Alberta Venture magazine – buyer beware
Alberta Venture Magazine
I've posted on the topic of buying real estate in the states before, however Alberta Venture magazine recently ran a pretty comprehensive article on the subject; they looked at some of the things that Canadians should take into consideration when buying stateside. I am quoted in the article as an antagonist to purchasing real estate in the US but I just want to be clear that I'm not against 100% against buying down south. If someone takes the time to do their due diligence there are some excellent opportunities.
One thing I hear a lot of people discussing is the peak price VS the deal they got/can get on a US property: "I bought this foreclosure in Phoenix for $200,000 and at the peak it was worth $600,000." This bothers me for a number of reasons. The skeptic in me asks: "was it ever really worth $600,000?" It's irrelevant what someone paid for it under the euphoria of their housing and lending boom cycle, since its clearly not worth that much today. Perhaps they want you to believe it will be worth that much again.
In any case its a great article and is worth picking up the magazine for if you are going to be investing in real estate in the U.S.
Is Edmonton Affordable?
A few readers have referenced an affordability study that has popped up in a number of newspapers today, so I thought I would check it out. The "7th Annual Demographia International Housing Affordability Survey" rated the affordability of 235 housing markets around the world. They rated markets by dividing gross annual median household income by median house price and defined affordability as follows:
- 5.1 and over - severely unaffordable
- 4.1-5.0 - seriously unaffordable
- 3.1-4.0 - moderately unaffordable
- 3.0 or less - affordable
According to the report, the median multiple has historically been affordable and very similar in Australie, Canada, Ireland, New Zealand and the US. The US and Canada are still considered affordable in most markets, but it has escalated sharply in other countries and a few markets in North America.
There were 82 "major markets" considered in the study - those with a population of 1 million or more - 20 were affordable, 25 moderately unaffordable, 13 seriously unaffordable, and 24 severely unaffordable 3 of which were in Canada.
The most affordable market was Atlanta at 2.3 (median house price $129k). Hong Kong was the least affordable at 11.4 followed by Sydney, and Vancouver (last year's most unaffordable market). Wow.
Edmonton was the most affordable major market in Canada, at 3.5 and was #30 overall. Ottawa came in next, #33 overall at 3.6, followed by Calgary in 43 spot at 4.0. Toronto (5.1), Montreal (5.2), and Vancouver (9.6) were all considered severely unaffordable.
Canada's most affordable markets were Windsor at 2.1, Thunder Bay at 2.3, Fredericton at 2.4, Yellowknife at 2.4, and Charlottetown.
So, according to this report we are moderately unaffordable, while being the most affordable major market in Canada.
Housing Forecast Seminar Live Blog – MLS® System Market Forecast
Chris Mooney, President, REALTORS® Association of Edmonton.
Chris walked on stage with an iPad, hopefully a sign of what is to come. He gave an annual review which we have already covered here and in our report that went out yesterday. he pointed out the average prices are currently highes in the south west and west,
The forecast for single family homes in the Edmonton area:
- Stable market uness external foreces intrude
- Generally balanced
- 3% rise in prices overall with seasonal fluctuations
- Inventory up to 7000 units in the spring
- Fewer new spec homes creates demand for resale
- Sales up slightly
Condos:
- Sales and prices to remain static
Overall
- Stable and normal market
- Prices will fluctuated through a normal range
- SFD increasing prices overall
- Inventory and DOM drops in Q3 & Q4
Housing Forecast Seminar Live Blog – Economic and Financial Trends
Next up at the Housing forecast seminar, Ian Glassford, CFO, Servus Credit Union.
