Alberta Canada Foreclosures Personal Finances

Interest rates and defaults

Continuing our consumer debt series, and today we’ll take a look at how interest rates play into things. So lets jump right in and start with interest rates and bankruptcies.

Here I’ve overlayed interest rate and the national and provincial bankruptcy rates. What we can take from this graph is that the gradually decreasing interest rates haven’t had any noticeable impact on bankruptcy rates. The one thing that does stand out is the dramatic spike in interest rates in 1994/1995, which coincided with the start of a more gradual spike in bankruptcy rates which eventually topped out in 1997.

It’s hard to say if, or how much, of a causal relationship may exist between these happenings, but as we discussed in my last post, people are increasingly likely to default on loans early in their terms, particularly when the rates charged are high. So the rise in bankruptcy rate could be a remnant of people taking on debt during the interest rate spike… or it could be nothing. Worth noting anyway.

Moving on, now we’ll hit on interest rates and mortgage arrears. This data goes back one more year, and here we can see there was an additional spike in interest rates in 1991… and like the bankruptcy rate, we can again see an arrears spike lagging, and topping out about two years after the interest rates did.

Again this could be a coincidence, but such a relationship would seem rather intuitive and seems to show abrupt interest rate spikes may contribute to later spikes in loan defaults. The slow decline of interest rates don’t appear to have a major effect, but rapid increases do seem to be a noticeable driver.

So, obviously in our current low rate environment this could spell trouble ahead as rates are almost assuredly to rise at least back to more historical norms. That graph is also another reminder of just how historical norms have been and how fortunate borrowers have had it for the last decade. 7.5% appears quite moderate over the last 20 years (and if we went back 30 it would look even better), but if we suddenly found ourselves in that situation tomorrow, havoc would be wreaked, and not just on the real estate market.

Finally, cause I have the data and went to the trouble of making the graph, we’ll take a look at interest rates and average bankruptcy deficiency We hit on this last week, but for a quick and dirty explanation, deficiency is the surplus of liabilities over assets upon filing for bankruptcy.

This data goes back much further, all the way to 1976 and the series was annual. Obviously what catches everyone’s eye is the big spike there in the early 80′s. Seems there were a whole lot of bankruptcies that included foreclosures during that spike, especially in Alberta.

Beyond that period there doesn’t appear to be as much a relationship between the measures as the ones we’ve discussed earlier. But as I discussed last week, most of the time the majority of bankruptcies do not include foreclosures, so that isn’t surprising. While we don’t have foreclosure numbers going back to the early 80′s, the deficiency measure would seem to indicate there were a whole lot of them.

Anyway, hope you guys found this interesting, a little macroeconomic food-for-though to chew on this weekend. Take it for what it’s worth.

Alberta Foreclosures

Anatomy of a foreclosure

Spent most of yesterday sorting through my database full of info… updating, upgrading and quite a bit of deleting. Long over due as it was a colossal mess, and I needed a refresher over what I had. It was good and got a ton of ideas about things I could cover… and which in all likelihood will be forgotten by time I can get around to it.

And in that spirit, I’m doing a post on something I just randomly stumbled upon while surfing today. Found a old page that was once from the site and thought it would make an interesting topic.

It’s just basic information on 88 foreclosures in Edmonton and Calgary from a couple week of July, 2003. Amount owing, original mortgage amount, month issued and interest rate. Figured it made a nice little random sample to examine, and even better, it’s from a period when the market was far more balanced then what it’s been like the last four or five years.

We can test some axioms, and see where it leads. In articles and interviews I’ve heard it stated that most foreclosures occur in the few years of the loan. So, lets start there:

Seems that claim holds up, at least as far as our block sample goes. Over 60% of those foreclosures had occurred within three years… over 75% within five… and 95% by year ten.

We can also see that most occur in the second year in particular, over 1/4 in fact. Years one and three are the next highest at around 16-17%… from there it seems the general trend it that the longer the mortgage is held, the less likely it is to default.

Those that looked at the linked page may have noticed that a few of those had some rather extreme interest rates, as high as 20%… obviously not made to prime borrowers. So, I also ran the numbers again for rates less-than-or-equal-to 10% just for shits and giggles and so we can see what it looks like for move conventional loans.

Pretty much looks the same, except years one and two are slightly lower, and the rest slightly higher. Not really a surprise, as obviously people taking those elevated rates are higher risk and the rates themselves make the vicious circle complete.

