Alberta Canada

Beaver Style

After another night burning the midnight oil, I decided that today I was going to take today off… my first day off in over a month. Yes, I know, you don’t care, but this is my sandbox, so that just sucks for you now don’t it! But before I’m off to engage in at least eight different kinds of debauchery, I figured I’d do a entry since I had the chance.

The realtors are out there all whipped into a tizzy screaming we’ve hit bottom and the current surge is just confirmation that real estate only goes up, the market has corrected! Hallelujah! Holy Shit! Where’s the Tylenol?

But has it? Just what has changed from six months ago? Inventory is still poor, prices are about the same if not a bit higher, vacancy rates are way up, foreclosures are up, arrears are up, and more people are out of work thus so earnings have to be down. So, if anything that would suggest the market has softened.

And most of that recipe is true right across the country on this fine Canada Day… so what has changed? What would cause real estate not just in this city, but right across the country to rally?

Pretty simple really… interest rates. They’ve went from low, to ridiculously low… and not surprisingly, the lower they got, the stronger sales got. The market didn’t correct, interest rates plunged and suddenly the combination of that, seasonality and emotion has manifested itself into a suckers rally. That it’s happening across the country, just supports that.

The fundamentals are still poor, even with the interest rate plunge creating something of a temporary illusion of affordability. But people who felt burnt in the last boom, suddenly they could qualify for a ton of money and having been seemingly left behind in 2006, are jumping in with both feet.

Problem is, as soon as the economy starts showing signs of life, interest rates are going to go back up. Even 6% would leave affordability in tatters, and while for many recency clouds their judgement, 6% is still very low historically. So just imagine if they went back up to 8%.

The market hasn’t corrected, all the problems that were there six months ago, are still there today, and in many cases have actually gotten worse… interest rates going down have just delayed the inevitable. This whole thing was fueled by credit, piling on some more isn’t solving any problems, it’s just buying time all the while making it worse. It’s like paying off one credit card with another.

This correction isn’t going to be quick. It started two years ago, and will quite likely still be ongoing two years from now. This is not an efficient market, it’s an emotional one, so there will be many rallies, dives and plateaus along the way.

Those focused on the short term will continue to call bottom in thinly veiled attempts to convince themselves… but my focus on this blog is the long term, and until the fundamentals are corrected, there will be no bottom to be had. Even when it is, it cannot be recognized until well after the point.

So, now I’m off to enjoy an ring in our nations birthday by going out with some fellow Canadians, drink some Canadian beer, and maybe even watch some Canadian football… and later on, might even throw on some Anne Murray and see if the girlfriend is up for doing it beaver style (which I believe involved doing it in a mud hut).

Happy Canada Day everyone!


Favourite Neighbourhoods

This will probably come off like a puff piece, but it’s been a beautiful weekend, I don’t really feel like doing actual research, I need one more post to hit my self imposed monthly quota of ten and I just took a stroll through mine yesterday and feel like waxing nostalgic! After all, this is my sandbox dammit!

Back when I was at the U of A, well, my first couple years I lived at Lister Hall, which anyone who has lived there can attest, is an experience in itself before they tamed it down in there… and my floor really took it to another level beyond that even, we set all kinds of records for incident reports and property damage. Out of the 15 freshmen that lived down my wing, only four of us not were kicked out for behaviour, poor grades, or in most cases, both. Good times!

Anyway, after surviving that, I moved down off campus into the neighbourhood of Queen Alexandra, right in the heart of Whyte Avenue. It’s such a vibrant area, Queen Alex/Garneau/Strathcona. So full of life and I don’t think there is a better part of the city to spend the summer in.

Sure, it’s a bit dumpy in areas, but there is just so much to do, beautiful tree lined streets and the homes/buildings have so much character. There is also such a wonderful energy in the air when people are out and about (and for those raging alcoholics out there, you can get drunk every night for over a month and not have to crawl home from the same bar twice!).

Personally I find the new developments of endless cul-de-sacs fulled with cookie cutter McMansions so depressing. You don’t find that in Old Strathcona, though there are some new condos here and there (is it just me or is that ecohouse complex a giant eyesore?).

As I’ve eluded to, there is an endless supply of things to do down there. Ton’s of restaurants, bars, and shops of all varieties. Also live theatres and a couple art house cinema’s, not to mention the annual Fringe Festival.

