After six years of escalating prices, only surprise is that it took so long
EDMONTON - Relax, folks. It's time for a chill pill. The sky isn't falling on Edmonton's once-torrid housing market.
Yes, prices are softening a bit. The average price of a single-detached home slipped 3.2 per cent in August, to $403,757. The average condo price slid one per cent, to $269,139.
With MLS inventories at record levels, buyers can now take their time. The pressure on buyers has lifted. Multiple offers -- common just a few months ago -- have all but disappeared. Sellers are reducing their prices.
In stock market lingo, this is called a correction. Every other housing market in the country has had one. Now it's Edmonton's turn.
Realtors say they wouldn't be surprised if average prices fall by six or seven per cent from their July peak, before levelling off in early 2008. If so, that would take the average single-detached home price down to $388,000.
Still, for anyone who has both feet planted firmly on the ground, none of this should come as a surprise. The only surprise is that it took so long for Edmonton's overheated housing market to take a breather.
Consider a few facts. Between January 2002 and July 2007 -- a period of 72 months -- local house prices went virtually straight up.
During that period, the average price of a single-detached home rose from $162,780 to an all-time high of $417,150, for a gain of 156 per cent. At the same time, average city condo prices soared by 173 per cent -- to $269,139 from $98,554.
The biggest gains occurred between the end of 2005 and July 2007, when inventory levels simply couldn't keep up with rising demand. During that 17-month stretch, average single-detached house prices rose from $225,130 to $417,150 -- a gain of 85 per cent. Condo prices soared 82 per cent, to nearly $272,000 from $149,254.
There were sound reasons for the big jump in demand, of course. Interest rates were low, and Edmonton's economy was among the hottest in Canada. That drew thousands of newcomers from all parts of the country.
On the economic front, not much has changed. Edmonton is still a magnet for job seekers. Unemployment remains low, job creation is still high and local rental vacancy rates are puny.
Oil prices -- the key driver of Alberta's economy -- hit the highest level in history Wednesday, touching $80 US a barrel.
Roughly $150 billion (Cdn) worth of oilsands megaprojects or related upgraders are planned or underway.
Oilsands output is expected to triple to three millions barrels a day over the next decade.
Roughly a dozen upgraders are slated for the Edmonton region. Thousands of new jobs will be created.
If anything, Alberta's oilsands, despite rising costs and growing pressure to curb greenhouse gas emissions, are only growing in stature, accounting for much of the gain in worldwide oil reserves in recent years.
There's another key factor behind the big surge in Edmonton house prices. Much of it was catch-up. While house prices soared in cities like Vancouver and Toronto in the 1980s and 1990s, prices in Edmonton stagnated.
Even after including the gains racked up through the end of 2006, local house prices rose by less than one per cent annually, on an inflation-adjusted basis, over the previous quarter-century.
By comparison, average house prices in Vancouver rose three times as fast, and prices in Toronto, Ottawa and Montreal rose more than twice as fast. Even cities like Halifax and Winnipeg outpaced Edmonton.
So where does all this leave Edmonton today? Well, despite the gains of recent years, local house prices remain among the most affordable of any major city in Canada.
According to an RBC Economics study released Wednesday, which measures the percentage of median pre-tax household income needed to cover the cost of mortgage payments, property taxes and utilities on four common housing types, Edmonton still looks like a bargain.
Whether the house in question is a condo, a townhouse or a standard two-storey home, Edmonton trails only Ottawa in terms of affordability. For detached bungalows, Edmonton ranks third, behind Montreal and Ottawa.
At the other end of the spectrum is Vancouver, which consistently ranks as Canada's most expensive city. If anyone can explain to me what keeps the housing market in Lotus Land afloat, I'm all ears.
To keep a roof over your head on the West Coast, RBC calculates that you'll need to allocate nearly 71 per cent of all pre-tax household income for a bungalow, and more than 73 per cent for a standard two-storey home. That's roughly twice what any financial adviser considers sustainable.
The benchmark price for a single-family home in Vancouver? It hit $726,067 in August, up 11 per cent from a year ago. That's roughly $323,000 or 80 per cent above the average price for a single detached home in Edmonton.