Of the 12 that had the >10% rates, four were foreclosed upon within a year… six in the second year… and the remaining two in the third year. Typically these were smaller loans, often under $25,000, so presumably second mortgages, but a couple were over $50,000.

Now we’ll look at a slightly different angle, this is how much is owing relative to the original loan at the point of foreclosure… or more accurately, how much has been paid off. By far the highest range here are those that actually owe more then their original loan… almost 40% (also did this graph for loans with interest rates at or below 10%)

The incident rate quickly drops to about 24% of foreclosures for those that have paid back between 0-5%. In this sample almost 2/3 foreclosures involved borrowers with less then 5% of their loan paid off. Oddly the rate plummets in the 5-10% range, then bounces back up, but I’d chalk that up to it being a small sample. If we had a larger sample the curve would probably be much smoother.

In any case, we can see that the less principle one has repaid, the more likely they are to fall into foreclosure… or conversely, the more principle one has repaid, the less likely they are to fall into foreclosure.

This would obviously jive with our findings earlier in this post… and as one should expect, those defaulting early in their mortgages life would in all likelihood have repaid less principle.

While I wouldn’t take any of these stats as gospel, as this was just a random block sample, at least it was a fair sized one and the results appear as one would expect intuitively. Anyway, I thought it was interesting to analyse, hopefully you feel found it interesting to some degree.

Alberta Foreclosures Macroeconomics Personal Finances


Hope everyone enjoy their Thanksgiving long weekends, and filled up with turkey and complex carbohydrates.

In the comments section of last weeks post on consumer debt someone referenced these stats on bankruptcies/insolvencies in Canada. I managed to find their historical bankruptcy numbers, but not the proposal and total insolvency stats (insolvencies = bankruptcies + proposals).

So, we’ll take a look at the bankruptcy numbers today, and rather then do one monster post I’ll just do a series and in coming days and weeks I’ll do further comparisons between consumer debt, bankruptcies and foreclosures.

Rather then just quoting the hard figures, most of these measures have been derived to give a better historical context. This is a figure of the number of consumer bankruptcies per 1,000 people in Alberta for any given year. Also included the long term average and median figures for comparative purposes, and a projection of what the 2009 figure will be based on the numbers through August and long-term seasonality.

As we can see, through 2008 we were still in the average range overall, but actually quite low when compared to the prior 20 years (given the shift there must have been some kind of change in measurement and/or legislation around 1990). During the boom period we saw bankruptcy figures fall, but are expected to spike back up this year to pre-boom levels.

It is also interesting to look at the historical figures. For example, we’ve talked here often about the early 80′s recession and have heard the stories about the devastation felt by residential real estate. We can see bankruptcies did double from the boom days in the 70′s to the bust in the early 80′s… but the rate stayed constant right through the rest of the 80′s, no discernible spike as one might expect.

Then in the early 90′s we see the rate climb from 1.0 to 2.25… this also coincided with a recession (though minor compared to a decade earlier), but curiously in the mid 90′s the rate took off again and topped out above 3.5 after the recession had already played itself out.

From what we know about home prices, they had a significant drop in the early 80′s, and minor one in the early 90′s, but were stagnant in the mid-90′s. So, it would seem any relationship between consumer bankruptcies and real estate is probably not closely tied to bankruptcy rate.

Just some food for thought, here is the year-over-year change in bankruptcy rate. Interesting to note that based on our current pace, 2009 will have the highest increase ever. No small feat considering it was not exactly low going in. While probably not directly effecting real estate, it is a rather damning statistic for the Alberta economy as a whole.

Beyond just the number of bankruptcies, the stats also include sets on the assets, liabilities and deficiencies (assets less liabilities). I adjusted all these for inflation (2009 dollars) for comparative purposes and then divided that number by the number of bankruptcies to get a ‘per bankruptcy’ figure.

Here we can really see the effects of the early 80′s recession. While the rate was not so high, there was a HUGE difference in the sums of money per bankruptcy, and that’s likely a sign there there were a lot more foreclosures involved… where as it appears in most years the vast majority of bankruptcies involve those that do no own real estate.

When it topped out in 1984 there was an (inflation adjusted) average of about $237,000 worth of liabilities (very close to the inflation adjusted average real estate price at the peak of that boom, coincidence?!), to only about $60,000 worth of assets. The figures at play between 1982 and 1986 completely dwarfs any figures before or since.