Global economy:
- continued recovery in 2011, not expecting double dip
- weak recovery for developed economies
- volatile but overall positive
- recovery is very different in different parts of the world. Developed world will grow slowly where emerging economies will grow significantly (4.2 VS 6.4 in 2011)
- concerns about government debt (slow growth and slightly higher rates is not a good formula to reduce deficits)
- concerns about transition from economy driven by public spending, to one driven by private spending
- concerns about our dependance on a few strong economies (Germany, China & India)
- odds are we will work through all of this
- Canadians seem to get that we are in pretty good shape, but this means we are not managing our debt well
Canadian economy:
- he thinks we can do better than the IMF forecast of 2.7% if: commodities hold on, rates stay low, dollar doesn't get too strong
- we can only go so far without the US, we are very dependent on them and can only go so far past them
- backdrop is good for commodities but there is concern they are being stockpiled by other economies
- rates that are too low for too long makes bad behaviour, but if they go up too fast they can choke the economy. BoC was hoping Canadians would address our debts so they could raise rates but we haven't. They are walking on a tightrope, but at least the BoC gets what is going on and the situation we are in.
Rates:
- Modest upward pressure this year
- concern about strong dollar
- global recovery uncertain
- little inflationary pressure...
- predicts small hikes starting late spring/early summer
- as long as the dollar stays high the pressure is off the BoC to raise rates
- "Capacity utilization" if you hear those words coming out of the BoC we are on our way to a period of sustained higher rates
- 1-2 years out rates will increase further, BoC sees considerable monetary stimulus in place, inflation will start to accelerate. 5 year rates will start moving in anticipation of these events.
- Conditions are in place now for rising inflation but he expects it will take a couple of years before it develops
Housing:
- its been all doom for a while, doesn't see "zoom," ho-hum is where its at
- a house is where you live, ho-hum is not bad, people think about a place to live not how much they are going to make
- perspective is similar to what it was 2-years ago
- affordability is still high at 31.7% but way below 42.2% we saw in 2008
- cons: housing prices are highly vulnerable to rates and qualification rules
- pros: recovery underway, Alberta should fair better than average, banks recognize importance of supportive rate environment
"Overall it's a year I'm not that worried about." Ian Glassford, CFO, Servus Credit Union.
Housing Forecast Seminar Live Blog – Development Trends
Next up....Patrick Shaver, President, Urban Development Institute (UDI)
- 2011 Housing trends - people want a single family home. This includes single detached, duplex and row homes, as long as they are "fee simple"
- The new standard detached lot is 40' wide.
- Detached garage homes with a lane are on a 30' lot today (compared to 50' 40 years ago)
- Higher density can be achieved in hugh employment areas, and infill areas as well as "urban villages"
- Region has identified primary growth areas with density requirements to the south of the city, west and north east
- Newer developments have higher population densities. Castle downs in the 70's was 62 people/hectare whereas newer neighbourhoods in Windermere are 82.
- Cost of development in the city is higher than anywhere else in the area. There will be a higher deamnd for single family larger lots in the city which will raise prices.
- Most growth will grow in South, Southwest and Southeast in the long term (because other areas are bordered by other cities).
- Sherwood Park has significantly higher housing starts than St. Albert. St. Albert restricts the type of development (no lane development) where S.P. has much more diversity in product. Leduc is seeing significant growth and offers a variety of product. Beaumont, Devon and Calmar has potential.
- Housing starts - he sees flat growth until 2012 when we will start to see a modest increase in demand for the next few years.
- People want schools, parks and paths, natural areas.
- Developers are putting in constructed wet lands, un-paved trails (lower maintenance), LED lighting, lots that front onto parks...all to meet demands of consumers.
- People don't move here because of the weather, we moved here because of opportunities...and we stay because of the lifestyle.
Honestly this presentation was loaded with information, but it wasn't clear what he was specifically talking about at any given point in time. Hence, my summary is not very well explained. I'll try and digest the information and add more when I've had time to think!
Housing Forecast Seminar Live Blog – Edmonton Business and Commercial Climate
First up today we have John Rose, Chief Economist, City of Edmonton who says we have a positive outlook going forward, with caveats. This is a live blog so please forgive any typos/grammar/spelling issues:
- Natural gas prices will remain low (relative to historical highs)
- Oil prices, current run up is getting ahead of itself, but prices should remain in the high 80's-low 90's for the foreseeable future (good for Alberta and Edmonton)
- Alberta GDP growth lagged behind Canada in 2010, but expect final numbers for greater Edmonton to show growth over 3% and ahead of national average, while the city will be slower. This is partly because the city did not dip as much as the broader region
- Canadian dollar is at parity with the US$ and we should continue around $1.05 for the rest of the year due to weakness in the US$ more than strength in our own. US fiscal situation is diplorable and $ could further weaken.