Curiously, I don't hear any economists ringing the alarm bells over a pending housing crash on the West Coast, where the economy is less robust and median household income levels are lower than they are in Edmonton.
The lesson in all this is clear, friends. Don't worry. Be happy.
The Edmonton Journal - September 13, 2007
Friday, September 14, 2007
Thursday, September 13, 2007
Housing boom will falter, bank says
The current housing boom is "unsustainable" because prices in 14 of 15 major Canadian markets are above their long-term trends, the Bank of Nova Scotia economics department said in a report Thursday.
With the exception of St. John’s, N.L., price levels have risen above the historic rate of increase over a nine-year boom, the longest since the end of the Second World War.
"There is growing evidence of overvaluation in home prices in some parts of the country," the report said, and "the further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction."
In nine of the 15 markets, prices are within a few percentage points of the long-term trend. But in six western cities, the increases are in the double digits, ranging from 10 per cent in Winnipeg to 25 per cent in Edmonton.
The bank said the market is still quite good, with little evidence of overbuilding or speculative buying. But the real price gain of 60 per cent over the boom period is high by historic standards, and signs of a slowdown are building.
Housing starts through August are down nine per cent, compared to the same period in 2006, and price increases — 7.7 per cent in July compared to July 2006 —are moderating.
"We continue to anticipate a gradual cooling in both housing demand and price appreciation in the months ahead. Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising home prices," the bank said.
It's the second bank report in two days to suggest that the housing boom could be faltering. On
Wednesday, the Royal Bank said housing was becoming less affordable.
CBC News - September 13, 2007
With the exception of St. John’s, N.L., price levels have risen above the historic rate of increase over a nine-year boom, the longest since the end of the Second World War.
"There is growing evidence of overvaluation in home prices in some parts of the country," the report said, and "the further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction."
In nine of the 15 markets, prices are within a few percentage points of the long-term trend. But in six western cities, the increases are in the double digits, ranging from 10 per cent in Winnipeg to 25 per cent in Edmonton.
The bank said the market is still quite good, with little evidence of overbuilding or speculative buying. But the real price gain of 60 per cent over the boom period is high by historic standards, and signs of a slowdown are building.
Housing starts through August are down nine per cent, compared to the same period in 2006, and price increases — 7.7 per cent in July compared to July 2006 —are moderating.
"We continue to anticipate a gradual cooling in both housing demand and price appreciation in the months ahead. Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising home prices," the bank said.
It's the second bank report in two days to suggest that the housing boom could be faltering. On
Wednesday, the Royal Bank said housing was becoming less affordable.
CBC News - September 13, 2007
Housing affordability still sliding: Royal Bank
Housing affordability continued to erode steadily across the country in the spring and early summer, Royal Bank said Wednesday in a quarterly report.
"In the second quarter, Canada's housing affordability experienced one of the largest and most broadly based quarterly deteriorations since the mid-1990s," said Derek Holt, assistant chief economist at the bank.
"Higher house prices, mortgage rates, utilities and property taxes all combined to drive the countrywide deterioration," he said.
In the April-June quarter of the year, the proportion of pre-tax household income required to service the cost of owning a standard condominium rose to 29 per cent from 27.5 per cent in the first three months of the year. A standard townhouse required 33 per cent of income, compared with 31.5 per cent in the previous quarter.
A detached bungalow took 41 per cent of pre-tax income, up from 39 per cent, while a standard two-storey home remained the least affordable housing type at 46 per cent — up from 44 per cent in first quarter.
Saskatchewan, Alberta and British Columbia saw the biggest reductions in housing affordability, the bank said.
Affordability deteriorated by approximately 20 per cent across each of the home segments in
Saskatchewan, making it the worst quarterly deterioration on record.
"[Saskatchewan] jumped into the spotlight at the start of the year when an influx of people caught the housing supply off guard, forcing affordability to deteriorate," said Holt. "This momentum continued into the second quarter as the pace of annual price gains soared into the double digit range."
Housing market conditions from Manitoba eastward are relatively stable compared to the western provinces, the bank added.
CBC News - September 12, 2007
"In the second quarter, Canada's housing affordability experienced one of the largest and most broadly based quarterly deteriorations since the mid-1990s," said Derek Holt, assistant chief economist at the bank.