Here is another graph that somewhat combines the two prior. It overlays the rate over the average deficiency (I included nominal and real dollars just so you can see for yourselves the effects of inflation).

Here we can see that the sums involved are really not related to the number of people defaulting. Through from 1991-2001 despite the rate being at all time highs, the average person who filed for bankruptcy was less then $10,000 in the hole.

So we can fairly safely conclude that in those years that vast majority of those going bankrupt were not home owners, or in any danger of becoming one, so the rate itself is probably of little value in predicting foreclosure rates.

What is a better indicator of foreclosure trouble is the sums involved.

The 80′s were remembered as disastrous, and the deficiencies witnessed then reflected that. We had a slight hiccup in the early 90′s, and we can see a corresponding blip in 1990. The more people that are foreclosed upon, the higher the numbers will skew.

That we have been tracking upwards the last few years could be a warning of things to come, but as we’ve discussed here, the levels of non-mortgage debt carried have also taken off of late too, so we must take that into the equation.

It will be interesting to see what the numbers end up looking like in 2009, as I could not do any projection for the deficiencies and that is the number we’re most interested in for our purposes.


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.



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 indexnew 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!

Alberta Commodity Prices Macroeconomics

Fueling Alberta

After this weeks announcement about the revised budget from the province, I thought it would be interesting take a look at historical revenues, particularly those coming from oil and gas. So, today’s entry is more of a general interest post and not concerning the housing market (at least not directly anyway).

So, without further ado here is a look at revenues from the last decade or so, as well as the estimated revenues for this year.

As we can see, revenues have taken quite a dive, and it’s now expected we’ll be down over 8 billion from two and three years ago, and 6 billion from last year. We can also see that shortfall is pretty much entirely due to declining resource revenues.

This is effectively the same graph, but this time the resource figures are broken down into divisions, natural gas, oil (I lumped crude and synthetic crude/bitumen together), and other. Giving us a bit more perspective, we can see that while oil is certainly down from the last three years, historically it’s actually about normal… gas on the otherhand, is very low by recent and historical measures… and other resource revenue is virtually non-existent.

This is looking at it from another angle, this time from a proportion of total revenues (that year). This again shows what we discussed earlier, and that gas is making up a mere fraction of the revenues it normally contributes to government coffers.

Now we’ll isolate just the resource figures. As we can see here, when the government talks about how volatile our resource revenues are, they are not kidding. This year we’re now projected to collect over eight billion less in resource revenue then last year (and over ten billion less then the high water mark in ’05/06). That is expected to be only the second time in this span that such revenues came in below six billion for the year, and the first time below four billion.

This graph is also good to show that typically natural gas is what drives the province… some years the ratio of natural gas-to-oil revenues got as high as 4/1 or 5/1… as opposed to this year when for the first time oil revenues are expected to exceed gas revenues.

Again, we’ll break it down by percentage of contribution. We can see in the last four years there has been a shift and oil is becoming more prominent and gas revenues has settled in just below the 50% mark. Quite the change from earlier in the decade when it was generally in the high 60′s/low 70′s.

What the future holds for this balance will be very interesting to follow. How will the increased gas production in the US effect production here and market price? How will changing environmental effect the oils sands?

Anywho, that was a little look at oil and gas revenues for the province from the last decade or so to send you off on your weekend. If you have any questions, comments and/or observations, fire away.


Where’s the beef?

There’s been a fair amount of news coming this week, none of which appears particularly helpful for the housing market. EI numbers for June came our yesterday, they’re way up. The June Teranet HPI also came out, and they say even with the huge sales tally in Calgary, prices were still down month-over-month. And finally, this morning the Provinvial government held court and told us they’re expected to run a 6.9 Billion dollar deficit this year… and this just days after the feds told us they were up to their ears in deficit too.

Now, I’m sure some of you wonder what any of that has to do with real estate in Edmonton. So, lets start at the beginning, the EI numbers. Well, rising EI numbers mean fewer people are working and a soft employment situation… typically people with no job and no money don’t buy houses (though, as we’ve seen the last three years, it no longer seems to stop the banks from giving such people money, but I digress).

On to point two, the Calgary numbers. They are relevent because pretty much anything happening there, is happening here too. The sales and prices in both cities tend to track together, we both boomed at the same time, we both started “correcting” at the same times, and we both even had a big spring surge in our resale markets.