Not sure why, but of all the places I’ve lived during my twenty some odd years, Old Strathcona is where I feel most at home.

How about for you all? Where are some of your favourite areas/neighbourhoods?

Alberta Canada Foreclosures Mortgages

Latest Mortgage Arrears Figures

The Canadian Bankers Association released their latest mortgage arrears stats today, these are for March.

As we can see, they’re continuing their meteoric rise, and have now passed the 0.50% threshold. 2,416 Albertans now find themselves three or more months behind on their mortgages (typically at the point foreclosure proceedings begin, though it often takes another six months before such properties hit the market). There are now over three times as many Albertans in arrears then there were two years prior (740 in March ’07), and well over double the number from a year ago (1,054 in March ’08).

We still haven’t neared the levels witnessed in ’96/’97, but are well above the long term average (0.37%) and the current acceleration is showing no signs of slowing down (if the current trend holds (~0.03% MoM, we could hit the 0.70% level by October).

Last month it was requested to take a look at the year-over year change in these figures, so here those are (this is of the % of mortgages in arrears, NOT the raw total of mortgages in arrears)

From mid ’07 on we’ve seen an explosion of mortgages going into arrears, and in the last 8 months this has leveled off at roughly 120% year-over-year increases, which means the figures have more then doubled over any given 12 months. Such year-over-year increases haven’t been seen in the last twenty years, and likely not since the early 80′s when the first bubble burst.

It is interesting to note the contrast with the first graph, where we saw that as many as 0.70% of mortgages were in arrears during the mid-to-late 90′s… and this second graph we can see that was reached after an extended period of more moderate year-over-year increases (30-50%).

This time around it’s been a result of rather explosive year-over-year increases (110-130%), and while it has leveled off, it has leveled off incredibly high and as of yet shows no sign of slowing yet… beyond that, much of the economic turmoil (layoffs, etc) experienced in the new year would still be largely unfelt in these figures.

On a national level, arrears ticked up to 0.39% from 0.38%. Like last month, Alberta again has the highest rate in the country, and is opening it’s lead, as the Atlantic has dropped to 0.44%, while Ontario remained at 0.41%.

At the opposite end of the spectrum, Manitoba and Saskatchewan now enjoy the lowest rates, at just 0.22% each. B.C. is next at 0.29%, but the effects of their housing bust is starting to be felt as the rate there is growing rapidly (they were a nation low 0.16% a year earlier).

Alberta Canada Foreclosures Mortgages

We’re #1!

It’s been a tough week for the province… first we find out that the provincial government thinks our beaches and children are too damn ugly to use in advertising, so they have to co-opt some from England. Okay, and yeah, that foam finger is actually one for the Oakland A’s, but what can I say, our foam fingers here in Alberta just don’t stack up… err, I mean, its use was intentional and to give a more global focus… yeah, that’s it.

If stock photography is good enough for the Province of Alberta, dammit, it’s good enough for my blog! And, honestly, as a marketing type, whomever thought up that “It was intentional” defence, should be given a one-way ticket to Northumberland to find new employment.

Then, as Two-third pointed out, Alberta had the biggest decline in retail sales in the nation in February. Add to that Mark Carney lowering the bank rate and telling Canadians to start spending like crazy or he is going to unleash “quantitative easing.”

So yeah, it’s been a tough week… but fear not, the Canadian Bankers Association had news that is sure to erase all those bad memories. They released their February numbers, and Alberta is now leading the nation in mortgages in arrears.

So suck on that Atlantic Canada, we’re the champs now!

As of February 0.48% of all mortgages in Alberta are now three months in arrears or more. Up from 0.45% in January, and 0.22% a year earlier. Alberta has seen something of a meteoric rise in this regard since bottoming out at 0.14% in 2007, at which point we were neck-and-neck with B.C. for lowest rate in the nation.

Arrears were up all across the country though, the national average now stands at 0.38% (up from 0.36%). Manitoba has the lowest rate in the country at 0.23%, followed by Saskatchewan (0.25%) and British Columbia (0.27%). At the opposite end of the spectrum, Atlantic Canada comes in at 0.46% and Ontario at 0.41%.

So what does it all mean… well, if you’re looking for new business opportunities, I’d say repossession is going to be a real growth industry for the next year or two. Arrears are showing no sign of slowing down, and if people are behind on their mortgages, they’re likely behind on all kinds of credit.

