this week. They compare 265 cities from Canada, USA, U.K., and Oceania, and rank them according to their measure of affordability.
Their calculation for that is actually quite simple and straight forward, take the median house price and divide it by the median income for that city. It's something like the "three times rule" for house buying, where the rule of thumb is you should try not to spend more then three times your annual income on your residence.
Much in line with that they consider anything below 3.0 to be "affordable", 3.1-4.0 as "moderately unaffordable", 4.1-5.0 as "seriously unaffordable", and 5.1+ as "severely unaffordable."
As you have likely deduced already, Edmonton came in that second last range as of September of 2008... 4.2 to be exact. (Not sure exactly which/whose figures they are using, but for what it's worth according to the last census (2007) the median household income was $79,300).
Our recent boom is also well represented by the data. Three years ago though Edmonton was nicely in the "affordable" category, with a 2.8. Come 2006 and the onset of the price explosion we quickly vaulted up to 3.5... then further up in 2007, when they came in at 4.3 and left the city in the "seriously unaffordable" grouping. So we're actually down a modicum for 2008, reflecting the price erosion we've been seeing.
So while median income did grow substantially during the boom, they did not keep pace with the growth in real estate prices. Calgary has also seem a similar escalation as Edmonton, in 2004 they came in at 3.0, 2005 at 3.2, 2006 at 4.4, 2007 at 4.8, 2008 again at 4.8. For those interested, here are how the other Canadian markets stack up, from most-to-least affordable.
Affordable
Cape Breton - 2.1
Thunder Bay - 2.2
Chatham - 2.4
Windsor - 2.4
Moncton - 2.5
Saguenay - 2.6
Saint John - 2.7
Trois Rivieres - 2.7
St. Johns - 2.8
Winnipeg - 3.0
Moderately Unaffordable
London - 3.2
Brantford - 3.3
Sudbury - 3.3
Barrie - 3.4
Guelph - 3.4
Ottawa - 3.4
Quebec - 3.4
Kingston - 3.5
Kitchener - 3.5
Regina - 3.5
Halifax - 3.6
Peterborough - 3.6
St. Catherines/Niagara - 3.6
Sherbrooke - 3.8
Hamilton - 4.0
Seriously Unaffordable
Edmonton - 4.2
Montreal - 4.6
Saskatoon - 4.6
Calgary - 4.8
Toronto - 4.8
Severely Unaffordable
Abbotsford - 6.5
Kelowna - 6.8
Victoria - 7.4
Vancouver - 8.4
Vancouver actually comes in as the 4th least affordable city in the survey, behind only Gold Coast, Aus (8.7), Honolulu, USA (9.1), and Sunshine Coast, Aus (9.6)... which also leaves Vancouver as the least affordable major city surveyed, as none of those other three have populations of even a million.
Friday, January 30, 2009
Wednesday, January 28, 2009
Odds and Ends
I was thinking about doing a report on the new construction situation, but figured I might as well wait a week until the December numbers are reported. So instead I'll just cover a few other items that are floating around.
- The Teranet-National Bank House Price Index which I looked at last week has updated their data with the November numbers. Here is a look at an updated chart.
The drop seems to be becoming more apparent. Here is a quick look at how the cities measured up compared to a month earlier and a year earlier.
Calgary = -0.9% since Oct, -7.7% since Nov '07
Halifax = +1.3% since Oct, +5.8% since Nov '07
Montreal = -0.3% since Oct, +5.1% since Nov '07
Ottawa = -1.3% since Oct, +4.2% since Nov '07
Toronto = -1.6% since Oct, +0.7% since Nov '07
Vancouver = -1.3% since Oct, +1.0% since Nov '07
Composite = -1.1% since Oct, +0.6% since Nov '07
- A couple weeks ago I did a post on foreclosures. Just as a quick update on that tally, there are now fifteen more homes listed as foreclosures, 39 houses and 25 condos for a grand total of 64.
Speaking of foreclosures, Mike Fotiou wrote has started to write a series of articles about the ins and outs of buying foreclosed properties. Definitely worth a read.
- And as I'm sure you've heard, the Federal budget was handed down yesterday, you can take a look at it for yourself via this link
- The Teranet-National Bank House Price Index which I looked at last week has updated their data with the November numbers. Here is a look at an updated chart.
The drop seems to be becoming more apparent. Here is a quick look at how the cities measured up compared to a month earlier and a year earlier.Calgary = -0.9% since Oct, -7.7% since Nov '07
Halifax = +1.3% since Oct, +5.8% since Nov '07
Montreal = -0.3% since Oct, +5.1% since Nov '07
Ottawa = -1.3% since Oct, +4.2% since Nov '07
Toronto = -1.6% since Oct, +0.7% since Nov '07
Vancouver = -1.3% since Oct, +1.0% since Nov '07
Composite = -1.1% since Oct, +0.6% since Nov '07
- A couple weeks ago I did a post on foreclosures. Just as a quick update on that tally, there are now fifteen more homes listed as foreclosures, 39 houses and 25 condos for a grand total of 64.
Speaking of foreclosures, Mike Fotiou wrote has started to write a series of articles about the ins and outs of buying foreclosed properties. Definitely worth a read.
- And as I'm sure you've heard, the Federal budget was handed down yesterday, you can take a look at it for yourself via this link
Monday, January 26, 2009
The Rental Market
I thought I'd take a quick look at another part of the housing market that I haven't really discussed as of yet, and examine what's happened to the rental market in Edmonton in the last few years.
Much like the rest of real estate in the city, the rental market saw rather explosive increases in unit costs. A run of the mill two-bedroom apartment that went for $600 a month in 2000, has shot up to over $1000 a month today. Most of that increase came in '06 and '07, when much like the resale market we experienced very high demand and low supply, resulting in a negligible vacancy rate... thus providing all the fuel needed to greatly increase prices.
As the above chart shows, through 2005 the average rent (including apartments and row houses) was quite stable while the vacancy rates were above 3%... but come 2006 when the economy really started to heat up suddenly the vacancy rate plummeted down to about 1% and that triggered a big increase in rents.
Even as vacancy rates started to creep back up, the average rent continued to increase in 2008. This probably due to long term tenants getting more gradual annual hikes, to get them in line with when new tenants were paying. The major hikes really started hitting in summer '06 but it took a couple years for those to make their way to pre-existing tenants in full.
