Affordability update

Greetings freaks and geeks, hope you're all ready for the long weekend. Before you go, here is the affordability update I promised.

As you may have noticed, suddenly this spring the word 'affordability' magically returned to the lexicon of the real estate pumper. A word nary whispered a year ago, but suddenly it's convenient again. The improved affordability is obviously a result of the historically low interest rates... as the other two variables, incomes and prices, haven't done anything to improve the equation.

To get a gauge of how interest rates stack up versus how they have in the past here is a graph of the average 5-year fixed rate taken out through May.

As we can see, this is the first time we've dipped below 5% (4.62% as of May). Obviously not as low as some of the advertised rates the were circulating at the time, but it should remembered that those were not available to everyone, mainly just prime new borrowers, those renewing/renegotiating were often shit outta luck.

Also interesting to note just how rare it is that rates are under 6%. Even since monetary policies started targeting inflation to 2% in 1992, rates didn't hit that level until 2003 until after the big shift post-9/11 and many nations lowered their inflation targets to 1%.

In any case, when combining the lower rates with the stripping of mortgage qualifying standards by the federal government in 2006 (over the course of that year borrowers went from needed 10% down and limited to 25 year amortizations, to 0% down/40 year amortization and 10 years of interest only payments), it's not hard to see that it created something of the perfect storm for the price explosion we witnessed.

So, should be no surprise that another plunge of rates could manifest itself into another credit orgy as we've witnessed the last couple months, particularly in our culture of conspicuous consumption and instant gratification. This is not just unique to Alberta, this is right across the country, and even in the US where judging from the reaction apparently up to last month it was thought no one would ever buy a house again.

Here is a graph of the income needed to qualify for financing to buy the median single-family home in Edmonton, charted with the median household income in the city. This is using the 32% gross debt service ratio, 10% down and using $170 per month in taxes and $100 in heating.

I took a sampling of 20 homes listed at/near $349,500 (the median SFH price), and they had an average and median annual property tax of $2050, which is roughly $170 per month, and the heating number at $100 may be a bit low, but for the pumpers sake we'll use it just so I can't be accused of skewing the numbers, maybe assume you have a ton of insulation and a helluva efficient furnace.

As we can see, there has been a major improvement in affordability, though it's still a bit above the latest income figures (2007), which considering how 2008 ended and 2009 has played out, it's probably safe to say they aren't haven't gotten much if any higher (and quite probably have started going down).

So, according to household income of $66,113 (in 2009 dollars), 10% down, 4.62% interest rate and $270 a month in taxes/heating a household should be able to qualify for about $300,000 with 25 year amortization. So, obviously as good as things got, prices are still about $50,000 above where they really should.

Of course, from what we're hearing 10% down and 25 year amortizations are concepts rarely grasped in real estate now-a-days. Recent surveys have been telling us that the average downpayment is a mere 6%, even amoungst those already in the market, and the vast majority of amortizations are of the 30 or 35 year variety.

Recalculating assuming 35 year amortization and 10%, and only then do we truely near something resembling affordability... again, that's assuming 10%, which evidently very few already in the market can even muster, much less the coveted first-time buyers.

But compared to what we witnessed the prior three years, any semblance of affordability seems like a dream come true. The market was correcting price wise by itself though last fall, but since then the trouble is that it's interest rates doing all the work, and few expect them to remain all these record low levels.

Recalculting affordability at current incomes and even 6% interest and affordability is again a thing of the past. Figuring in 25 year amortizations and 10% down, at 6% interest that would suggest the median home in Edmonton is overpriced by about $80,000... at 7% over $100,000... at 8% $120,000. You get the picture.

And do not think those interest rates are unrealistic, with governments running up massive deficits currently, they're going to be flooding the bond market, forcing prices down and thus yields up... which we know, drives up borrowing rates. The ugly truth is rates even hitting the double digits isn't out of the question.

For those hoping incomes will be able to make up the gap rather then prices, consider this. At current prices at May's interest rates, to sustain these prices, incomes would need to be $76,500... at 6%, $86,000.... at 7%, $93,500... at 8%, $101,000.

