Alberta Canada Foreclosures HPI

Odds and Ends

I was thinking about doing a report on the new construction situation, but figured I might as well wait a week until the December numbers are reported. So instead I’ll just cover a few other items that are floating around.

– The Teranet-National Bank House Price Index which I looked at last week has updated their data with the November numbers. Here is a look at an updated chart.

The drop seems to be becoming more apparent. Here is a quick look at how the cities measured up compared to a month earlier and a year earlier.

Calgary = -0.9% since Oct, -7.7% since Nov ’07
Halifax = +1.3% since Oct, +5.8% since Nov ’07
Montreal = -0.3% since Oct, +5.1% since Nov ’07
Ottawa = -1.3% since Oct, +4.2% since Nov ’07
Toronto = -1.6% since Oct, +0.7% since Nov ’07
Vancouver = -1.3% since Oct, +1.0% since Nov ’07
Composite = -1.1% since Oct, +0.6% since Nov ’07

– A couple weeks ago I did a post on foreclosures. Just as a quick update on that tally, there are now fifteen more homes listed as foreclosures, 39 houses and 25 condos for a grand total of 64.

Speaking of foreclosures, Mike Fotiou wrote has started to write a series of articles about the ins and outs of buying foreclosed properties. Definitely worth a read.

– And as I’m sure you’ve heard, the Federal budget was handed down yesterday, you can take a look at it for yourself via this link

Rental Market

The Rental Market

I thought I’d take a quick look at another part of the housing market that I haven’t really discussed as of yet, and examine what’s happened to the rental market in Edmonton in the last few years.

Much like the rest of real estate in the city, the rental market saw rather explosive increases in unit costs. A run of the mill two-bedroom apartment that went for $600 a month in 2000, has shot up to over $1000 a month today. Most of that increase came in ’06 and ’07, when much like the resale market we experienced very high demand and low supply, resulting in a negligible vacancy rate… thus providing all the fuel needed to greatly increase prices.

As the above chart shows, through 2005 the average rent (including apartments and row houses) was quite stable while the vacancy rates were above 3%… but come 2006 when the economy really started to heat up suddenly the vacancy rate plummeted down to about 1% and that triggered a big increase in rents.

Even as vacancy rates started to creep back up, the average rent continued to increase in 2008. This probably due to long term tenants getting more gradual annual hikes, to get them in line with when new tenants were paying. The major hikes really started hitting in summer ’06 but it took a couple years for those to make their way to pre-existing tenants in full.

Also during this period we saw a number of building operators attempting to cash in on the hot real estate market and do condo conversions.

At the peak in 2003, there were 75,597 rental units available in the metro Edmonton area, and since then we have lost 7,690, over 10%. Most of these were just in the last two years, 6,639 to be exact. With a growing population, many of which were people coming here and working at lower end jobs, this obviously caused a big pinch.

Not to bore you with numbers, but just to give you an couple examples, the average monthly rent for all units has went from $678 in 2001, to $956 in 2008, up 59%. And since 1 & 2 bedroom apartments make up 3/4 of available units, I should mention those specifically. One bedrooms have went from $489 to $847 (up 73%) and two bedrooms from $601 to $1034 (up 72%)

So while the increases in the rental market were not quite of the magnitude of those experienced by the resale market, they were quite significant in their own right.

What the future holds for the rental market should also be pretty interesting. Vacancy rates appear to be on the way up, and we’re already hearing of complexes lowering rates, as well as offering all kinds of incentives… stuff we haven’t seen for some time. Add to that the influx of accidental landlords that have resulted from all the speculation in resale and presale markets, and we have a buyers market for renters as well.

Alberta Canada HPI United States

We’re different, it won’t happen here…

Today we’re going to take another quick look at price indexes, this time comparing what happened in the U.S. with what’s happening in Canada. In an effort to compare apples to apples as best as possible, we’re going to use two indexes with fairly similar methodologies, Case-Shiller from the United States, and Teranet’s HPI here in the Great White North.

We took a look at the Canadian one Tuesday, and for the purposes of comparison with Case-Shiller, we’ll be using the Canadian data with a shifted index point so that both have the same scale. For those who haven’t seen the Case-Shiller index charted out, here’s a look at it.

Yeah, that’s a whole mess of lines… so for those interested here is a labelled version with each cities respective peaks. Might clear some things up slightly, but yeah, that’s still a mess, but it’s bound to be when you’re charting out twenty cities and two composites. In any case, just sitting back and looking at the chart as a whole you can definitely see a general “bubble.”

Now for the sake of simplicity, I’m just going to take four of those cities, one for the top, one from the bottom and a couple from the middle… and chart them against the HPI’s for Vancouver, Calgary, and Toronto, whom seem to be the most talked about real estate markets in the country at the moment.

As you probably deduced, that U.S. markets have the dashed lines, and the Canadian markets are solid lines. Before you conclude our markets maybe were not as “bubbly” as those in the U.S., just bear in mind only L.A. and Miami were at that upper peak… and that the Canadian index doesn’t include our “bubbliest” major centre right here in Edmonton. So if I just go ahead and add Edmonton’s average price index to the chart we see this…

Keeping in mind the prior entries observation that the HPI was usually slightly lower then the average price index, but generally were pretty close… one can reasonable conclude that Edmonton quite likely would have an HPI of pretty damn close to that of Miami, if not even surpassing it. Unfortunately I don’t have data for Saskatoon, as I believe theirs would have blown past even that of Edmonton’s with their recent housing boom.

In any case, it’s not too much of a stretch to reason that the bubble experienced here was just as substantial as that in the United States… we just seemed to have the boom start about 18 months later… and not surprising, the downturn start about 18 months later. For a better look at this we can shift the Canadian data back.

When you look at it this way, these Canadian markets fit right in. Obviously we see a bit more seasonality, particularly in Calgary as the lines aren’t nearly as smooth as those of the American centres. I think that can be mostly explained by that house shopping in Miami and Phoenix in Winter versus the rest of the year probably isn’t all that different an experience, Calgary on the other hand, it’s a whole new, and cold, world.

Judging from the plunges in Miami and Phoenix have taken, it stands to reason that Calgary and Vancouver (and other markets that had big run ups, like Edmonton, Saskatoon and Regina) could very well have very similar busts ahead of them in the next couple years.

Toronto on the other hand didn’t have as pronounced a “bubble”… but as you can see with Detroit’s situation, that is no guarantee prices there won’t plunge. Prices in Detroit are now well below what they were even in 2000, and that’s ignoring inflation. But then again Toronto could weather it better and only experience a moderate drop, ala Chicago, whom they’ve been tracking pretty close through this point.

So for those who still think “we’re different” here in Canada, or Alberta, looking at that graph I don’t know what to tell ya. Taking into account that it didn’t hit us until 18 months later, everything seems to be right on schedule. The boom lasted about the same amount time and was of the same magnitude, the cool down lasted about the same amount of time and was of the same magnitude… so considering we’re joined at the hip with the U.S, Occums Razor seems to imply that the big drop is on the horizon.