Also during this period we saw a number of building operators attempting to cash in on the hot real estate market and do condo conversions.
At the peak in 2003, there were 75,597 rental units available in the metro Edmonton area, and since then we have lost 7,690, over 10%. Most of these were just in the last two years, 6,639 to be exact. With a growing population, many of which were people coming here and working at lower end jobs, this obviously caused a big pinch.
Not to bore you with numbers, but just to give you an couple examples, the average monthly rent for all units has went from $678 in 2001, to $956 in 2008, up 59%. And since 1 & 2 bedroom apartments make up 3/4 of available units, I should mention those specifically. One bedrooms have went from $489 to $847 (up 73%) and two bedrooms from $601 to $1034 (up 72%)
So while the increases in the rental market were not quite of the magnitude of those experienced by the resale market, they were quite significant in their own right.
What the future holds for the rental market should also be pretty interesting. Vacancy rates appear to be on the way up, and we're already hearing of complexes lowering rates, as well as offering all kinds of incentives... stuff we haven't seen for some time. Add to that the influx of accidental landlords that have resulted from all the speculation in resale and presale markets, and we have a buyers market for renters as well.
Much like the rest of real estate in the city, the rental market saw rather explosive increases in unit costs. A run of the mill two-bedroom apartment that went for $600 a month in 2000, has shot up to over $1000 a month today. Most of that increase came in '06 and '07, when much like the resale market we experienced very high demand and low supply, resulting in a negligible vacancy rate... thus providing all the fuel needed to greatly increase prices.
As the above chart shows, through 2005 the average rent (including apartments and row houses) was quite stable while the vacancy rates were above 3%... but come 2006 when the economy really started to heat up suddenly the vacancy rate plummeted down to about 1% and that triggered a big increase in rents.Even as vacancy rates started to creep back up, the average rent continued to increase in 2008. This probably due to long term tenants getting more gradual annual hikes, to get them in line with when new tenants were paying. The major hikes really started hitting in summer '06 but it took a couple years for those to make their way to pre-existing tenants in full.
Also during this period we saw a number of building operators attempting to cash in on the hot real estate market and do condo conversions.
At the peak in 2003, there were 75,597 rental units available in the metro Edmonton area, and since then we have lost 7,690, over 10%. Most of these were just in the last two years, 6,639 to be exact. With a growing population, many of which were people coming here and working at lower end jobs, this obviously caused a big pinch.Not to bore you with numbers, but just to give you an couple examples, the average monthly rent for all units has went from $678 in 2001, to $956 in 2008, up 59%. And since 1 & 2 bedroom apartments make up 3/4 of available units, I should mention those specifically. One bedrooms have went from $489 to $847 (up 73%) and two bedrooms from $601 to $1034 (up 72%)
So while the increases in the rental market were not quite of the magnitude of those experienced by the resale market, they were quite significant in their own right.
What the future holds for the rental market should also be pretty interesting. Vacancy rates appear to be on the way up, and we're already hearing of complexes lowering rates, as well as offering all kinds of incentives... stuff we haven't seen for some time. Add to that the influx of accidental landlords that have resulted from all the speculation in resale and presale markets, and we have a buyers market for renters as well.
Thursday, January 22, 2009
We're different, it won't happen here...
Today we're going to take another quick look at price indexes, this time comparing what happened in the U.S. with what's happening in Canada. In an effort to compare apples to apples as best as possible, we're going to use two indexes with fairly similar methodologies, Case-Shiller from the United States, and Teranet's HPI here in the Great White North.
We took a look at the Canadian one Tuesday, and for the purposes of comparison with Case-Shiller, we'll be using the Canadian data with a shifted index point so that both have the same scale. For those who haven't seen the Case-Shiller index charted out, here's a look at it.
Yeah, that's a whole mess of lines... so for those interested here is a labelled version with each cities respective peaks. Might clear some things up slightly, but yeah, that's still a mess, but it's bound to be when you're charting out twenty cities and two composites. In any case, just sitting back and looking at the chart as a whole you can definitely see a general "bubble."
Now for the sake of simplicity, I'm just going to take four of those cities, one for the top, one from the bottom and a couple from the middle... and chart them against the HPI's for Vancouver, Calgary, and Toronto, whom seem to be the most talked about real estate markets in the country at the moment.
As you probably deduced, that U.S. markets have the dashed lines, and the Canadian markets are solid lines. Before you conclude our markets maybe were not as "bubbly" as those in the U.S., just bear in mind only L.A. and Miami were at that upper peak... and that the Canadian index doesn't include our "bubbliest" major centre right here in Edmonton. So if I just go ahead and add Edmonton's average price index to the chart we see this...
Keeping in mind the prior entries observation that the HPI was usually slightly lower then the average price index, but generally were pretty close... one can reasonable conclude that Edmonton quite likely would have an HPI of pretty damn close to that of Miami, if not even surpassing it. Unfortunately I don't have data for Saskatoon, as I believe theirs would have blown past even that of Edmonton's with their recent housing boom.
In any case, it's not too much of a stretch to reason that the bubble experienced here was just as substantial as that in the United States... we just seemed to have the boom start about 18 months later... and not surprising, the downturn start about 18 months later. For a better look at this we can shift the Canadian data back.
When you look at it this way, these Canadian markets fit right in. Obviously we see a bit more seasonality, particularly in Calgary as the lines aren't nearly as smooth as those of the American centres. I think that can be mostly explained by that house shopping in Miami and Phoenix in Winter versus the rest of the year probably isn't all that different an experience, Calgary on the other hand, it's a whole new, and cold, world.
Judging from the plunges in Miami and Phoenix have taken, it stands to reason that Calgary and Vancouver (and other markets that had big run ups, like Edmonton, Saskatoon and Regina) could very well have very similar busts ahead of them in the next couple years.
Toronto on the other hand didn't have as pronounced a "bubble"... but as you can see with Detroit's situation, that is no guarantee prices there won't plunge. Prices in Detroit are now well below what they were even in 2000, and that's ignoring inflation. But then again Toronto could weather it better and only experience a moderate drop, ala Chicago, whom they've been tracking pretty close through this point.
So for those who still think "we're different" here in Canada, or Alberta, looking at that graph I don't know what to tell ya. Taking into account that it didn't hit us until 18 months later, everything seems to be right on schedule. The boom lasted about the same amount time and was of the same magnitude, the cool down lasted about the same amount of time and was of the same magnitude... so considering we're joined at the hip with the U.S, Occums Razor seems to imply that the big drop is on the horizon.