Then compare that to the long term trend in incomes, which for 30 years hovered in the mid-50,000's and only recently has broken well into the $60,000's. Even if incomes managed to continue climbing, those gains don't come overnight, and a return of even modest interest rates would still destroy any illusion of affordability and again leave prices to make up the difference.

Double disturbing in light of that people are coming in with increasing small down payments and longer amortizations. This just leaves them with negligible equity, and as a result even small decreases in prices leave increasing numbers of recent buyers underwater.

And for those thinking inflation might save you, take a look at that first graph and ponder the interest rates witnessed in the 70's, 80's and early 90's... those are what comes with inflation, interest rates will kill you long before inflation will come riding in on its white horse.

Arrears continue ascent

Had been preparing an update on the affordability numbers, but then noticed the latest arrears figures were out, so we'll knock that one out first and leave affordability for later this week.

As the title implies, there has been no slowing this spring, and as of May we were up to 0.58%, up from 0.25% a year ago, and 0.54% in April. Also getting increasingly removed from the long term average of 0.37% and nearing the record heights reached hit 1997 (0.69%).

It will be interesting to see if the increased sales in June will have any effect on these figures. Obviously the strong sales in May did not appear to, but we should also remember the full effects of the the employment turmoil in the new year were really starting to show up.

Lets take a look at the rest of the nation. Obviously looks to be in a league of their own at the moment, particularly isolating the West. Saskatchewan and Manitoba continue to enjoy the lowest rate in Canada, coming in at 0.23% and 0.24% respectively.

B.C. will be interesting to watch, and their numbers are really starting to pick up since prices started going down there, and it would not surprise me in the least if they are soon tracking very similar to Alberta, and eventually even worse. As bad as it may have got here, the affordability factor there is/was MUCH worse.

In the East, everyone has seen increases since the financial crisis, but much more gradually. Here I'd say Ontario will be interesting to watch going forward considering the hit the manufacturing core has taken.

So, that's about it for today, should give you guys something to do if you can tear yourself away from JK Wedding Entrance Dance. Gotta admit, even as a person with a cold black heart, and whom hates few things as much as weddings and dancing... even I must admit there is a certain undeniable charm about that video. Any who, now back to more manly things, like sports, scratching and beer.

How I got here

I'm sure literally none of you have wondered to yourselves, "how does one become a contrarian blogger?" Well, it's not a terribly interesting story, and doesn't pay nearly as well as telling people what they want to hear, actually, it doesn't pay period... but as my experience in the last year may be somewhat relatable for some out there, I figured why not answer the question no one asked.

I'll try to spare you the self-aggrandizing life story as much as possible, but just for a slight background I grew up in a rural area about an hour north of Edmonton. Went to the U of A for a few years, and lived around campus then decided I wanted a change of scenery and major and went out of province for a couple years. So I took the scenic route through school, figuratively and literally.

So, after my wandering through the wilderness for awhile I moved back to Edmonton. It was the summer of 2006, and we were right in the heart of the boom. The housing market was on fire, everything was selling, prices skyrocketing and vacancy rates were practically nil.

I had never been one for peer pressure or conspicuous consumption, so I really had no intention of buying as I had no idea what I really wanted to do with my life at the time (still not entirely sure about that one, truth be told, but I think that makes me more interesting!). I figured I'd just rent for a couple years and see where life took me, then I'd get serious about buying something, as long term it generally does make sense.

So I went out and found a place, a nice 2-bedroom for about $920 a month. I thought it was a little high at the time, so I decided to compare the rent to what it would cost to buy the identical condo's literally across the street (at one time they were all one big complex, but at some point the one section was split off).

The exact same 2-bedroom was going for $200,000-$210,000, figuring financing, opportunity cost lost, taxes and fees was going to cost $1,600 a month, of which only about $270 a month would go towards equity.

Now, I know a lot of brokers and whatnot like to work a lot of voodoo with downpayments to make anything sound affordable, but you have to figure in an opportunity cost for your money... and the going interest rate is as good as any as far as I'm concerned, so I go in calculating costs at 100% financing. The rest pretty much comes out in the wash and you get a quick and dirty comparison. Truth be told, you should really be able to do a bit better then mortgage rates on your investments, but we're being conservative.