"Higher house prices, mortgage rates, utilities and property taxes all combined to drive the countrywide deterioration," he said.
In the April-June quarter of the year, the proportion of pre-tax household income required to service the cost of owning a standard condominium rose to 29 per cent from 27.5 per cent in the first three months of the year. A standard townhouse required 33 per cent of income, compared with 31.5 per cent in the previous quarter.
A detached bungalow took 41 per cent of pre-tax income, up from 39 per cent, while a standard two-storey home remained the least affordable housing type at 46 per cent — up from 44 per cent in first quarter.
Saskatchewan, Alberta and British Columbia saw the biggest reductions in housing affordability, the bank said.
Affordability deteriorated by approximately 20 per cent across each of the home segments in
Saskatchewan, making it the worst quarterly deterioration on record.
"[Saskatchewan] jumped into the spotlight at the start of the year when an influx of people caught the housing supply off guard, forcing affordability to deteriorate," said Holt. "This momentum continued into the second quarter as the pace of annual price gains soared into the double digit range."
Housing market conditions from Manitoba eastward are relatively stable compared to the western provinces, the bank added.
CBC News - September 12, 2007
Thursday, September 6, 2007
Average up 27% in single year despite $10,000 hit
Cooling of torrid local real estate market 'nothing to panic about'
EDMONTON - Edmonton-area home prices fell almost $10,000 in August -- the deepest drop in the city's history.
The $344,792 average, for all forms of housing, was down 2.8 per cent from July -- well below past declines on a percentage basis.
Single-family house prices fell an average of $13,393, to $403,757.
Housing inventories at Multiple Listing Service plus ComFree rose to 12,112 units. But only 1,466 homes -- 12.1 per cent of those for sale -- were sold in August.
During the month, 88 per cent of single-family home sales were below list prices, by an average of $13,200, the Realtors Association of Edmonton reported Wednesday.
Sellers lost the luxury of bidding wars but "buyers have a lot of choice," said association president Carolyn Pratt.
While August prices have rolled back to April levels, they're still up 27.3 per cent from the previous August.
"It's only natural to expect them to correct a little," ComFree co-president Travis Holowach said. "A four- to six-per-cent correction, following that kind of growth, is nothing to panic about."
Erin Holowach, also at ComFree, said inventory totals can be misleading because some people list their homes without being committed to selling. " 'Hmm, the market's up,' they say. 'Is my house worth $600,000? No -- only $550,000? Guess I won't sell!' "
She thinks some of those "market testers" will drop their listings, and prices will gradually rise next spring.
Pratt expects a soft market for a couple of months, followed by slow price increases. "September has come, holidays are over, and I think we'll see more activity."
She cautioned, however, that "it all has to do with inventory, and it will take time to get that inventory down."
Many new-home buyers will leave their resale homes on the market, she said, and recent condo conversions also will remain in the market.
"Going forward, we see prices softening a little bit more in the next couple of months, but employment is high, interest rates are low and people still are moving into Edmonton," she said.
On balance, "we think the market will be strong again in the new year, but not with dramatic price increases."
Meanwhile, buyers can enjoy this break from the previous pandemonium of making hasty offers with few conditions about financing or inspections.
"They can take their time, do their homework and make their offers with conditions," Pratt said.
On a percentage basis, the August slump was far from a record. From December 1994 to January 1995, prices fell an average 6.5 per cent to $106,645. They fell 7.9 per cent ($75,800) from June to July 1984, and 23.1 per cent ($10,720) from February to March 1964.
Economist Carl Gomez, at TD Financial Group, in the latest issue of his quarterly Housing Bubble Watch, has written that "Edmonton still remains the second most affordable" large Canadian city in which to own a home.
He compared home prices to rents, saw "little evidence of speculation" and found a "very low" risk of an Edmonton housing bubble.
In Calgary, meanwhile, the average price of a single-family home plunged by about $20,000 in August, from a record high $505,920 in July to $485,566, according to preliminary figures from Calgary realtor Bob Truman.
The median price has fallen in the past three months from $439,000 in June to $435,000 in July and $430,000 last month.