We took a look at the Canadian one Tuesday, and for the purposes of comparison with Case-Shiller, we'll be using the Canadian data with a shifted index point so that both have the same scale. For those who haven't seen the Case-Shiller index charted out, here's a look at it.
Yeah, that's a whole mess of lines... so for those interested here is a labelled version with each cities respective peaks. Might clear some things up slightly, but yeah, that's still a mess, but it's bound to be when you're charting out twenty cities and two composites. In any case, just sitting back and looking at the chart as a whole you can definitely see a general "bubble."Now for the sake of simplicity, I'm just going to take four of those cities, one for the top, one from the bottom and a couple from the middle... and chart them against the HPI's for Vancouver, Calgary, and Toronto, whom seem to be the most talked about real estate markets in the country at the moment.
As you probably deduced, that U.S. markets have the dashed lines, and the Canadian markets are solid lines. Before you conclude our markets maybe were not as "bubbly" as those in the U.S., just bear in mind only L.A. and Miami were at that upper peak... and that the Canadian index doesn't include our "bubbliest" major centre right here in Edmonton. So if I just go ahead and add Edmonton's average price index to the chart we see this...
Keeping in mind the prior entries observation that the HPI was usually slightly lower then the average price index, but generally were pretty close... one can reasonable conclude that Edmonton quite likely would have an HPI of pretty damn close to that of Miami, if not even surpassing it. Unfortunately I don't have data for Saskatoon, as I believe theirs would have blown past even that of Edmonton's with their recent housing boom.In any case, it's not too much of a stretch to reason that the bubble experienced here was just as substantial as that in the United States... we just seemed to have the boom start about 18 months later... and not surprising, the downturn start about 18 months later. For a better look at this we can shift the Canadian data back.
When you look at it this way, these Canadian markets fit right in. Obviously we see a bit more seasonality, particularly in Calgary as the lines aren't nearly as smooth as those of the American centres. I think that can be mostly explained by that house shopping in Miami and Phoenix in Winter versus the rest of the year probably isn't all that different an experience, Calgary on the other hand, it's a whole new, and cold, world.Judging from the plunges in Miami and Phoenix have taken, it stands to reason that Calgary and Vancouver (and other markets that had big run ups, like Edmonton, Saskatoon and Regina) could very well have very similar busts ahead of them in the next couple years.
Toronto on the other hand didn't have as pronounced a "bubble"... but as you can see with Detroit's situation, that is no guarantee prices there won't plunge. Prices in Detroit are now well below what they were even in 2000, and that's ignoring inflation. But then again Toronto could weather it better and only experience a moderate drop, ala Chicago, whom they've been tracking pretty close through this point.
So for those who still think "we're different" here in Canada, or Alberta, looking at that graph I don't know what to tell ya. Taking into account that it didn't hit us until 18 months later, everything seems to be right on schedule. The boom lasted about the same amount time and was of the same magnitude, the cool down lasted about the same amount of time and was of the same magnitude... so considering we're joined at the hip with the U.S, Occums Razor seems to imply that the big drop is on the horizon.
Tuesday, January 20, 2009
Price Indexes Revisited
A couple weeks back I took a look at price indexes, and someone pointed out there was an organization in Canada that was doing an index much like the Case-Shiller index in the States. So we'll be taking a bit of a look at that today, and for those interested in getting it straight from the horses mouth, you can check it out at housepriceindex.ca.
Unlike the index of house prices I did where I just took the average residential prices, this one only compares "sales pairs" where they compare the sale prices of identical properties over time, and yields a truer result. For a better explanation click on the "Methodology" link on their site, complete with examples. Here is a chart of their indexes for the six markets they follow, as well as a composite of those six.
You'll notice that unlike Case-Shiller, they set their index point at June of '05 rather then January of '00. For the sake of comparison I will change that point back to January of '00, because I think that gives a bit more perspective to the time line. So here is a look at that same data with with the index point adjusted.
As you can see, the chart still looks much the same as time progresses. For comparative purposes, now I'm going to take a quick look at how this index relates to the average price index I did earlier by charting the shared markets. Since theirs is a 3-month moving average, I'll include both the monthly average residential price as well as a 3-month moving average of it, which just just kind of smooths out the figures.
For the most part it seems that the Canadian-HPI trails the residential average by about 4-6 months, which while prices were rising left it a bit below, but now that prices are falling its now even or the higher of the two.
You can kind of read into this what you will, but you can see that obviously there is a relationship between the figures as they do track together. So while it was certainly a quick and dirty price index that I compiled, the data provided was actually somewhat useful... but like I said earlier, the HPI by Teranet is by far the better of the two.
In my next entry (probably Thursday) we'll compare Case-Shiller's US index with Teranet's Canadian House Price Index, and see what relationship those two may or may not have.
Unlike the index of house prices I did where I just took the average residential prices, this one only compares "sales pairs" where they compare the sale prices of identical properties over time, and yields a truer result. For a better explanation click on the "Methodology" link on their site, complete with examples. Here is a chart of their indexes for the six markets they follow, as well as a composite of those six.
You'll notice that unlike Case-Shiller, they set their index point at June of '05 rather then January of '00. For the sake of comparison I will change that point back to January of '00, because I think that gives a bit more perspective to the time line. So here is a look at that same data with with the index point adjusted.
As you can see, the chart still looks much the same as time progresses. For comparative purposes, now I'm going to take a quick look at how this index relates to the average price index I did earlier by charting the shared markets. Since theirs is a 3-month moving average, I'll include both the monthly average residential price as well as a 3-month moving average of it, which just just kind of smooths out the figures.
For the most part it seems that the Canadian-HPI trails the residential average by about 4-6 months, which while prices were rising left it a bit below, but now that prices are falling its now even or the higher of the two.You can kind of read into this what you will, but you can see that obviously there is a relationship between the figures as they do track together. So while it was certainly a quick and dirty price index that I compiled, the data provided was actually somewhat useful... but like I said earlier, the HPI by Teranet is by far the better of the two.
In my next entry (probably Thursday) we'll compare Case-Shiller's US index with Teranet's Canadian House Price Index, and see what relationship those two may or may not have.