Suddenly $920 a month didn't sound so bad. Sounded even better considering three weeks later when I took possession the rates for new tenants had gone up to $1220, apparently I got in just under the wire. And, was banking about $5,000 a year more then I would be owning.

So, I was quite content, and I really only followed the real estate market passively, checking in to see what those condo's across the street were going for every once in awhile. By summer of 2007 when the market peaked they were asking $230,000 to $240,000. My rent went up to $1070.

Still really didn't start thinking to much about buying until early 2008. I knew I had another rent increase coming, and had gotten somewhat settled into life. I also remembered my professor lecturing us one day about how home ownership was a good form of forced savings, thought I had been pretty diligent about saving without needing to be forced. I knew long term it generally was advantageous to buy, as assuming constant interest rates your payments will stay the same as rents will continue to increase.

I really had no interest in buying one of those condos across the street, but I continued to follow them just because they were a direct comparable and probably an overall reflection of the entire market price movement wise. By the winter I started to look around online a bit, was also pleasantly surprised to see the asking prices were now in the $220,000 territory.

Come summer 2008 I figured it was time to get serious and got an agent and looked at some places. Prices had come down some more and those condo's across the street were now asking about $200,000. Knowing the pending rent increase coming, suddenly the cost of buying was a lot closer to the cost of renting. There was still about a $100 premium over what it would cost me to rent (excluding equity), but another rent increase would erase it anyway.

That the price of those had dropped $40,000 in a year probably should have raised a red flag, but I think that was probably overwhelmed by the greed induced by seeing better and better properties dropping into the range that I wanted to spend ($270,000-$300,000). I also kind of accepted the popular mantra that real estate always goes up, and figured it was probably just that the market overheated and it was probably largely adjusted back. So it's all good.

By saving diligently I had seen my downpayment swell, and bigger and better properties kept dropping into my price range. I grew up in a family where we generally didn't like to buy things we couldn't pay for outright, so I've always felt debt was to be avoided as much as possible. I'm basically of the opinion that if you can't pay it off in 20 years at the most you probably shouldn't buy it, and if you can't in 25, you definitely shouldn't. So, obviously I don't have a terribly high opinion of the 30, 35, and at that time 40 year ams, in fact the longest amortization I'm personally willing to take is 15.

I'm also a bit of a utilitarian. I'd much sooner pay $2 for a $1 item I want, then $1 for a $2 item that I don't. My car is probably a good example, I wanted a quality car that got good mileage... so I got a Jetta TDI. I could have got another car for much less, but I did a little cost-benefit analysis, these retain their value a lot better, and the diesel engine probably saves me a dollar for every dollar I put in the tank. Other then that it's about as bare bones as you get. Of course you need get serviced through VW, which is not only bad, but very expensive... but there is no free lunch.

Anyway, so I looked at a bunch of places, and even liked a couple so much so that I was thinking about making an offer. But I wanted to do a little market research before I commited to anything. I stumbled upon the EREB's historical average price stats, put 'em in a spreadsheet and graphed them.

The first two words out of my mouth were "Holy shit!" I then rechecked that everything was inputted correctly, and when I found it was, I can honestly say any house lust I had was long gone. Over about 30 seconds I went from being ready to make an offer, to hugging and whispering reassurances to my wallet. There was something very wrong in Kansas.

I'm no Ph.D, but I've studied some math, stats and finance during my day, and that graph alone scared me straight... and I imagine damn near anyone could immediately see something wasn't right.

So, between my affinity for numbers and a little OCD I went about compiling any and all figures I could find. Running simulations, looking for correlations (it was also during this time that I developed my extreme distaste for the New Listings statistic, that figure is an useless as tits on a bull).

I also started reading the blogs and research papers. Anything and everything basically. The more research I did and measures I'd calculate, the more it became apparent that prices were too high. Then the economic crisis hit in October, and at that point my wallet took it's turn hugging and whispering reassurances in my ear.