Truman said Wednesday night that the average sale price in August was affected by the number of sales in the million-dollar-plus category.
In August, he said, 38 homes sold for more than $1 million, at an average sale price of $1.5 million. That compares with 61 sales in the upper-end market in July, when the average sale price was $1.7 million.
"If you get rid of the million-dollar sales . . . and compare them month to month, well August was down $2,000 compared to July," Truman said of the average sale prices for single-family homes. "So what happened was there were fewer million-dollar sales in August, and that really skewed the average price.
"But if you look at the median price it was only down by $5,000 and that means the same thing, there were fewer million-dollar sales."
In August, the average sale price of condos was $320,790 -- a slight increase from the $318,582 in July.
Edmonton Journal
EDMONTON - Edmonton-area home prices fell almost $10,000 in August -- the deepest drop in the city's history.
The $344,792 average, for all forms of housing, was down 2.8 per cent from July -- well below past declines on a percentage basis.
Single-family house prices fell an average of $13,393, to $403,757.
Housing inventories at Multiple Listing Service plus ComFree rose to 12,112 units. But only 1,466 homes -- 12.1 per cent of those for sale -- were sold in August.
During the month, 88 per cent of single-family home sales were below list prices, by an average of $13,200, the Realtors Association of Edmonton reported Wednesday.
Sellers lost the luxury of bidding wars but "buyers have a lot of choice," said association president Carolyn Pratt.
While August prices have rolled back to April levels, they're still up 27.3 per cent from the previous August.
"It's only natural to expect them to correct a little," ComFree co-president Travis Holowach said. "A four- to six-per-cent correction, following that kind of growth, is nothing to panic about."
Erin Holowach, also at ComFree, said inventory totals can be misleading because some people list their homes without being committed to selling. " 'Hmm, the market's up,' they say. 'Is my house worth $600,000? No -- only $550,000? Guess I won't sell!' "
She thinks some of those "market testers" will drop their listings, and prices will gradually rise next spring.
Pratt expects a soft market for a couple of months, followed by slow price increases. "September has come, holidays are over, and I think we'll see more activity."
She cautioned, however, that "it all has to do with inventory, and it will take time to get that inventory down."
Many new-home buyers will leave their resale homes on the market, she said, and recent condo conversions also will remain in the market.
"Going forward, we see prices softening a little bit more in the next couple of months, but employment is high, interest rates are low and people still are moving into Edmonton," she said.
On balance, "we think the market will be strong again in the new year, but not with dramatic price increases."
Meanwhile, buyers can enjoy this break from the previous pandemonium of making hasty offers with few conditions about financing or inspections.
"They can take their time, do their homework and make their offers with conditions," Pratt said.
On a percentage basis, the August slump was far from a record. From December 1994 to January 1995, prices fell an average 6.5 per cent to $106,645. They fell 7.9 per cent ($75,800) from June to July 1984, and 23.1 per cent ($10,720) from February to March 1964.
Economist Carl Gomez, at TD Financial Group, in the latest issue of his quarterly Housing Bubble Watch, has written that "Edmonton still remains the second most affordable" large Canadian city in which to own a home.
He compared home prices to rents, saw "little evidence of speculation" and found a "very low" risk of an Edmonton housing bubble.
In Calgary, meanwhile, the average price of a single-family home plunged by about $20,000 in August, from a record high $505,920 in July to $485,566, according to preliminary figures from Calgary realtor Bob Truman.
The median price has fallen in the past three months from $439,000 in June to $435,000 in July and $430,000 last month.
Truman said Wednesday night that the average sale price in August was affected by the number of sales in the million-dollar-plus category.
In August, he said, 38 homes sold for more than $1 million, at an average sale price of $1.5 million. That compares with 61 sales in the upper-end market in July, when the average sale price was $1.7 million.
"If you get rid of the million-dollar sales . . . and compare them month to month, well August was down $2,000 compared to July," Truman said of the average sale prices for single-family homes. "So what happened was there were fewer million-dollar sales in August, and that really skewed the average price.
"But if you look at the median price it was only down by $5,000 and that means the same thing, there were fewer million-dollar sales."
In August, the average sale price of condos was $320,790 -- a slight increase from the $318,582 in July.
Edmonton Journal
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