Sunday, January 18, 2009
A Contemporary Story
A lazy Sunday here, watching some football and figured I'd relate the story of a couple friends of mine and the situation they find themselves in... one that is unfortunately becoming a little too common and is only likely to become more so in the next few years.
So they're a young couple, had been together for years and after graduating from university they had both been working for a couple years, getting established in their professional careers. So in the summer of '06 they decided it was a good time to buy a starter home.
The real estate market had been hot for a couple years, but things had just started to get ridiculous price wise. Resale inventories were very low at the time, and bidding wars were all to common, so they decided to buy a spec townhouse in one of the new developments in Edmonton's latest "it" neighbourhood, Terwillegar. They moved in that fall.
They ended up paying about $200,000 for the unit, which they figured that was alright since prices were seemingly going up about 10% a month and they got in rather early. They figured they'd spend a couple years there, then climb the property ladder a notch or two with some nice equity in their back pockets. A few of their neighbours did just that too... by the peak identical units were being flipped for 350-400K during the summer of '07.
Flash forward to fall of '08, she gets a new job in Calgary (and he has no trouble relocating with the same company), so the move is on. They list their place right away, in their words "aggressively priced" at ~$285,000, figure it will sell in no time. Three months on the market later, and three token price drops, they still haven't gotten as much as a wiff of an offer, and it's now listed about $270,000.
When they first listed it I tried to subtly tell them that they may be a bit over priced, and if they got an offer within 40K of their price they'd be wise to take it. They brushed me off, dollar signs in their eyes. They don't seem any less confident that they'll get their price today, and I know there isn't any point trying to tell them otherwise. I'm afraid that if they don't slash that price and quickly they're quickly losing the chance they have of clearing some money after paying the realtor and other fees... in a few months the market could have so far passed them by they won't even be able to break even, which considering they had one of those lovely zero down mortgages will leave them in a bit of a sticky situation.
They don't seem to realize the gravity of the economic downturn, and frankly their townhouse isn't all that desirable. It's in one of those developments where everyone is practically on top of each other, poorly and cheaply built, no view of anything other then the next buildings on either side, and a "yard" that is smaller then my Volkswagen. It's the kind of yuppie ghetto that will pockmark the city and eventually become de facto low income housing, a sad reminder of the housing boom and bust.
Sure, they seemed like a great investment at the time for the buyers, but now it's been realized the city is majorly overbuilt, these places will likely be avoided in years to come. They could probably get rid of it quick now for $225,000, but in a couple years I wouldn't be surprised if that dropped to around $150,000 or less.
That said, their situation as far as that goes isn't that bad. They both make decent money and even if they have to take a bit of a loss it wouldn't ruin them. Their real big mistake is they also rushed out and put down an offer on a house in Calgary when they first listed... then upped their offer when apparently another offer came (on a house that had been on that market for 120+ days with no action I might add). If it were me I would have lowered by offer by 20 grand and added a condition they had to include their lawnmower and first born in the sale.
Fortunately they have a condition requiring financing approval and the sale of their old place. Which is their potential saving grace, and my hope for them. Their place isn't going to sell for what they priced it at, so they won't be able to buy the new one... and when they finally smarten up and lower their price the won't be able to afford to finance the new one. So despite their best efforts to screw themselves, I think they may be alright after all.
Not as well off if they dumped the townhouse now and rented for a couple years, then bought again, but who am I to tell someone how to lose money?!
So they're a young couple, had been together for years and after graduating from university they had both been working for a couple years, getting established in their professional careers. So in the summer of '06 they decided it was a good time to buy a starter home.
The real estate market had been hot for a couple years, but things had just started to get ridiculous price wise. Resale inventories were very low at the time, and bidding wars were all to common, so they decided to buy a spec townhouse in one of the new developments in Edmonton's latest "it" neighbourhood, Terwillegar. They moved in that fall.
They ended up paying about $200,000 for the unit, which they figured that was alright since prices were seemingly going up about 10% a month and they got in rather early. They figured they'd spend a couple years there, then climb the property ladder a notch or two with some nice equity in their back pockets. A few of their neighbours did just that too... by the peak identical units were being flipped for 350-400K during the summer of '07.
Flash forward to fall of '08, she gets a new job in Calgary (and he has no trouble relocating with the same company), so the move is on. They list their place right away, in their words "aggressively priced" at ~$285,000, figure it will sell in no time. Three months on the market later, and three token price drops, they still haven't gotten as much as a wiff of an offer, and it's now listed about $270,000.
When they first listed it I tried to subtly tell them that they may be a bit over priced, and if they got an offer within 40K of their price they'd be wise to take it. They brushed me off, dollar signs in their eyes. They don't seem any less confident that they'll get their price today, and I know there isn't any point trying to tell them otherwise. I'm afraid that if they don't slash that price and quickly they're quickly losing the chance they have of clearing some money after paying the realtor and other fees... in a few months the market could have so far passed them by they won't even be able to break even, which considering they had one of those lovely zero down mortgages will leave them in a bit of a sticky situation.
They don't seem to realize the gravity of the economic downturn, and frankly their townhouse isn't all that desirable. It's in one of those developments where everyone is practically on top of each other, poorly and cheaply built, no view of anything other then the next buildings on either side, and a "yard" that is smaller then my Volkswagen. It's the kind of yuppie ghetto that will pockmark the city and eventually become de facto low income housing, a sad reminder of the housing boom and bust.
That said, their situation as far as that goes isn't that bad. They both make decent money and even if they have to take a bit of a loss it wouldn't ruin them. Their real big mistake is they also rushed out and put down an offer on a house in Calgary when they first listed... then upped their offer when apparently another offer came (on a house that had been on that market for 120+ days with no action I might add). If it were me I would have lowered by offer by 20 grand and added a condition they had to include their lawnmower and first born in the sale.
Fortunately they have a condition requiring financing approval and the sale of their old place. Which is their potential saving grace, and my hope for them. Their place isn't going to sell for what they priced it at, so they won't be able to buy the new one... and when they finally smarten up and lower their price the won't be able to afford to finance the new one. So despite their best efforts to screw themselves, I think they may be alright after all.
Not as well off if they dumped the townhouse now and rented for a couple years, then bought again, but who am I to tell someone how to lose money?!
Wednesday, January 14, 2009
Topic du jour: Absorption Rate
Assuming you read the title, you probably have already figured out I'll be taking a look at Edmonton's absorption rate in today's entry... well done, go get yourself a hero cookie!