Believe it or not, being as close to buying as I was actually saved me tens of thousands of dollars, as I had pulled most of my investments into cash as an expected downpayment, much of which would otherwise have been lost in the stock crash. So I kind of failed upwards on that one.

That fall the landlord tore up the rental increase, and not too long after it actually ended up being decreased down to $900 a month, I'm now paying less then when I moved in. The posted rate has also dropped down to about $1000, but the complex continues to lose tenants. It's certainly a different picture then three years ago.

Despite the real estate surge the last couple months, currently the condos across the street are now asking $180,000, one was posted awhile back for $165,000 but it looked like it was in pretty rough shape. The prices on the places I was going to put bids on are down even more, 15% and 20% respectively... so, just sitting on my wallet has already saved me 40-50,000. Even if the local price numbers are similar to last year the asking prices still look to be down, but then again condo's are expected to be a big albatross on values since they're so overbuilt.

As per why I decided to start blogging, well, I just didn't really find many other sites doing the kind of analysis I am, and certainly not on the Edmonton market. Also there didn't seem to be any counter point to the seemingly infinite supply of blogs with a vested interest in seeing people buy. So I figured maybe someone else might be interested in this stuff, and putting it online kind of forces you to do your homework before opening your yap, so it's a learning experience.

Today I'm infinitely more prepared to buy a home and know what I'm getting into when that day comes then I was a year ago. Do not confuse my bearish views on the market conditions with on buying real estate in general... in general it's usually a wise investment... trouble being we're not in a "general" period, at least in my not so humble opinion.

For those already in the market, the conditions aren't really a big deal, especially if you're downsizing or moving laterally. This is because once you're vested it's all relative.

But, for first-time buyers, like myself, it's not a good time to enter. If you overpay to get in, that's a mistake you'll be paying for the rest of your days. Even those bullish on the market aren't predicting any explosive growth in prices any time soon, so there is little to be lost by taking a wait and see approach... but if I'm correct, there is much to be gained by waiting.

I don't know about you guys, but I'll take 'low-risk/high-reward' any day over the alternative. When I'm spending hundreds of thousands of dollars I want to be damn sure I'm buying an asset that won't depreciate, short term or long. I don't concern myself with trying to hit the bottom... I just want to make sure I buy on the right side of it.

Over/Under Supply

For awhile now I've been thinking about trying to attempt to quantify the relationship between population growth and housing construction. We've been hearing for a year or two now about how our city is actually overbuilt to a significant degree.

This of course would come to a surprise to many as just three years ago there was an apparent serious housing shortage, and stories of tent cities propping up around the city. As it turns out that shortage was largely artificial and a result of speculative buying, and as reports such as this one from TD point out that we've actually been somewhat overbuilt all along.

So, today I decided to sit down and try to hammer out some kind of quantification for this... but I wouldn't take any of this as gospel, it's really more of a scientific wild ass guess then anything. Regardless, on with the show.

This is just basically an overview of the stats from which the subsequent findings arise. So you can examine that at your leisure.

From this data I derived some long term averages and medians to attempt to make something tangible out of that mess. Basically what I found was that for every new unit completed you needed somewhere between a 2.1-2.3 person increase in population.

Those familiar with the censuses probably know that typically Edmonton and centres like it have somewhere between 2.5-3.0 people per household (FWIW, according to the Statcan numbers I have over the last decade Edmonton has came in at 2.73).

So you may be thinking this is the big "Aha moment," and that that alone proves we're overbuilt... but no. That would ignore all the redeveloping/rebuilding that goes on, which I think it's fair to assume makes up that difference. I'm not in the industry, but just as a laymen, to say 20-30% of new construction would qualify as redevelopment/rebuilding sounds reasonable.

So, now assuming that 2.1-2.3 range is appropriate lets compare how many units would be needed to absorb that population increase vs how many units were actually completed over this period.

So here we see the patterns formed by the yearly numbers (non-cumulative). No surprise, the completion numbers tend to lag the demand fluctuations... obviously it takes time to actually build the places. This also doesn't take into account the relative inventory positions, for that we'd run the numbers cumulatively.

