They're tapped out

So, long time no see. Work has just been crazy the last while, and really I should be doing more now but my brain is fried, so figured why waste my time and the clients money when I could do some blogging!

There was quite a bit of news on the consumer front this past week. First we got the July retail spending report. Wasn't pretty, especially considering economists largely spent the last month telling everyone spending would be up. It wasn't. Nationwide spending was down 1.0% from June, and a mammoth 14.3% from last July... Alberta was also down, 1.1% and 9.2% respectively.

Probably a good thing people are doing something other then spending, because Thursday we heard a record number of Canadians were delinquent and/or in default on their credit card debt. Defaults hit a record level of 4.8% for the quarter (up 57% year-over-year), it was 4.96% in June alone, another record. No coincidence, personal bankruptcies were also up 41% from a year ago.

No doubt Albertan's make up more then their fair share of the aforementioned as we carry the highest per-capita and per-household consumer debt levels already. It seems as good things were, people were finding ways to spend it even faster... and now the chickens are coming home to roost.

The economic slowdown itself will be a painful lesson in itself when spending starts to slow, but as debt servicing becomes increasingly expensive that's going to cause a double whammy as that will cause further contraction... and that reduced consumption isn't going to do anything to remedy the problem in the short and medium term.

Much of our economy is based on not only high and growing salaries, but people largely living beyond their means and that can only continue while the credit flows... once that stops, it's going to be bad news all around as people not only will need to live within their means, but repay for past good living. And this could be an epidemic if the reports from last week have any truth to them saying that 59% of Canadians couldn't handle missing even a single paycheque... we could be in real trouble here folks.

And finally today the CBA came out with their July figures for mortgage arrears, and Alberta is up yet again, now sitting at 0.62%, and getting ever closer to the prior record level of 0.69%. Up from 0.60% last month, and 0.28% a year ago... also the 26th consecutive month-over-month increase.

The national average held from June at 0.42%. Saskatchewan enjoys the low at 0.23% while Alberta continues be the highest by a large margin.

A glance at commercial real estate

Had a little window to do a post today, so figured I'd take a quick look at the commercial real estate stats for Edmonton. I have had a passing interest in just seeing how they've shaped up over the years, and how they look now. So, without further ado, here is a look at historical sales and inventory tallies.

We'll start with sales. I guess what I find interesting is that there is really no sign of the big economic boom what-so-ever. Sales actually appear to be lower from 2005-Oct '08 then they were earlier in the decade. Though, of course, with the new commercial construction stats quite likely tell a different story, it's just interesting it never showed up in the resale market.

We do see a drop off from mid '07 through this spring that's timing coincided with the drop off in housing sales... but considering the economy was still largely motoring through that period I would be very hesitant to equate the two.

It is interesting to note that 2008 was pacing to have the by far the lowest yearly sales total going back to at least 2001 even before the the financial crisis hit... then things got even worse on the sales front. So, that would suggest there was trouble brewing on that front before the economic bubble burst, but again like the residential market, sales took off again in the spring.

Some interesting movements to say the least.

Now we'll look at inventory. This one again you'd be hard pressed to tell there was an oil boom roll through the city in the last five years. Inventory shifted down a bit from 2005 onward, but not to a big degree.

We've been hearing this year that commercial real estate could have a real inventory problem with all the construction and development we witnessed. This is suspected to be a big problem in a lot of North America in fact. Of course commercial real estate tends be leased much more so then residential, so the true scope of the problem may not surface in resale inventory, but I would assume it would still be relative.

So, the spiking of inventory that has taken root since last fall could be a sign of trouble, but it's still early (this plot is only up to June FYI), and while much higher then they were a year earlier, they are not at all-time highs just yet.

This could be something to keep an eye on. Admittedly, I'm not terribly familiar with the ins-and-outs of commercial real estate (these are the numbers from the EREB). If any of you are a little more boned up on that market, it would be interesting to hear your take on it.

Indicators

Greetings all, hope you're all ready for the weekend. My apologies for the lack of updates, it's been a crazy week, but I'm sure you don't care... so, I'm gonna try to fire of a quick write-up before I head off to the football game (here's hoping it's not as bad as Mondays!).

Anyway, a while back CM, one of our regular readers from made a comment I liked over on Mike Fotiou's blog. He listed off a half dozen or so economic indicators for Alberta real estate he liked to follow that I think are very good. For an even more complete list you can visit CM's site where he lists over a dozen, as well as links to many other sites of interest for those who follow real estate.

So today I figured I'd list some of the ones he follows, as well as some I follow, and some we've even discussed here before. So if you are so inclined you can check them out, and decide for yourself if/how you feel they influence the real estate market and the economy here in Wild Rose Country.

• Employment - It would stand to reason the more people working, the more likely they are to be buying real estate, and just spending money in general. I particularly like to follow full time employment numbers. I think that gives you the best sense of what's happening in the trenches.
  
