Today they released the final March resale numbers, and I think we can safely say we have entered the final blow-off stage of our little year-long interest rate rally. The dumb money is now pouring in trying to beat the new lending regulations and central bank rate hikes… while the smart money is trying to get out while they still can… and if those pending events weren’t enough, the mid month jacking of mid-term fixed rate mortgage rates certainly reinforced what was coming down the line.
Prices were up HUGE. People weren’t just buying, they were going big (I’m betting there were a lot of VRM’s involved…). Averages saw massive gains… residential up 8.5%, condo’s up 9.0% and single family homes up 5.1%, and this was month-over-month. Just to put that into perspective, from a nominal dollar perspective, those gains were the biggest ever… yeah, even larger than any experienced even during the 2006/2007 boom. Medians were also up, though a bit more modestly than the averages. Single family homes up 2.5%, and condo’s up 7.3%.
And all this with a soft job market and negative interprovincial migration. If foreclosures weren’t already a disaster waiting to happen, they certainly would be now. New buyers getting even more extended on unsustainable interest rates. This sudden jump in prices seems even more arbitrary looking at supply and demand though.
Sales were nothing special historically for March… if anything they were probably a little on the low side, coming in at 1,571. They were up over last month, but that’s no surprise at this time of year… and up from last March, but considering that was one of the lowest on record, that isn’t saying much either. A far cry from March of 2007 when there were 2,359 sales, a time when large month-over-month price gains were normal.
Beyond that, there was no shortage of supply… in fact, inventory rocket up even faster than prices, increasing by over 24% just over February to sit at 6,770. Mind you, increases are typical in the spring, but nominally that was an increase of 1,321 month-over-month, which is the 4th largest such increase ever… surpassed only by May, June, and July of 2007… coincidently when the first massive inventory spike took root and the bubble began to deflate.
A rather ominous portend indeed. And incredibly at odds at the behaviour on the price front. Those who can least afford it are running in and maxing themselves out on borrowed funds… at the same time sellers are begging to rush their properties to market at a near record pace in hopes of cashing out.
Absorption rate wise we are down from last year but still well in buyers market territory (again begging the question, why did prices shoot up?). Year-over-year inventory is still a bit below where it was last March while sales were a bit better, explaining that. But this is something to keep an eye on as last year inventory actually peaked in April at just over 7,500… so if the rush to market this year continues into April, we could easily pass that mark next month.
These are interesting times my friends, sales are nothing special while inventory is growing steeply… and somehow this results in the largest nominal increase in average prices on record. The dumb money has arrived, and the smart money is trying to get out while the getting is good. This is going to be a colourful few months ahead of us!
Finally, and as always, here are the hard numbers:
Sales = 1,571
Since two years ago = +0.9% (+14)
Since one year ago = +13.8% (+191)
Since last month = +32.7% (+387)
Active Listings = 6,770
Since two years ago = -28.5% (-2,694)
Since one year ago = -9.4% (-706)
Since last month = +24.2% (+1,321)
Single Family Homes Median= $364,000
Since peak (May ’07) = -9.0% (-$36,000)
Since one year ago = +9.0% (+$30,000)
Since six months ago = +4.0% (+$14,100)
Since last month = +2.5% (+$9,000)
Condo Median = $234,000
Since two years ago = -6.4% (-$16,000)
Since one year ago = +8.8% (+$19,000)
Since last month = +7.3% (+$16,000)
Residential Average = $343,607
Since peak (July ’07) = -3.1% (-$11,111)
Since one year ago = +11.2% (+$34,575)
Since six months ago = +5.0% (+$16,372)
Since last month = +8.5% (+$26,842)
Single Family Homes Average = $388,473
Since peak (May ’07) = -8.8% (-$37,555)
Since one year ago = +11.1% (+$38,757)
Since six months ago = +4.4% (+$16,526)
Since last month = +5.1% (+$18,900)
Condo Average = $252,416
Since peak (July ’07) = -7.2% (-$19,492)
Since one year ago = +9.5% (+$21,947)
Since six months ago = +2.8% (+$6,870)
Since last month = +9.0% (+$20,886)
Another inventory spike? That will shoot all Radley’s little theories to hell
The problem with his hypothesis was that it completely ignored the whole psychology of the market… which, from a mathematical standpoint is understandable insofar as it really can’t be quantified. It’s pretty much the same problem with the efficient market hypothesis… you have to assume the market is in some perpetual state of balance, and the agents are rational, and the truth of the matter is that neither is true, at least as far as real estate in Alberta goes.
Look no further than the graphs for price and sales/inventory in this post… those movements would be impossible if the efficient market hypothesis was true.
It’s why I scoff at the notion that supply and demand are somehow fundamentals of real estate, when they’re really dependent variables. They swing wildly depending on the mood of the market, as we’ve seen. In our case supply and demand are really more a temperature reading than anything, and insofar as that goes might give you a very short-term reading into price… but we have a virtually infinite supply or land and materials, we just can’t have a sustained supply shortage.
The only true fundamentals in determining prices are incomes and interest rates. Those determine how much people can afford, and while market psychology can certainly produce short-term fluctuations (as we’ve seen), over the long-term prices will always regress to the mean (as we saw in the 80′s, and will see again).
It’s a very simple but intuitive point… if the median household cannot afford the median house, the market price is not sustainable.
‘Smart money running for the exit’ was the exact phrase running through my mind these past few months or so here in Calgary as our rental inventory dropped by about 25% and it became obvious that those properties were being put up for sale, leading to a higher than seasonally expected inventory rise.
Of course, it’s impossible to know if this is smart money, only time will tell !
So an inventory spike means the end is near for the rally? If so, it’s coming for a lot of cities across the country from the sounds of it.
@CM – Yeah, the really “smart money” was out three years ago, just as the really dumb money was pour in… we’re kind of in shades of gray now, but as you say, time will tell.
@Ron – It was the inventory spike the marked the end of the run up in ’07, and while it had been rising much faster than seasonal this winter I held off making a call cause while we were out of range, we weren’t egregiously so. Normal range can be seen here:
http://edmontonhousingbust.com/files/100407-1.jpg
I’m going to do a more indepth piece on this later, but it’s clear to see that the normal range for month-over-month inventory changes is +/- 500… so when you’re breaking 1,000, something’s up. If the April numbers are over 1,000 again, what little doubt is left is long gone.
Being in Edmonton and Calgary kind of gives us a unique perspective cause we’ve already seen how it ends once recently. We know what to look for.
Circle April 6th on your calendar as the date in 2009 that Calgary housing prices peaked. I’d imagine Edmonton won’t be far behind. Like most people that read this site and pay attention to housing fundamentals, I believe that prices will be lower at the end of the year than they are today. One thing I disagree on is how quickly we will return to the fundamentals. I’d be surprised if average prices is down more than 5-10% by year end and can’t see any way it is down more than 15% just from watching US prices including the Scottsdale Arizona market where all most 20% of the market is saturated with foreclosrues:
http://realestate.yahoo.com/Arizona/Scottsdale?p=los+vegas
One other item I haven’t seen discussed much is political motivations. The fact remains that in a minority government, the Conservatives cannot afford to have the housing market collapse. A 5-10% drop doesn’t hurt them much, but anything more is disastrous to their chances to win an election. For that reason, I expect them to do everything possible to prop back up housing if the slide is drastic – even if it hurts the country in the long run. Unfortunately, you don’t win elections by thinking about the long-term.
Mabus