This, I think, is a much more telling graph as it gives a relative supply position (assuming something resembling balance in 1987 of course). It seems to give a believable pattern as one would expect some ebbs and flows as when demand is falling you'd see a large pullback in supply in subsequent years, and conversely when demand returns you'd see an overcompensation in the other direction as builders rush back in.

In any case, one would expect in balanced market conditions that the figures generally fluctuate around zero, which they do. Then we hit the boom.

What I find quite interesting is that the build up of over supply actually came about from 2003, 2004 and 2005... before the price explosion really hit. This was during a time when the market was hot and building steam but prices were still within historical means.

From 2006 until now the over supply has merely maintained... somewhere between 8,000 and 22,000 units if my factors are correct (personally I'd probably place it closer to the 2.2 curve if not a bit below, but that's just me).

I suspect this pattern may be more due to under-reporting of migration early in the boom, thus oversupply was probably slower to build in actuality as the new construction stats are actuals whereas population/migration are estimates. Over the long term they're adjusted to be correct, but in any given year they are prone to significant variance with what is actually experienced. But we have to go with what's given, so I digress.

For arguments sake, lets say it's in the 10-15,000 range. Which is a significant degree to be overbuilt, even with starts slowing it's worth nothing that when this data cut off there were still another 11,400 units under construction.

Figuring that all in and the ratio of persons per household and that's a couple years worth population growth even with zero subsequent starts, maybe even more as migration is slowing. It will take time to absorb all these new units, and it's going to be a drag on the market.

Of course all that is assuming my little SWAG has any validity whatsoever... which I'm not sure I'd quite extend it, but I think it's fair to declare it a good discussion piece at least.

What's selling?

A couple months back I did a post on market share by price range (will be doing another update on that hopefully in the not to distant future), and today I'm going to take another stab at market share, but this time from the angle of unit type.

You'll want to click on this one to get a closer look, she's a big'uns!

This is broke into single family homes, condos and townhomes. As we can see, SFH's dominate the landscape, no surprise there. By this measure townhouses look to only make up about 5% of the market (give or take 1% any given month), but I'm not exactly sure where the line is between condo and townhouse, seems a lot of the latter get grouped in with the former, but I digress.

Going off on a short tangent, these three make up the vast majority of what is announced as "residential sales" each month... though not quite all of it. There is another tiny fragment that comes from vacant lots and mobile homes. For example, last month there were 2,552 "residential sales" of which, 2,506 were from SFH, Condo's and townhouses... so those other 46 sales came from somewhere, but are fairly immaterial to the stats as a whole. In anycase, they are not included in any of the calculations presented her.

Anyway, back to the graph. Now you may be wondering what the shaded area is. Basically it is the level where we would typically expect the market share of SFH's to be. It is based on the numbers I had from 2000 up until 2006 when the boom started... we had a mean of 69.5% (also the median fwiw) for SFH (conversely Condos/Townhouses combined for 30.5%, obviously), and a standard deviation of roughly 2%. So, the shaded area is the area within one standard deviation of the median.

As we can see, it held up true to form through 2006, and has largely returned since the boom ended...though that could be a sign that a slight downward shift may be called for going forward as there was a disproportional number of condo's built during the boom.

What is interesting to note, that while we've been hearing the last couple of months about how many more SFH's have been being sold, proportionally they are still in line with what we've seen historically, and even over the prior year during an extended period of poor sales overall.

The major observation I take from this though is the massive increase in activity in condos/townhouses during the boom. They went from typically making up about 30% of sales, to making up as much as 44.1% in March of 2007.

Really quite a remarkable change from a statistical perspective as that's over six standard deviations from the predicted path... even recalculating standard deviation just using information presented on this graph it is still over three.

Assuming a normal distribution, the odds of one result that far out varies between extremely low (less then 1/370) to astronomically low (less then 1/500,000,000)... and we had several results in that territory.

Obviously there was nothing normal about the bubble. Also reaffirms that there was a whole lot of speculation going on, and it's going to be very hard to clear out all that, especially now that proportional sales appear to have returned to their norms.

I'm going to try to take a slightly different look at this figures, and give you all a look at the hard numbers of sales per unit type, and how they changed during the boom. But alas, that will have to wait for another day as I'm off to the football game. Have a good weekend.