Many of you probably already know what absorption rate is, but for those who don't, it's basically just a measure of inventory turnover. Take the active listings at the end of a given month, divide that by the number of sales in said month, and voila, you have the absorption rate. So, in a nutshell it's the number of months it would take to completely turnover the existing inventory at present sales levels.
There is no one definition of just what absorption rate constitutes a buyers market, sellers market or a balanced market, but for the sake of this post we'll go with the CREB's take on it, since Calgary is pretty close to Edmonton when it comes to proximity, size, and government. They consider a sellers market to be 0-2.0, a balanced market to be 2.0-3.5 and a buyers markers to be 3.5 and beyond. Now, onto the show (as always, you can click on the image to get a look at a larger one)...
That was a look at the absorption rate in Edmonton over the last eight years. For the first five years it was fairly well balanced, sustained moderate fluctuations within a point into buyers or sellers territory, but generally stayed in the balanced range...
Then came 2006, and all hell broke loose. A major sellers market was established as the rate dipped well below 1.0 at a point and remained below 2.0 for over a year... then took off in the opposite record, blowing away all prior records and leaving us in this extreme buyers market where even relatively large dips in the rate still leave it well in excess of the prior record highs.
Now lets take a look at how this interacted with price, again we'll use the median price for a single family home in Edmonton as our measure of choice...
As you can see, up until '06 prices experienced a gradual upward trend as the absorption rate hovered around a balanced market, but as soon as we saw a deep and prolonged sellers market develop prices rocketed.
Trouble there being that attracted a lot of speculation and monumental construction as everyone tried to get their piece of the windfalls... and resulting from that the market ended up flooded when more and more people started getting priced out, sales started dropping but listings kept coming. The artificial demand caused not only prices to increase at an unsustainable level, but has also left the city significantly overbuilt... all of which adds up to an extreme buyers market.
Now a year and a half later we're left with record levels of inventory, slumping sales and as a result, and incredibly high absorption rate. So basically now all that's left is for price to drop, as that's the only thing that is going to be able to start clearing out all the inventory. Until we reach something remotely resembling a balanced market we're not going to see any increase in prices that add up to anything more then an aberration.
Many of you probably already know what absorption rate is, but for those who don't, it's basically just a measure of inventory turnover. Take the active listings at the end of a given month, divide that by the number of sales in said month, and voila, you have the absorption rate. So, in a nutshell it's the number of months it would take to completely turnover the existing inventory at present sales levels.
There is no one definition of just what absorption rate constitutes a buyers market, sellers market or a balanced market, but for the sake of this post we'll go with the CREB's take on it, since Calgary is pretty close to Edmonton when it comes to proximity, size, and government. They consider a sellers market to be 0-2.0, a balanced market to be 2.0-3.5 and a buyers markers to be 3.5 and beyond. Now, onto the show (as always, you can click on the image to get a look at a larger one)...
That was a look at the absorption rate in Edmonton over the last eight years. For the first five years it was fairly well balanced, sustained moderate fluctuations within a point into buyers or sellers territory, but generally stayed in the balanced range...Then came 2006, and all hell broke loose. A major sellers market was established as the rate dipped well below 1.0 at a point and remained below 2.0 for over a year... then took off in the opposite record, blowing away all prior records and leaving us in this extreme buyers market where even relatively large dips in the rate still leave it well in excess of the prior record highs.
Now lets take a look at how this interacted with price, again we'll use the median price for a single family home in Edmonton as our measure of choice...
As you can see, up until '06 prices experienced a gradual upward trend as the absorption rate hovered around a balanced market, but as soon as we saw a deep and prolonged sellers market develop prices rocketed.Trouble there being that attracted a lot of speculation and monumental construction as everyone tried to get their piece of the windfalls... and resulting from that the market ended up flooded when more and more people started getting priced out, sales started dropping but listings kept coming. The artificial demand caused not only prices to increase at an unsustainable level, but has also left the city significantly overbuilt... all of which adds up to an extreme buyers market.
Now a year and a half later we're left with record levels of inventory, slumping sales and as a result, and incredibly high absorption rate. So basically now all that's left is for price to drop, as that's the only thing that is going to be able to start clearing out all the inventory. Until we reach something remotely resembling a balanced market we're not going to see any increase in prices that add up to anything more then an aberration.
Tuesday, January 13, 2009
Foreclosure watch
Figured I'd just do a quick one today. This is a highly unofficial tally of foreclosure listings on MLS as of today broken down into price ranges. This is a stat we'll be keeping a close eye on in the next year, though it probably won't change a whole lot the next month or two.
Houses Condos TotalHouses were in a fairly wide range, but the condo's were mainly at the low end and appeared to be a lot of from the downtown area. No real surprises.
---------------------------------------
Total 33 16 49
---------------------------------------
<149k>500K 1 0 1
---------------------------------------
Highest $800,000 $373,000
Monday, January 12, 2009
Interplay
Today we will take a look at the relationship between inventory, listings, sales and price. I took the Edmonton stats for residential new listings, active inventory, monthly sales and monthly SFH median price and plotted them out. I'm using the median price because I think it's the best measure of what the "average" home went for in any given month.
You'll definitely need to click on this one to get a better look.
There are several interesting observations one can make from this chart actually. First I guess we'll start with 'New Listings' and 'Sales'. You can definitely see the seasonality of those two, seemingly bouncing every December/January topping out each spring then doing it all again (though, contrary to popular belief, prices don't appear nearly as susceptible to such seasonality).
The lows seem fairly constant over time, but the highs seemed to pick up a bit for '03-'05 and increasing inventory. Then sales spiked to record levels in '06, new listings were fractionally lower and active inventory was quickly eroded... that combination triggering the skyrocketing of prices.
In '07 suddenly we saw a massive increase in new listings, which when sales increased relatively kept prices rising... but that seemed to be when the market hit it's breaking point price wise, suddenly sales plummeted but the listings kept coming and as a result the market was quickly flooded with record amounts of inventory (IMO resulting largely from speculation/overbuilding during the "boom").
Since then prices have slowly been falling, and sales have returned to more traditional levels. But there is now a massive glut of inventory, which even during the seasonal troughs, have remained way above anything ever experienced pre-2007.