- Interest rates - nowhere to go but up. Had a false start last year with rate increases, slowdown followed immediately the BoC backed off. They just delayed the inevitable. It's not a question of if rates will go up, but when. John expects at least .75% increase by the end of the year, and 2% by the end of 2012. Increases will be rapid when they come, likely starting in the second half of the year.
- Inflation in Edmonton is essentially 0 currently, we are in a low inflation environment compared to the rest of Canada and North America. This is a major change from a few years ago.
- UE is trending down in Edmonton (currently 5.8%). Expect net migration to rise in Edmonton.
- Edmonton housing market is settling into a balanced situation and should "firm up"
- Costs associated with non-residential constructions have begun to move up raising concerns for medium term, but currently very favourable.
- Jobs lost in '08&'09 have largely been recovered. Edmonton is generating jobs at twice the rate of Alberta and has now started to create more jobs than the peak. (US will take 4 more years to re-coup the jobs lost.) "We are out of the hole in Edmonton and moving forward." 6 out of every 10 jobs created in Alberta were created in the Edmonton region. Calgary's labour force is shrinking - people are leaving - we have the opposite situation.
- Last boom was driven by investment. The largest driver of the boom was conventional oil and gas. There is currently no reason to expect a boom in relation to natural gas because prices are low and will remain... this means we shouldn't see another investment lead bubble. Rather we should have more stable and sustainable growth.
Three forecase scenarios:
Baseline - 55% probability - moderate sustainable recovery in energy related investments spread out over the forecast period.3-4% growth for next few years then tapering off.
High - 15% - relatively quick recovery in energy related investments bunching up from 2011-2016. 4-4.5% growth then taper off.
Low - 30% - Slower US recovery, depressed energy prices and very slow recovery in energy related investments.
- Greater Edmonton area will enjoy a quicker recovery as manufacturing picks up. Inward migration will pick up, migrants tend to be young and have families.
- Over the medium term city growth with converge with the rest of the province, city will outperform region in 2016 and after.
Summary:
1. Low interest rates will not last. Will move up a lot in 2012.
2. Relatively low inflation.
3. Modest but solid and sustainable recovery (no boom/bust).
4. Some downside risk due to sluggish US recovery depressing energy prices.
New Construction Continues Slowdown in Edmonton in December
Edmonton new home
Canada Mortgage and Housing Corporation (CMHC) released its report on housing construction in Edmonton for December showing for the third month in succession, total housing starts decreased on a year-over-year basis. Here are some highlights from the report:
- housing starts totalled to 558 units in December, down from 812 last December
- Despite the recent reduction, annual starts were considerably higher than 2009. Total housing starts reached 9,959 units, up from 6,317 units reported in all of 2009.
- There were 309 single-detached units started in December, down 31% from the same month last year - it was the slowest month since July 2009.
- For the year, builders started 6062 single-detached homes compared to 3897 in 2009.
- Multiple unit starts amounted to 249 units in December, down 32% from December '09.
- For the year, multiple unit starts increased by 61% to 3,897 units, up from 2,420 units in 2009.
- “New apartment activity experienced the largest gains, with starts in
2010 more than double the volumes recorded throughout the previous year,” noted Richard Goatcher, CMHC’s Senior Market Analyst for Edmonton. - Check out new Edmonton homes for sale.
Important notes:
- At 2pm this afternoon we will send out our annual report to all subscribers - dont miss out, subscribe before 2pm for free! If you don't get your copy, check your junk mail! *our mailing service provider is having technical difficulties, we will send this out asap.
- We will be attending the Edmonton Housing Forecast seminar tomorrow. Check the blog all morning for live updates from the seminar featuring Garth Warner, President and CEO, Servus Credit Union, John Rose, Chief Economist, City of Edmonton, Patrick Shaver, President, Urban Development Institute, Ian Glassford, CFO, Servus Credit Union, Richard Goatcher, Senior Market Analyst, Canada Mortgage and Housing Corp and Chris Mooney, President, REALTORS® Association of Edmonton.