Advertising vs. Reality

Got an interesting comment about how the local board boasts about how few "foreclosures" there are on the market, completely ignoring all the "bank owned" properties, that are also foreclosures... but apparently in the world of marketing and keywords, a rose by any other name is not a rose, at least not when it's inconvenient for you.

So, it made me think of some of the other euphemisms and obfuscations that sellers and agents like to trot out when being honesty may not be the best policy most profitable, and though we could have a little fun with it. Feel free to add your own, this is but a small sampling of what's out there!

As-in - Shithole, and quite probably a crime scene in the not so distant past

Assumable Mortgage - Flip gone wrong

Bank owned - Foreclosure

Cozy - Tiny, like square footage of a closet tiny. Synonyms: Quaint, Intimate, Cute, Modest

Charmer - Cramped and old... possibly with toilets in rooms other then bathrooms

Fixer upper - Shithole

Furnished - We don't want this crap, and can't even give it away, so now it's your problem

Handyman Special - See: Fixer Upper

Motivated seller - About to be foreclosed upon seller

Move-in ready - Vacant

Needs a little work - Needs a LOT of work

Needs a lot of work - Needs gasoline and a match

New Development - Better hope you enjoy the sound of hammers during the day, and drunk rig-pigs at night

Partially-obscured view - No view

Recently renovated - Don't look too close and ignore that smell

Retro - Old, and not in a good way

Secure building - Make sure your car insurance covers theft

Spacious - Anything with more then 500 sqft

Get to work?

So I have been asked to do a post on the employment numbers a few times in the past, and again recently... and as the latest (June) figures were released today, I figured what the hell, why not do something topical?!

Not really sure how much or what kind of narrative will come of this, at least I don't have anything in mind. I'm just planning on presenting some historical numbers and maybe offer my take on them or any observations that may or may not strike me at some point.

So, without further ado, lets start with the hard numbers, just to give us some background before we get to the ratios.

So here we have the figures for the total work force, total employed, and total employed full-time since 1976 to now. Generally fairly stable, particularly the labour force numbers. The employment and full time employment figures track very similar patterns and are bit more volatile, as we can see a fairly significant drop back in the early 80's... a couple minor dips in the mid 80's and again in the early 90's, then fairly stable growth until just recently when we've had another fairly significant drop.

It's worth repeating, these are the hard numbers not ratios. As we can see, the labour force has grown significantly since the 70's, so relatively speaking, 10,000 jobs lost in 1982 would be felt much more then 10,000 lost in 2009, at least by the economy as a whole. That will be displayed later when I get into the ratios.

Just to compare the peaks and troughs of the aforementioned dips.

Current (October '08 - March '09):

• Jobs lost = 51,400
• Full-time jobs lost = 73,600

1990's (June '91 - March '93):

• Jobs lost = 17,300
• Full-time jobs lost = 39,200

Mid 80's (Feb/Mar '86 - February '87):

• Jobs lost = 41,000
• Full-time jobs lost = 42,800

Early 80's (September '81 - May '84):

• Jobs lost = 72,000
• Full-time jobs lost = 98,800

As we can see, as far as hard numbers go currently we're somewhere between the the magnitudes of the minor and major recessions. It is also good to note that full-time jobs take a bigger hit during downturns then total jobs, to varying degrees. Many feel the full-time numbers are actually the more telling, and I tend to agree.

Just to add a little more perspective to the hard figures, here they are again as a function of the total work force at the time (ex. If the workforce is 1,000, and there are 10 jobs lost, this measure would equal 1%).

Current (October '08 - March '09):

• Jobs lost = 2.44%
• Full-time jobs lost = 3.49%

1990's (June '91 - March '93):

• Jobs lost = 1.23%
• Full-time jobs lost = 2.78%

Mid 80's (Feb/Mar '86 - February '87):

• Jobs lost = 3.15%
• Full-time jobs lost = 3.28%

Early 80's (September '81 - May '84):

• Jobs lost = 5.62%
• Full-time jobs lost = 7.71%

From this measure we can see the magnitude of the job losses have been worse then the 90's recession, but not nearly in the territory of the big one in the early 80's. But that one also took two and a half years to get that far, whereas we are only 8 months removed currently and there is still a great deal of uncertainty surrounding the economy.