Judging from how 2008 played out, I suspect we'll see another big spike of new listings/re-listings. Sales will quite likely drop off to lower levels then last year, thus already high inventory levels will just keep rising and prices will continue to drop... when foreclosures start becoming more common, further driving down "market price" and sooner or later the reality finally sets in for sellers that their homes aren't worth nearly what they think they are. We could see some very significant drops in prices as sellers start trying to beat the bottom.
The supply and demand market forces themselves would have been enough to cause eroding of prices, but that combined with the global recession/credit crunch, and it's seemingly a recipe for pain.
You'll definitely need to click on this one to get a better look.
There are several interesting observations one can make from this chart actually. First I guess we'll start with 'New Listings' and 'Sales'. You can definitely see the seasonality of those two, seemingly bouncing every December/January topping out each spring then doing it all again (though, contrary to popular belief, prices don't appear nearly as susceptible to such seasonality).The lows seem fairly constant over time, but the highs seemed to pick up a bit for '03-'05 and increasing inventory. Then sales spiked to record levels in '06, new listings were fractionally lower and active inventory was quickly eroded... that combination triggering the skyrocketing of prices.
In '07 suddenly we saw a massive increase in new listings, which when sales increased relatively kept prices rising... but that seemed to be when the market hit it's breaking point price wise, suddenly sales plummeted but the listings kept coming and as a result the market was quickly flooded with record amounts of inventory (IMO resulting largely from speculation/overbuilding during the "boom").
Since then prices have slowly been falling, and sales have returned to more traditional levels. But there is now a massive glut of inventory, which even during the seasonal troughs, have remained way above anything ever experienced pre-2007.
Judging from how 2008 played out, I suspect we'll see another big spike of new listings/re-listings. Sales will quite likely drop off to lower levels then last year, thus already high inventory levels will just keep rising and prices will continue to drop... when foreclosures start becoming more common, further driving down "market price" and sooner or later the reality finally sets in for sellers that their homes aren't worth nearly what they think they are. We could see some very significant drops in prices as sellers start trying to beat the bottom.
The supply and demand market forces themselves would have been enough to cause eroding of prices, but that combined with the global recession/credit crunch, and it's seemingly a recipe for pain.
Saturday, January 10, 2009
Decline Since Peak Eh!
As promised, here is something of a follow up to yesterdays price index entry. This time around we're going to look at how the prices have fallen in all those cities from their respective peaks, where they are now, and how long it has been.
In this case, 100 is now equal to the peak price each city, and it's fairly straight forward from there. For example, if the point is at 90, that means the price is 90% of its peak value, or down 10%... so on and so forth. So without further ado, here's the goods (again, you can click on the chart for a larger version)...
These numbers are the most recent available, at least November, and December where available (when the December numbers are available across the board I'll update the chart).
As you can see from this series, Vancouver has fallen hard and fast, down over 15% in just 8 months. Winnipeg is hot on their heels, down over 12% in just 6 months. Then there is Toronto and Regina down about 9% and 8% respectively in the last 8 months.
Noticeably, Edmonton and Calgary both peaked well before the rest (Summer '07), eight or nine months before the anyone else. Despite small rebounds in the spring they have both since continued their downward trend, now both down over 12% a piece.
At the other end of things, Ottawa and Montreal topped out just this past summer. You will also recall they were two markets with the most gradual growth in that previous post, so didn't experience as distinct a bubble. So, while they will almost certainly see further declines in light of the economic situation, their markets appear more balanced then most of the comparison others, particularly those in the West. You can already see for where they are in the timeline, they have weathered better then the six other cities.
For those curious, here are the prices at which each market topped out at:
Vancouver - $771,321
Calgary - $436,739
Toronto - $398,687
Edmonton - $354,718
Ottawa - $298,336
Montreal - $270,412
Regina - $248,039
Winnipeg - $204,412
So, looking at that, it really goes without saying that all declines are not equal when it comes to real dollars... especially in Vancouver, where a 10% loss there, would equal an 18% one in Calgary, 29% in Montreal, or 38% in Winnipeg. So just keep in mind, all those plot points are relative.
That Vancouver has fallen so far, so fast and has by far the most to lose dollar wise, tells you that those that bought at the peak there are feeling it two or three times over again what everyone else is. So even though they may not have had as extreme a bubble as Edmonton had, the losses that will be suffered will be far worse.
In this case, 100 is now equal to the peak price each city, and it's fairly straight forward from there. For example, if the point is at 90, that means the price is 90% of its peak value, or down 10%... so on and so forth. So without further ado, here's the goods (again, you can click on the chart for a larger version)...
As you can see from this series, Vancouver has fallen hard and fast, down over 15% in just 8 months. Winnipeg is hot on their heels, down over 12% in just 6 months. Then there is Toronto and Regina down about 9% and 8% respectively in the last 8 months.
Noticeably, Edmonton and Calgary both peaked well before the rest (Summer '07), eight or nine months before the anyone else. Despite small rebounds in the spring they have both since continued their downward trend, now both down over 12% a piece.
At the other end of things, Ottawa and Montreal topped out just this past summer. You will also recall they were two markets with the most gradual growth in that previous post, so didn't experience as distinct a bubble. So, while they will almost certainly see further declines in light of the economic situation, their markets appear more balanced then most of the comparison others, particularly those in the West. You can already see for where they are in the timeline, they have weathered better then the six other cities.
For those curious, here are the prices at which each market topped out at:
Vancouver - $771,321
Calgary - $436,739
Toronto - $398,687
Edmonton - $354,718
Ottawa - $298,336
Montreal - $270,412
Regina - $248,039
Winnipeg - $204,412
So, looking at that, it really goes without saying that all declines are not equal when it comes to real dollars... especially in Vancouver, where a 10% loss there, would equal an 18% one in Calgary, 29% in Montreal, or 38% in Winnipeg. So just keep in mind, all those plot points are relative.
That Vancouver has fallen so far, so fast and has by far the most to lose dollar wise, tells you that those that bought at the peak there are feeling it two or three times over again what everyone else is. So even though they may not have had as extreme a bubble as Edmonton had, the losses that will be suffered will be far worse.
Friday, January 9, 2009
Case-Shiller Eh!
A popular home price index that has become quite popular of late is the Case-Shiller index. There are many variations, but the basic premise is you take the home price as of the first quarter of 2000, and give that price a value of 100. Then as prices fluctuate, they will be given values relative to that. So, for example, if the price as of January 2000 was $200,000... $200,000 = 100, $250,000 = 125, $300,000 = 150, $400,000 = 200, so on and so forth.