The bulls like to spout how that surge was a result of improving fundamentals, but as is becoming increasingly apparently, that wasn’t so. Not only that, but the HPI numbers display the reported price gains in the resale were an illusion caused by an upward shift in what people were buying and not actual values of homes… and that as well as the sales, was caused by record low interest rates.

Which provides a nice segway into the deficit news. Interest rates at current levels are not sustainable even when governments are behaving themselves, but when they rack up deficits they need to issue debt… and when everyone is doing it, it floods the bond market, which drives up yields, which drive up interest rates. So, not only are interest rates bound to go up, they’re bound to go WAY up.

Then of course there is the other ugly consequence of governments issuing debt… that’s government having to pay it off. Which will inevitably mean higher taxes, and those hikes will be hitting us from all angles… federal, provincial, business, property and consumption. So, if interest rates going up wasn’t going to have enough of a depressing effect on real estate prices, taxes will be taking a bite out of net earnings and providing a double whammy on housing.

Particularly troubling about the provincial deficit numbers is the effect natural gas is having on it. Oil seems to get all the press, but in truth it’s actually gas that drives the province. Approximately 2/3rds of the provincial non-renewable resource revenue comes from gas, or in otherwords, gas kicks in about double the money oil does.

Sobering Factoid: Two years ago non-renewable resource revenue made up almost 30% of the provinces total revenues… this year, it’s expected to make up just 13%.

And there does not appear to be much hope in sight for gas prices in the near-term either, prices just recently dropped below $3, and some are even calling for it to go below $2. A far cry from the $13 it was trading at not so long ago, and even the $3.75 the province is currently bemoaning in their budget.

Add to that, demand is low and no change in that expected in the near future, strategic reserves are overflowing, and with the improved feasibility of massive quantities of shale gas throughout the US… even if/when demand comes roaring back, there is a lot more domestic supply available for our neighbours to the south.

The current situation is all made worse by that while production at current prices is often uneconomical and there is already surplus supply, American producers have to keep pumping for fear that otherwise they could lose their leases. Suddenly natural gas is no longer a license to print money up in Wild Rose Country.

If real estate prices being at unsustainable levels weren’t troubling enough, a softening job market and record deficits are foretelling even bigger troubles to come.


How I got here

I’m sure literally none of you have wondered to yourselves, “how does one become a contrarian blogger?” Well, it’s not a terribly interesting story, and doesn’t pay nearly as well as telling people what they want to hear, actually, it doesn’t pay period… but as my experience in the last year may be somewhat relatable for some out there, I figured why not answer the question no one asked.

I’ll try to spare you the self-aggrandizing life story as much as possible, but just for a slight background I grew up in a rural area about an hour north of Edmonton. Went to the U of A for a few years, and lived around campus then decided I wanted a change of scenery and major and went out of province for a couple years. So I took the scenic route through school, figuratively and literally.

So, after my wandering through the wilderness for awhile I moved back to Edmonton. It was the summer of 2006, and we were right in the heart of the boom. The housing market was on fire, everything was selling, prices skyrocketing and vacancy rates were practically nil.

I had never been one for peer pressure or conspicuous consumption, so I really had no intention of buying as I had no idea what I really wanted to do with my life at the time (still not entirely sure about that one, truth be told, but I think that makes me more interesting!). I figured I’d just rent for a couple years and see where life took me, then I’d get serious about buying something, as long term it generally does make sense.

So I went out and found a place, a nice 2-bedroom for about $920 a month. I thought it was a little high at the time, so I decided to compare the rent to what it would cost to buy the identical condo’s literally across the street (at one time they were all one big complex, but at some point the one section was split off).

The exact same 2-bedroom was going for $200,000-$210,000, figuring financing, opportunity cost lost, taxes and fees was going to cost $1,600 a month, of which only about $270 a month would go towards equity.

Now, I know a lot of brokers and whatnot like to work a lot of voodoo with downpayments to make anything sound affordable, but you have to figure in an opportunity cost for your money… and the going interest rate is as good as any as far as I’m concerned, so I go in calculating costs at 100% financing. The rest pretty much comes out in the wash and you get a quick and dirty comparison. Truth be told, you should really be able to do a bit better then mortgage rates on your investments, but we’re being conservative.