Just for example, our lowest figures were from March, and actually went up in April and May before taking another hit in June, leavingus not that far above the March figures (down 49,100 and 70,100 from peak FWIW).

While we're talking hard numbers here they are for part-time and unemployed (grouped together for no reason other then scaling). Interesting to note how part-time employment has actually been quite stable, only taking a dip in the most recent boom... likely as a result of the shortage of workers, people were obviously drawn into more permanent positions. Since the boom ended though, we've seen something of a spike, as many full-time jobs were either converted to part-time, or were lost and people could only find part-time replacements.

The unemployment figures, not surprisingly, mirror the earlier findings, and when jobs are lost obviously the ranks of the unemployed swell (necessitated by, as we noted earlier, the labour force not contracting). We also notice the sharpness of the current spike hasn't been seen since the early 80's, but considering the population is much higher now then then, to total number of unemployed haven't reached any kind of danger area. Obviously if the current trend continues that would change, but it's very hard to make any predictions as not just ours, but the worldwide economy, is such a big question mark at the moment.

Now, onto the ratios!

This is the one that gets all the press, the Unemployment Rate. As we can see here, there is definitely a sharp spike, but it is paled in comparison to the prior recessions noted. Even during the early 90's recession unemployment topped the 10% mark, and we're currently only at 6.8%.

This is another one that can change fast though, it's went up a full point in the last three months, and 1.7% in the last six, and 3.5% in the last year. So some more economic turmoil could certainly launch us up into that territory, but at least for the moment we're alright. For some further historical context, since 1976, the median has been 5.7% and average 6.5%... so, all things considered, we are a bit high.

These are the participation (labour force divided by population) and employment rates (total employed divided by population). As we've previously noted, the labour force doesn't tend to change much, so the participation rate isn't all that interesting. Employment rate is alright, but I think full-time jobs are a better measure then total jobs for practical purposes. So, take them for what they're worth, maybe you like then, and they report them, so here they are.

But, like I said, I find full-time employment a better measure, so I derived my own ratios. These measure full timers as a function of population and labour force, and give you a better historical comparison then just the hard numbers listed earlier. We've pretty much already been over the genesis of these figures, and this is getting pretty long already, so I won't regurgitate all that.

Again we can see that our current position, historically speaking, isn't all that bad... but it's trending harshly in a bad direction, and at a severity we haven't seen since the big recession back in the early 80's.

So, that's all for now. If you have any questions or comments, fire away. I may add more or clarify some stuff as I think of it.

June numbers are in...

And she was a big'uns sales wise... highest June tally on record, and third highest monthly at least as far back as I have stats for. So there is no arguing buyers were out in full force.

While increasing month-over-month sales are the norm during the spring, it should be noted that the gains seen here go well beyond expected seasonality. Over the last six months we've went from well below seasonal sales, to well above. That interest rates dropped to all time lows over this period is quite likely no small coincidence, and convinced the all important first-time-buyers to make the plunge.

Inventory dropped a fair bit, which is understandable considering sales were very strong but prices haven't shot up much... if prices weren't high enough to bring out the spec sellers earlier, they have no reason to change now.

Prices crept up a bit too as would be expected. Curiously the SFH median was up the most month-over-month, while the averages were only up 0.4-1% (year-over-year everything is obviously still down). Normally one would expect the averages to be the more reactive, but perhaps this is suggesting increased activity at the lower price levels... which are the biggest trouble spot for the market as there had been a great deal of speculation and overbuilding at those levels during the boom.

No surprise absorption rate is down as sales are up and inventory down. Still a tad high by historical measures even with record sales, so obviously there is a lot of inventory out there yet, not even figuring in the dreaded shadow inventory.

So, it'll be an interesting summer and fall to fallow the market. Will interest rates go up? Will prices hold? Will inventory erode? Will Kevin ever have free time again and get back to blogging more? In any case, it's fascinating to watch... well, other then perhaps that last one.