Readers Predictions for 2011
On Tuesday we posted a poll asking our readers what they thought would happen with the real estate market in Edmonton. We've had 95 responses so far and they keep coming in. It seems to me our readers are more optimistic than in the past (certainly more so than the last poll we had in July).
Here are the results:
1. At this time next year the average residential sale price in Edmonton will be:
- 43% said higher
- 36% said lower
- 20% said about the same
So 63% of readers think prices will be the same or higher at this time next year.
2. The total sales for 2011 will be:
- 40% said higher than 2010
- 30% said lower than 2010
- 29% said about the same as 2010
3. Some economists have said Alberta's economy will grow more in 2011 than any other provice. As a result, our real estate market will:
- 64% said we will do better than the other provinces
- 28% said we will do about the same as the other provinces
- 5% said we will do worse than the other provinces
So I guess that means even if we can't agree on what the market will do, we can agree that Alberta will at least do as well, if not better than the other provinces next year.
4. The 2011 spring market will be:
- 31% said good
- 31% said average
- 27% said below average
- 11% said hot hot hot!
5. In 2011 mortgage rates will:
- 48% said stay about the same
- 45% said rise
- 3% said drop
- 2% said skyrocket
The interesting thing is, although the answers to the questions were middle of the road to positive, the comments were almost all negative. We asked "Do you have any other thoughts on what will happen to the real estate market in Edmonton in 2011?" Here is what our readers had to say:
- same as what will happen everywhere else in Canada: not goodThe arena may spur some commercial development in downtown Edmonton but we won't see that announced until the end of 2011 and nothing started until the arena footings are in and investors can see something tangible - perhaps early 2013.
- The cost of new construction on the outer edge is still cheaper on greenfield than on brownfields so the city will increase the cost of urban sprawl to encourage developers to infill.
New construction will be on smaller lots with less "real" amenities. The "features" of new homes will all be fit and finish, glitzz and glamour rather than long term features (garages, finished basements, extra bedrooms, landscaping) that really add value to a resale down the road. - It will grow slowly. Not extreme...but steady growth.
- I believe that Alberta's real estate market will continue to decline next year due to the following reasons:
1. Commoditites will do much better next year, partly due to continued demand outside of the USA (namely China), for our natural resources...
2. This will cause greater inflation, (namely demand pull). This in turn with a stronger dollar will cause interest rates to rise....
3. I strongly believe that there are a majority of people out there who have overextended themselves and you will see this begin to bite in a big way.
4. This however will not have much effect to the overal employment figures in Alberta as companies have learnt to operate in a much more efficient manner. I also believe that the majority of the construction/ upgrading has already been completed/ accounted into next years growth.
5. Construction companies will continue to build at full speed in order to repay thier loans, as these loans will beginning to expire next year and the cost of servicing that debt will increase, due to higher rates. This is my 2 pennies worth! - Looking for more "normal" market - ie 2005-06.
- Keep up the great work
- If builders can stop creating a glut then prices will recover. Otherwise, we're screwed.
- Demand for workers will tend to shift people to Alberta once again. Once people believe the bottom of the market was reached and the swing back up has momentum (even if the speed is not fast), then the trade-up market will get back on track. I don't see this happening until mid-year, but you never know and it could happen in the spring.
Condo sales will heat up, especially in the mid and high level marketplace as aging suburban residents who have been putting off the move will want to respond to the improving market conditions by trading up and even down.
The first time buyers market will also improve as jobs increase and workers move in. This will be strong even at the start of the year as people take advantage of record low interest rates. - I think the excitment will even be lower then the past few years. People just don't care like they did in 2006 and 2007. Users on blogs might be higher but thats just the realestate market breaking through online. Real estate will go back to being a home not a money making machine.
- Edmonton will muddle through the next two years better than most cities. It's 2013 and 2014 when things get interesting.