Suddenly $920 a month didn’t sound so bad. Sounded even better considering three weeks later when I took possession the rates for new tenants had gone up to $1220, apparently I got in just under the wire. And, was banking about $5,000 a year more then I would be owning.

So, I was quite content, and I really only followed the real estate market passively, checking in to see what those condo’s across the street were going for every once in awhile. By summer of 2007 when the market peaked they were asking $230,000 to $240,000. My rent went up to $1070.

Still really didn’t start thinking to much about buying until early 2008. I knew I had another rent increase coming, and had gotten somewhat settled into life. I also remembered my professor lecturing us one day about how home ownership was a good form of forced savings, thought I had been pretty diligent about saving without needing to be forced. I knew long term it generally was advantageous to buy, as assuming constant interest rates your payments will stay the same as rents will continue to increase.

I really had no interest in buying one of those condos across the street, but I continued to follow them just because they were a direct comparable and probably an overall reflection of the entire market price movement wise. By the winter I started to look around online a bit, was also pleasantly surprised to see the asking prices were now in the $220,000 territory.

Come summer 2008 I figured it was time to get serious and got an agent and looked at some places. Prices had come down some more and those condo’s across the street were now asking about $200,000. Knowing the pending rent increase coming, suddenly the cost of buying was a lot closer to the cost of renting. There was still about a $100 premium over what it would cost me to rent (excluding equity), but another rent increase would erase it anyway.

That the price of those had dropped $40,000 in a year probably should have raised a red flag, but I think that was probably overwhelmed by the greed induced by seeing better and better properties dropping into the range that I wanted to spend ($270,000-$300,000). I also kind of accepted the popular mantra that real estate always goes up, and figured it was probably just that the market overheated and it was probably largely adjusted back. So it’s all good.

By saving diligently I had seen my downpayment swell, and bigger and better properties kept dropping into my price range. I grew up in a family where we generally didn’t like to buy things we couldn’t pay for outright, so I’ve always felt debt was to be avoided as much as possible. I’m basically of the opinion that if you can’t pay it off in 20 years at the most you probably shouldn’t buy it, and if you can’t in 25, you definitely shouldn’t. So, obviously I don’t have a terribly high opinion of the 30, 35, and at that time 40 year ams, in fact the longest amortization I’m personally willing to take is 15.

I’m also a bit of a utilitarian. I’d much sooner pay $2 for a $1 item I want, then $1 for a $2 item that I don’t. My car is probably a good example, I wanted a quality car that got good mileage… so I got a Jetta TDI. I could have got another car for much less, but I did a little cost-benefit analysis, these retain their value a lot better, and the diesel engine probably saves me a dollar for every dollar I put in the tank. Other then that it’s about as bare bones as you get. Of course you need get serviced through VW, which is not only bad, but very expensive… but there is no free lunch.

Anyway, so I looked at a bunch of places, and even liked a couple so much so that I was thinking about making an offer. But I wanted to do a little market research before I commited to anything. I stumbled upon the EREB’s historical average price stats, put ‘em in a spreadsheet and graphed them.

The first two words out of my mouth were “Holy shit!” I then rechecked that everything was inputted correctly, and when I found it was, I can honestly say any house lust I had was long gone. Over about 30 seconds I went from being ready to make an offer, to hugging and whispering reassurances to my wallet. There was something very wrong in Kansas.

I’m no Ph.D, but I’ve studied some math, stats and finance during my day, and that graph alone scared me straight… and I imagine damn near anyone could immediately see something wasn’t right.

So, between my affinity for numbers and a little OCD I went about compiling any and all figures I could find. Running simulations, looking for correlations (it was also during this time that I developed my extreme distaste for the New Listings statistic, that figure is an useless as tits on a bull).

I also started reading the blogs and research papers. Anything and everything basically. The more research I did and measures I’d calculate, the more it became apparent that prices were too high. Then the economic crisis hit in October, and at that point my wallet took it’s turn hugging and whispering reassurances in my ear.

Believe it or not, being as close to buying as I was actually saved me tens of thousands of dollars, as I had pulled most of my investments into cash as an expected downpayment, much of which would otherwise have been lost in the stock crash. So I kind of failed upwards on that one.

That fall the landlord tore up the rental increase, and not too long after it actually ended up being decreased down to $900 a month, I’m now paying less then when I moved in. The posted rate has also dropped down to about $1000, but the complex continues to lose tenants. It’s certainly a different picture then three years ago.