Here are the hard numbers as always,

Sales = 2,552
Since two years ago = +15.8% (+349)
Since one year ago = +37.8% (+700)
Since last month = +18.1% (+391)

Active Listings = 6,785
Since two years ago = +6.6% (+418)
Since one year ago = -37.3% (-4,032)
Since last month = -9.0% (-668)

Single Family Homes Median= $349,500
Since peak (May '07) = -12.6% (-$50,500)
Since one year ago = -4.2% (-$15,500)
Since six months ago = +5.9% (+$19,500)
Since last month = +2.0% (+$7,000)

Residential Average = $328,229
Since peak (July '07) = -7.4% (-$26,419)
Since one year ago = -3.8% (-$13,077)
Since six months ago = +405% (+$17,325)
Since last month = +0.6% (+$1,967)

Single Family Homes Average = $369,859
Since peak (May '07) = -13.2% (-$56,169)
Since one year ago = -3.0% (-$11,525)
Since six months ago = +5.1% (+$17,989)
Since last month = +0.6% (+$2,817)

Condo Average = $247,071
Since peak (July '07) = -9.1% (-$24,837)
Since one year ago = -5.8% (-$15,294)
Since six months ago = +5.5% (+$12,785)
Since last month = +1.0% (+$2,337)

Townhome Average= $291,071
Since peak (Oct '07) = -20.9% (-$76,893)
Since one year ago = -7.0% (-$21,952)
Since six months ago = -0.6% (-$1,822)
Since last month = +0.4% (-$1,117)

Beaver Style

After another night burning the midnight oil, I decided that today I was going to take today off... my first day off in over a month. Yes, I know, you don't care, but this is my sandbox, so that just sucks for you now don't it! But before I'm off to engage in at least eight different kinds of debauchery, I figured I'd do a entry since I had the chance.

The realtors are out there all whipped into a tizzy screaming we've hit bottom and the current surge is just confirmation that real estate only goes up, the market has corrected! Hallelujah! Holy Shit! Where's the Tylenol?

But has it? Just what has changed from six months ago? Inventory is still poor, prices are about the same if not a bit higher, vacancy rates are way up, foreclosures are up, arrears are up, and more people are out of work thus so earnings have to be down. So, if anything that would suggest the market has softened.

And most of that recipe is true right across the country on this fine Canada Day... so what has changed? What would cause real estate not just in this city, but right across the country to rally?

Pretty simple really... interest rates. They've went from low, to ridiculously low... and not surprisingly, the lower they got, the stronger sales got. The market didn't correct, interest rates plunged and suddenly the combination of that, seasonality and emotion has manifested itself into a suckers rally. That it's happening across the country, just supports that.

The fundamentals are still poor, even with the interest rate plunge creating something of a temporary illusion of affordability. But people who felt burnt in the last boom, suddenly they could qualify for a ton of money and having been seemingly left behind in 2006, are jumping in with both feet.

Problem is, as soon as the economy starts showing signs of life, interest rates are going to go back up. Even 6% would leave affordability in tatters, and while for many recency clouds their judgement, 6% is still very low historically. So just imagine if they went back up to 8%.

The market hasn't corrected, all the problems that were there six months ago, are still there today, and in many cases have actually gotten worse... interest rates going down have just delayed the inevitable. This whole thing was fueled by credit, piling on some more isn't solving any problems, it's just buying time all the while making it worse. It's like paying off one credit card with another.

This correction isn't going to be quick. It started two years ago, and will quite likely still be ongoing two years from now. This is not an efficient market, it's an emotional one, so there will be many rallies, dives and plateaus along the way.

Those focused on the short term will continue to call bottom in thinly veiled attempts to convince themselves... but my focus on this blog is the long term, and until the fundamentals are corrected, there will be no bottom to be had. Even when it is, it cannot be recognized until well after the point.

So, now I'm off to enjoy an ring in our nations birthday by going out with some fellow Canadians, drink some Canadian beer, and maybe even watch some Canadian football... and later on, might even throw on some Anne Murray and see if the girlfriend is up for doing it beaver style (which I believe involved doing it in a mud hut).

Happy Canada Day everyone!