  
• Consumer Debt - As you guys know, I harp on mortgage arrears endlessly... and arrears are closely tied to foreclosures. Some dismiss these as trivial, but I think they give an impression of overall market health, and if increasing numbers of people are falling behind on their largest monthly expenditure, I find that troubling. It's also good to keep an eye on the levels of household debt, and credit card delinquencies.
  
  
• Commodities - As we've discussed here in recent weeks, oil, and particularely natural gas revenues are a very big part of the Alberta economy. Not just in direct government royalties, but jobs and incomes directly and indirectly tied to production. When prices are up, production goes up, which means not just more jobs in the oil patch, but those people are spending that money too, which creates a massive spin-off effect. Conversely, when things tighten up like it has lately, the entire economy feels that too.
  
  
• Interest Rates - These are a biggie as they are such a big influence on affordability... and what drives interest rates are bond yields. As Canada is something of a minnow on the global financial markets, our bonds tend to just go with the flow so it's easiest just to follow US bonds. CM likes to follow the 10-year bonds, I like the 5-year... basically same shit, different pile, they pretty much follow the same pattern, just shifted.
  
  
• Real Estate Prices - And all those others lead up here. While certainly a lagging indicator, ultimately these are where the buck stops. Many different dimensions to look at, resale prices (which we discuss ad nauseam here), home price index, new home price index.

Hope you find those interesting, and if you have some more or your own feel free to list those in the comment section. Sorry this is a bit of a short one, but I'm tired, it's Friday, and I want to watch some football and maybe drink an overpriced beer... or twelve. Have a good weekend!

August numbers are in...

The August numbers were released this morning, and the market looks like it's cooling after a blistering late spring/early summer on the sales front. Inventory was down slightly, but because of the large drop in sales the absorption rate has climbed back up into 'buyers market' territory. Average prices were also down across the spectrum.

As I mentioned, average prices were down in all categories, but the SFH median did hold from July. The SFH average dropped $5,953 from July, condos and townhomes were both down about $2,250, and the residential average dropped $6,526.

As the drop in residential average was larger then for any of it's components, that suggests we're seeing a shift in activity back toward condos. Not a surprising move though, as with the record low interest rates it allowed people to 'go big' so to speak, and there was a disproportionate amount of activity in the detached market.

In coming months it will be interesting to watch prices, as the global markets are not showing any signs of recovery, I'd expect bond yields to stay down, which in turn will keep interest rates down likely going into 2010. This could keep prices up, and we could actually see some year-over-year increases even with month-over-month softening as it was around this time last year prices fell off the table before rallying a bit this spring.

Of course that will likely all come undone once rates do start climbing, but in the mean time if you're looking to sell you don't need to feel rushed just yet.

After consecutive record months, August was much more in the 'average' range for sales. Inventory has dropped a bit, but is largely holding. Interesting the pattern inventory makes this year is something of a mole hill compared to the mountains 2007 and 2008.

Though, I suspect it would be more severe if it wasn't for the low interest rates, which has made the speculative/shadow inventory very cheap to carry in hopes of prices returning to boom levels. A risky move IMNSHO, but it's not my money.

And finally, here is a look at absorption rates for August over the years. Down from the last two years obviously, but much higher then we normally are historically. It's also climbed back above 3.5 and into a 'buyers market' after getting as low as 2.66 in June. Such movement is quite normal for this time of year though, as sales tend to drop off more while inventory holds.

As always, here are the hard goods:

Sales = 1,673
Since two years ago = +28.8% (+374)
Since one year ago = +8.6% (+132)
Since last month = -26.5% (-604)

Active Listings = 6,445
Since two years ago = -29.8% (-2,740)
Since one year ago = -32.9% (-3,167)
Since last month = -2.2% (-147)

Single Family Homes Median= $350,000
Since peak (May '07) = -12.5% (-$50,000)
Since one year ago = -0.7% (-$2,500)
Since six months ago = +4.5% (+$15,000)
Since last month = No Change

Residential Average = $318,321
Since peak (July '07) = -10.3% (-$36,397)
Since one year ago = -3.3% (-$10,886)
Since six months ago = +3.0% (+$9,351)
Since last month = -2.0% (-$6,526)

Single Family Homes Average = $366,788
Since peak (May '07) = -13.9% (-$59,240)
Since one year ago = -0.7% (-$2,402)
Since six months ago = +5.6% (+$19,479)
Since last month = -1.6% (-$5,953)

Condo Average = $242,035
Since peak (July '07) = -11.0% (-$29,873)
Since one year ago = -3.6% (-$9,013)
Since six months ago = +6.7% (+$15,178)
Since last month = -0.9% (-$2,230)

Townhome Average = $294,007
Since peak (Oct '07) = -20.1% (-$73,957)
Since one year ago = -6.8% (-$21,433)
Since six months ago = -4.9% (-$15,173)
Since last month = -0.8% (-$2,277)