Despite the real estate surge the last couple months, currently the condos across the street are now asking $180,000, one was posted awhile back for $165,000 but it looked like it was in pretty rough shape. The prices on the places I was going to put bids on are down even more, 15% and 20% respectively… so, just sitting on my wallet has already saved me 40-50,000. Even if the local price numbers are similar to last year the asking prices still look to be down, but then again condo’s are expected to be a big albatross on values since they’re so overbuilt.

As per why I decided to start blogging, well, I just didn’t really find many other sites doing the kind of analysis I am, and certainly not on the Edmonton market. Also there didn’t seem to be any counter point to the seemingly infinite supply of blogs with a vested interest in seeing people buy. So I figured maybe someone else might be interested in this stuff, and putting it online kind of forces you to do your homework before opening your yap, so it’s a learning experience.

Today I’m infinitely more prepared to buy a home and know what I’m getting into when that day comes then I was a year ago. Do not confuse my bearish views on the market conditions with on buying real estate in general… in general it’s usually a wise investment… trouble being we’re not in a “general” period, at least in my not so humble opinion.

For those already in the market, the conditions aren’t really a big deal, especially if you’re downsizing or moving laterally. This is because once you’re vested it’s all relative.

But, for first-time buyers, like myself, it’s not a good time to enter. If you overpay to get in, that’s a mistake you’ll be paying for the rest of your days. Even those bullish on the market aren’t predicting any explosive growth in prices any time soon, so there is little to be lost by taking a wait and see approach… but if I’m correct, there is much to be gained by waiting.

I don’t know about you guys, but I’ll take ‘low-risk/high-reward’ any day over the alternative. When I’m spending hundreds of thousands of dollars I want to be damn sure I’m buying an asset that won’t depreciate, short term or long. I don’t concern myself with trying to hit the bottom… I just want to make sure I buy on the right side of it.


Advertising vs. Reality

Got an interesting comment about how the local board boasts about how few “foreclosures” there are on the market, completely ignoring all the “bank owned” properties, that are also foreclosures… but apparently in the world of marketing and keywords, a rose by any other name is not a rose, at least not when it’s inconvenient for you.

So, it made me think of some of the other euphemisms and obfuscations that sellers and agents like to trot out when being honesty may not be the best policy most profitable, and though we could have a little fun with it. Feel free to add your own, this is but a small sampling of what’s out there!

As-in – Shithole, and quite probably a crime scene in the not so distant past

Assumable Mortgage – Flip gone wrong

Bank owned – Foreclosure

Cozy – Tiny, like square footage of a closet tiny. Synonyms: Quaint, Intimate, Cute, Modest

Charmer – Cramped and old… possibly with toilets in rooms other then bathrooms

Fixer upper – Shithole

Furnished – We don’t want this crap, and can’t even give it away, so now it’s your problem

Handyman Special – See: Fixer Upper

Motivated seller – About to be foreclosed upon seller

Move-in ready – Vacant

Needs a little work – Needs a LOT of work

Needs a lot of work – Needs gasoline and a match

New Development – Better hope you enjoy the sound of hammers during the day, and drunk rig-pigs at night

Partially-obscured view – No view

Recently renovated – Don’t look too close and ignore that smell

Retro – Old, and not in a good way

Secure building – Make sure your car insurance covers theft

Spacious – Anything with more then 500 sqft


Get to work?

So I have been asked to do a post on the employment numbers a few times in the past, and again recently… and as the latest (June) figures were released today, I figured what the hell, why not do something topical?!

Not really sure how much or what kind of narrative will come of this, at least I don’t have anything in mind. I’m just planning on presenting some historical numbers and maybe offer my take on them or any observations that may or may not strike me at some point.

So, without further ado, lets start with the hard numbers, just to give us some background before we get to the ratios.

So here we have the figures for the total work force, total employed, and total employed full-time since 1976 to now. Generally fairly stable, particularly the labour force numbers. The employment and full time employment figures track very similar patterns and are bit more volatile, as we can see a fairly significant drop back in the early 80′s… a couple minor dips in the mid 80′s and again in the early 90′s, then fairly stable growth until just recently when we’ve had another fairly significant drop.

It’s worth repeating, these are the hard numbers not ratios. As we can see, the labour force has grown significantly since the 70′s, so relatively speaking, 10,000 jobs lost in 1982 would be felt much more then 10,000 lost in 2009, at least by the economy as a whole. That will be displayed later when I get into the ratios.