- 2011 should be a repeat of 2010 with the exception that prices will dip by at the most 10%, made evident in first half of year. This should bring the resale prices at a bottom. Finally!
Sales should remain put. - Lots of inventory, an average number of buyers with prices trending lower than the prices at the same time in 2010.
- It will be considered stable as compared to other provinces , but the slow decline in prices will continue due to mortgage rule changes in Apr 2010. When I talk to people in mortgage business, they say that the difference in max mortgage approval is around 50K to 100K less now than before Apr 2010. That has to have an effect somewhere. Its already showing because people are buying smaller houses more than before.
- Newer neighborhoods that mix condos and higher price point houses may be in for a bit of a shock if cash-poor condo owners have to start renting out at reduced prices.
- It will be another good year for sellers. Last spring there were only some owners bought in 2007 peak started to list their properties. This time almost all or most 2007 peak buyers would list them. Thus price should not go higher too fast due to the inventory. On the buyers side, this time the real buyers who have been waiting for 2~3 years would step into the market. For these buyers, there is no time and room for them to waite further longer. Most lost their patient already.
- High listing and high sales would be a main tone for 2011!
- What is your prediction?
Thanks to everyone who participated, the results are very interesting and the comments are terrific. We will have our predictions for 2011 in the near future.
Edmonton Real Estate Market Improves in November
The other day Sheldon said to me: "It feels a little like it did at the end of 2005..." He reminded me of some properties that sat on the market for ever that just started to sell out of the blue in 2005, and related that to what is happening with some properties now. I didn't think much of it at the time, until I put together the numbers today. And wouldn't you know it...to me they look a lot like November 2005.
Take sales for example, they actually increased in November compared to October - that is not normal, and the last time it happened was 2005. From my perspective it's not just the fact that sales increased that is interesting, it's that after 6 months of below average sales we jumped back into the normal range:
There are other factors that feel a little like 2005... according to an article in the Edmonton Journal the oilpatch is ramping up again -- with $2 billion in land sales this year as a precursor to much more largely unconventional oil and gas development, with airports and work camps full, and with a growing lack of good staff available to work drill rigs, the picture is starting to look familiar. Alberta has the lowest inflation and highest job growth in the country, and is expected to lead the country in economic growth in 2011 at 3.5%.
Average prices continued to decrease in November, which is normal for this time of year. The question on everyone's mind seems to be: "What happens next spring?" Time will tell...
As always we will post a final analysis once the press release is issued from the REALTORS® Association of Edmonton.
More Albertans Expect to Buy a Home Next Year
Gord McCallum at First Foundation Mortgages forwarded me a report from the Canadian Association of Accredited Mortgage Professionals called "Annual state of the Residential Mortgage in Canada." Here are some highlights:
6.4% of Albertans indicated they were highly likely to purchase a home in the next year, the highest in the country and well above the overall average of 3.56% (only 1.8% of Saskatchewan and BC residents indicated the same thing). This was also up from the Spring when 4.3% of Albertans indicated they were highly likely to buy and last fall when only 2.9% indicated so.
At the same time, Albertans had the lowest expectations that house prices would rise next year (perhaps that's why many are thinking it will be a good time to buy).
Most Canadians are confident in their ability to pay off their mortgages, do not regret taking on the mortgage they did, and believe that real estate in Canada is a good long term investment. At the same time most Canadians feel that as a whole we have too much debt, and that low interest rates have allowed many people to become home owners in the past few years who probably should not be homeowners. Is this a case of not in my backyard syndrome?
Among homeowners with mortgages, the average equity is about 50% (meaning they have about half the value of their homes paid off) and 81% have at least 20% equity.
Mortgage arrears remain stable at .42% nationally which is lower than what we saw for most of the 90's.
The average mortgage rate for a new mortgage this year was 3.75% and 72% of Canadians that renewed in the past year renewed at a lower rate.
The vast majority of mortgage holders in Canada have considerable capacity to afford rises in mortgage rates. 84% said they could handle monthly increases of $300 or more in the monthly payments, and the average amount was $1056 over their current costs.