As this has become a very popular in the US of late, and I hadn't seen it done for Canadian cities, I decided to take a shot, collected data (average MLS residential resale price, or average SFH resale price in Vancouver's case) on eight of our larger centres and compiled it into an index based loosely on Case-Shiller, and here are the results... you can click on the picture for a larger image to get a better look...
All figures are through November '08. You can see that by this measure, Edmonton actually had the biggest run up of prices in the country (though, apparently Saskatoon may have out did them, I could not find complete data for Saskatoon, so they are not included), and peaked earliest.
I was a bit surprised to see Vancouver was toward the middle of the pack, and Toronto actually had the most gradual growth of any. With all the verbiage flying around about those two markets, I would have expected them higher up. That's not to say there wasn't a big run up in Vancouver, just it was not as extreme as places like Edmonton, Regina, or even Calgary.
Montreal, Ottawa and Toronto all seemed to have more consistent numbers. Winnipeg saw a bit of a bubble in '07, then a bigger one in '08, but fortunately for recent buyers in that city they were a bit late arriving, so when the economic troubles hit, their fall doesn't look to be nearly as bad as what's likely to hit Regina, who experienced explosive price increases that rocketed them from the bottom of the chart in early '07, to second from the top in 12 months.
With even the cities with more moderate figures experiencing very significant declines in their own prices, it should really put a scare into recent buyers in markets such as Edmonton and Regina, where prices exploded.
Here are the peak values each city realized:
Edmonton = 292.98
Regina = 277.17
Calgary = 253.98
Vancouver = 239.60
Winnipeg = 232.08
Montreal = 207.74
Ottawa = 192.47
Toronto = 173.52
In the days to come I'll also take a look at the respective declines from peak, as well as comparing these results with those in the U.S... the similarities are really quite striking.
As this has become a very popular in the US of late, and I hadn't seen it done for Canadian cities, I decided to take a shot, collected data (average MLS residential resale price, or average SFH resale price in Vancouver's case) on eight of our larger centres and compiled it into an index based loosely on Case-Shiller, and here are the results... you can click on the picture for a larger image to get a better look...
I was a bit surprised to see Vancouver was toward the middle of the pack, and Toronto actually had the most gradual growth of any. With all the verbiage flying around about those two markets, I would have expected them higher up. That's not to say there wasn't a big run up in Vancouver, just it was not as extreme as places like Edmonton, Regina, or even Calgary.
Montreal, Ottawa and Toronto all seemed to have more consistent numbers. Winnipeg saw a bit of a bubble in '07, then a bigger one in '08, but fortunately for recent buyers in that city they were a bit late arriving, so when the economic troubles hit, their fall doesn't look to be nearly as bad as what's likely to hit Regina, who experienced explosive price increases that rocketed them from the bottom of the chart in early '07, to second from the top in 12 months.
With even the cities with more moderate figures experiencing very significant declines in their own prices, it should really put a scare into recent buyers in markets such as Edmonton and Regina, where prices exploded.
Here are the peak values each city realized:
Edmonton = 292.98
Regina = 277.17
Calgary = 253.98
Vancouver = 239.60
Winnipeg = 232.08
Montreal = 207.74
Ottawa = 192.47
Toronto = 173.52
In the days to come I'll also take a look at the respective declines from peak, as well as comparing these results with those in the U.S... the similarities are really quite striking.
Thursday, January 8, 2009
Forecasts '09 - Part Two - EREB
The EREB came out with their 2009 forecast today, here are the highlights... somewhat vague and short on details this year, but maybe they'll add the residential and townhouse forecast at a later time.
UPDATE: In a Edmonton Sun article covering the event they quote a residential forecast from them, so we'll include it. Like the SFH projection, they're essentially saying that it will remain unchanged.
And for those curious, here is a look at how their predictions played out last year.
So they were off by about -10% across the board with last years prognostications
UPDATE: In a Edmonton Sun article covering the event they quote a residential forecast from them, so we'll include it. Like the SFH projection, they're essentially saying that it will remain unchanged.
Dec 2008 Dec 2009 Projected Projected
Actual Forecast Change +/- %
------------------------------------------------------
Edmonton $310,974 $310,000 -$974 -0.3%
------------------------------------------------------
SFH $351,870 $352,000 +$130 0.0%
------------------------------------------------------
Condos $234,286 $222,500 -$11,786 -5.0%
------------------------------------------------------
Sales 17,713 15,500 -2,213 -12.5%
------------------------------------------------------
And for those curious, here is a look at how their predictions played out last year.
Dec 2007 Dec 2008 Dec 2008 +/-
Actual Forecast Actual Difference %
-------------------------------------------------------------
Edmonton $329,705 $342,893 $310,974 -$31,919 -9.3%
-------------------------------------------------------------
SFH $382,022 $397,303 $351,870 -$45,443 -11.4%
-------------------------------------------------------------
Townhome $306,967 $319,246 $292,893 -$26,353 -8.2%
-------------------------------------------------------------
Condos $253,270 $263,401 $234,286 -$29,115 -11.1%
-------------------------------------------------------------
Sales 20,544 19,100 17,713 -1,387 -7.8%
-------------------------------------------------------------
So they were off by about -10% across the board with last years prognostications
Wednesday, January 7, 2009
Forecasts '09 - Part One
Seems everyone is starting to roll out with their annual market predictions, and I'll make an effort to catalogue them here and we'll review them as the year goes on.
Royal Lepage -
Re/Max -
And just to be fair, my own fearless prognostications.
Yearly Average
One year from now...