Just to compare the peaks and troughs of the aforementioned dips.

Current (October ’08 – March ’09):

  • Jobs lost = 51,400
  • Full-time jobs lost = 73,600

1990′s (June ’91 – March ’93):

  • Jobs lost = 17,300
  • Full-time jobs lost = 39,200

Mid 80′s (Feb/Mar ’86 – February ’87):

  • Jobs lost = 41,000
  • Full-time jobs lost = 42,800

Early 80′s (September ’81 – May ’84):

  • Jobs lost = 72,000
  • Full-time jobs lost = 98,800

As we can see, as far as hard numbers go currently we’re somewhere between the the magnitudes of the minor and major recessions. It is also good to note that full-time jobs take a bigger hit during downturns then total jobs, to varying degrees. Many feel the full-time numbers are actually the more telling, and I tend to agree.

Just to add a little more perspective to the hard figures, here they are again as a function of the total work force at the time (ex. If the workforce is 1,000, and there are 10 jobs lost, this measure would equal 1%).

Current (October ’08 – March ’09):

  • Jobs lost = 2.44%
  • Full-time jobs lost = 3.49%

1990′s (June ’91 – March ’93):

  • Jobs lost = 1.23%
  • Full-time jobs lost = 2.78%

Mid 80′s (Feb/Mar ’86 – February ’87):

  • Jobs lost = 3.15%
  • Full-time jobs lost = 3.28%

Early 80′s (September ’81 – May ’84):

  • Jobs lost = 5.62%
  • Full-time jobs lost = 7.71%

From this measure we can see the magnitude of the job losses have been worse then the 90′s recession, but not nearly in the territory of the big one in the early 80′s. But that one also took two and a half years to get that far, whereas we are only 8 months removed currently and there is still a great deal of uncertainty surrounding the economy.

Just for example, our lowest figures were from March, and actually went up in April and May before taking another hit in June, leavingus not that far above the March figures (down 49,100 and 70,100 from peak FWIW).

While we’re talking hard numbers here they are for part-time and unemployed (grouped together for no reason other then scaling). Interesting to note how part-time employment has actually been quite stable, only taking a dip in the most recent boom… likely as a result of the shortage of workers, people were obviously drawn into more permanent positions. Since the boom ended though, we’ve seen something of a spike, as many full-time jobs were either converted to part-time, or were lost and people could only find part-time replacements.

The unemployment figures, not surprisingly, mirror the earlier findings, and when jobs are lost obviously the ranks of the unemployed swell (necessitated by, as we noted earlier, the labour force not contracting). We also notice the sharpness of the current spike hasn’t been seen since the early 80′s, but considering the population is much higher now then then, to total number of unemployed haven’t reached any kind of danger area. Obviously if the current trend continues that would change, but it’s very hard to make any predictions as not just ours, but the worldwide economy, is such a big question mark at the moment.

Now, onto the ratios!

This is the one that gets all the press, the Unemployment Rate. As we can see here, there is definitely a sharp spike, but it is paled in comparison to the prior recessions noted. Even during the early 90′s recession unemployment topped the 10% mark, and we’re currently only at 6.8%.

This is another one that can change fast though, it’s went up a full point in the last three months, and 1.7% in the last six, and 3.5% in the last year. So some more economic turmoil could certainly launch us up into that territory, but at least for the moment we’re alright. For some further historical context, since 1976, the median has been 5.7% and average 6.5%… so, all things considered, we are a bit high.

These are the participation (labour force divided by population) and employment rates (total employed divided by population). As we’ve previously noted, the labour force doesn’t tend to change much, so the participation rate isn’t all that interesting. Employment rate is alright, but I think full-time jobs are a better measure then total jobs for practical purposes. So, take them for what they’re worth, maybe you like then, and they report them, so here they are.

But, like I said, I find full-time employment a better measure, so I derived my own ratios. These measure full timers as a function of population and labour force, and give you a better historical comparison then just the hard numbers listed earlier. We’ve pretty much already been over the genesis of these figures, and this is getting pretty long already, so I won’t regurgitate all that.

Again we can see that our current position, historically speaking, isn’t all that bad… but it’s trending harshly in a bad direction, and at a severity we haven’t seen since the big recession back in the early 80′s.

So, that’s all for now. If you have any questions or comments, fire away. I may add more or clarify some stuff as I think of it.