Royal Lepage -
2009 2008
Market 09/08% Forecast Projected 2007 2006
-------------------------------------------------------------
Halifax 1.0% $234,300 $232,000 $216,339 $203,178
-------------------------------------------------------------
Montreal -1.0% $254,400 $257,000 $246,500 $215,659
-------------------------------------------------------------
Ottawa 0.0% $291,000 $291,000 $273,058 $257,481
-------------------------------------------------------------
Toronto -4.0% $364,800 $380,000 $377,029 $352,388
-------------------------------------------------------------
Winnipeg 4.0% $204,900 $197,000 $163,500 $151,983
-------------------------------------------------------------
Regina 6.0% $243,300 $229,500 $165,613 $131,851
-------------------------------------------------------------
Calgary -1.0% $402,000 $406,000 $414,066 $346,675
-------------------------------------------------------------
Edmonton 0.0% $333,000 $333,000 $338,636 $250,915
-------------------------------------------------------------
Vancouver -9.0% $540,100 $593,500 $570,795 $509,876
-------------------------------------------------------------
Canada -3.0% $295,000 $304,000 $307,265 $276,974
-------------------------------------------------------------
Re/Max -
2009 2008
Market 09/08% Forecast Projected 2007 2006
-------------------------------------------------------------
Halifax 0.0% $233,000 $233,000 $216,339 $203,178
-------------------------------------------------------------
Montreal 2.0% $262,000 $258,000 $229,902 $215,659
-------------------------------------------------------------
Ottawa 0.0% $292,000 $292,000 $272,618 $255,889
-------------------------------------------------------------
Toronto -2.0% $376,000 $384,000 $376,236 $351,941
-------------------------------------------------------------
Winnipeg 2.0% $212,000 $207,882 $170,502 $151,983
-------------------------------------------------------------
Regina 9.0% $250,000 $230,000 $165,613 $131,851
-------------------------------------------------------------
Calgary 0.0% $410,000 $410,000 $414,066 $346,675
-------------------------------------------------------------
Edmonton 0.0% $335,000 $335,000 $338,636 $250,915
-------------------------------------------------------------
Vancouver -7.0% $545,000 $585,000 $570,795 $509,876
-------------------------------------------------------------
Canada -2.0% $293,000 $300,000 $307,265 $276,883
-------------------------------------------------------------
And just to be fair, my own fearless prognostications.
Yearly Average
2009
Market 09/08% Forecast 2008 2007 2006
-------------------------------------------------------------
Edmonton -14.0% $289,000 $335,853 $338,636 $250,915
-------------------------------------------------------------
SFH -13.0% $327,000 $375,952 $400,304 $292,829
-------------------------------------------------------------
Townhome-13.0% $272,000 $312,812 $329,180 $241,793
-------------------------------------------------------------
Condos -17.0% $211,000 $254,296 $258,120 $185,131
-------------------------------------------------------------
Canada -4.0% $288,000 $300,000 $307,265 $276,883
-------------------------------------------------------------
One year from now...
Dec Dec 2009 December December December
Market 09/08% Forecast 2008 2007 2006
------------------------------------------------------------
Edmonton -16.0% $261,000 $310,974 $329,70 $294,155
------------------------------------------------------------
SFH -15.0% $299,000 $351,870 $382,022 $341,933
------------------------------------------------------------
Townhome-15.0% $249,000 $292,893 $306,967 $295,178
------------------------------------------------------------
Condos -18.0% $192,000 $234,286 $253,270 $227,428
------------------------------------------------------------
Canada -11.0% $276,000 $310,000 $280,000 $255,000
------------------------------------------------------------
Tuesday, January 6, 2009
December numbers are in
The EREB released their December figures today. For the most part things went much as expected prices continued to decline. Obviously was not a surprise sales were also down, but the degree to which was surprising... only 608 residential sales for the month, which is by far the lowest figure since 1995. For reference, the next lowest monthly sales totals since '01 were from January '01 and December '02, when the tallies were 835 and 837 respectively.
Here are the average sales prices:
Residential overall = $310,974
Since peak (July '07) = -12.3% (-$43,744)
Since last December = -5.7% (-$18,731)
Since six months ago = -8.9% (-$30,402)
Since last month = -2.4% (-$7,614)
Single Family Homes = $351,870
Since peak (May '07) = -17.4% (-$74,158)
Since last December = -7.9% (-$30,152)
Since six months ago = -7.7% (-$29,514)
Since last month = -3.0% (-$10,887)
Condos = $234,286
Since peak (July '07) = -13.8% (-$37,622)
Since last December = -7.5% (-$18,984)
Since six months ago = -10.7% (-$28,079)
Since last month = +1.2% (+$2,755)
Townhouses = $292,893
Since peak (Oct '07) = -20.4% (-$75,071)
Since last December = -4.6% (-$14,074)
Since six months ago = -6.4% (-$20,130)
Since last month = -7.3% (-$22,920)
Condo's actually saw a small increase since the prior month, but Townhouses took a big hit in December, dropping almost 23K in price as compared to November and are now back below the 300K mark, territory they haven't seen since January of '07. For what it's worth, SFH's and Condo's are also roughly the same prices they were in January of '07 as well to offer up some historical context.
It'll be very interesting how the coming months play out, with a surge of listings expected hoping to take advantage of the price advances that often come with the spring, and whether that will materialize after this extended period of unprecedented inventory levels we're in... not to mention recently slumping sales. In the coming days/weeks I'll be running some numbers and preparing some charts on just that though, so stay tuned.
Here are the average sales prices:
Residential overall = $310,974
Since peak (July '07) = -12.3% (-$43,744)
Since last December = -5.7% (-$18,731)
Since six months ago = -8.9% (-$30,402)
Since last month = -2.4% (-$7,614)
Single Family Homes = $351,870
Since peak (May '07) = -17.4% (-$74,158)
Since last December = -7.9% (-$30,152)
Since six months ago = -7.7% (-$29,514)
Since last month = -3.0% (-$10,887)
Condos = $234,286
Since peak (July '07) = -13.8% (-$37,622)
Since last December = -7.5% (-$18,984)
Since six months ago = -10.7% (-$28,079)
Since last month = +1.2% (+$2,755)
Townhouses = $292,893
Since peak (Oct '07) = -20.4% (-$75,071)
Since last December = -4.6% (-$14,074)
Since six months ago = -6.4% (-$20,130)
Since last month = -7.3% (-$22,920)
Condo's actually saw a small increase since the prior month, but Townhouses took a big hit in December, dropping almost 23K in price as compared to November and are now back below the 300K mark, territory they haven't seen since January of '07. For what it's worth, SFH's and Condo's are also roughly the same prices they were in January of '07 as well to offer up some historical context.
It'll be very interesting how the coming months play out, with a surge of listings expected hoping to take advantage of the price advances that often come with the spring, and whether that will materialize after this extended period of unprecedented inventory levels we're in... not to mention recently slumping sales. In the coming days/weeks I'll be running some numbers and preparing some charts on just that though, so stay tuned.
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