A lot of boys will be parted with their toys, so if you’re liquid and in the market for quads, trucks, plasma tv’s, etc… you can probably get a helluva deal.

Not that these are situations necessary to cheer… but that’s reality. For those with cash in hand, recessions can be a great time to acquire assets, business, personal and luxury… unfortunately real estate is still grossly overpriced, give it time though, even that will one day correct, then it’s vulture time!

Sidenote: I’m trying something new with the comments, because the amount of people posting as “anonymous” was out of hand and you never knew whether you were dealing with one person or six. So please enter some kind of handle to identify yourself as if you want to comment.

I’d rather avoid forcing people to register with Blogger or OpenID, but if this doesn’t work that’s what we’ll have to do. So, if you have any comments or questions, fire away.


Hindsight is 20/20

Over the last while I’ve been reading through the archives of the Edmonton Real Estate Blog, just to get a feel for the zeitgeist of boom here in Edmonton.

Hindsight being 20/20, it’s quite interesting to read through it. I’ve currently read up to early 2007, so as a reader today we are privy to the added context that the bubble is about to burst soon.

The old adage that those in a bubble don’t seem able to recognize it until it burst also rings true… and while it would be easy to sit back and take pot-shots, it’s worth noting that two or three times during 2006 Sheldon as much as said that the market was on the cusp of a bubble and if things didn’t slow down, and we’d be repeating the bust in the early 80′s. He seemed to recognize it, but didn’t really want to acknowledge it’s arrival.

One post that did strike me as quite interesting, and worth examining is this one by his cohort in February 2007, 5 Signs of a Housing Bubble in Edmonton.

So, I’ll give Ms. MacLennan’s take, then my rebuttal.

A housing bubble is characterized by rapid increases in the valuations of real property such as housing until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This in turn is followed by decreases in home prices that can result in many owners holding negative equity, a mortgage debt higher than the value of the property.So lets compare this information to Edmonton. Here is our real estate bubble checklist:

1. Rapid price increases…check.

I’m with you so far

2. Prices reach unsustainable levels relative to incomes…nope

Um, actually they did… in a big way in fact. Incomes and prices tie into affordability, which comes up again in point 4. But to make the point quickly, incomes may have rose 30% by some measures, but home prices doubled over the same period. I believe this graph summed it up nicely.

3. Price to rent ratios…nope – prices have increased faster than rents, however, the vacancy rate is at an all time low and rents are increasing quickly.

She seems to kind of qualify her answer, admitting they actually had decoupled, but that it was just a matter of time before rents eventually caught up. It could be argued that that would be a reasonable assumption at the time… but, we know now that assumption turned out to be incorrect, rents never caught up, and now both they and prices are dropping.

4. Prices are too high to be affordable…nope – see this article on how real estate is now more affordable than it was in the 80′s. Mortgages are still easy to get, and although you can’t buy the big house on the hill in Edmonton for the bargain basement prices of a few years ago, housing in all price ranges is still selling and selling quickly.

There is one big flaw with citing that article. It was comparing prices from exactly 25 years earlier… as exactly 25 years earlier, we just so happened to be at the height of the last bubble (graph). I’d imagine those in the real estate field at the time could relate that the aftermath of that bubble popping wasn’t pretty.

Bottom line, prices got out of line with affordability then, and were again at the time of that post being written. That things are selling well during a boom really shouldn’t be a surprise, and certainly in no way dispels the presence of a bubble.

5. Homeowners with negative home equity…big nope – this is what is currently facing homeowners in the US. The majority of first time buyers took out “exotic” mortgages (aka 0% down, 40 year amortizations etc.) giving them no equity in their homes, and when prices did fall a few percentage points they ended up with negative equity. These mortgages do exist in Canada, but only make up a small percentage of the mortgages being taken out these days. The other reason so many Americans have negative equity was a huge surge in re-financing, which spurred consumer spending boosting the economy further which all fell apart when housing prices slipped only a few points. Again, the picture here in Canada is much rosier.

Incorrect, we just hadn’t got to that stage yet. As we’ve seen, negative equity was possible (as some people already find themselves in that situation), and that was the original condition.

If this had been posted a year earlier, the contention about ‘exotic’ mortgages would have largely been true… In February 2006 you needed at least 5% down and could amortize no longer then 25 years. But by February 2007, we had all kinds of ‘exotic’ mortgages, and 60% of first time buyers were taking out 40 year amortizations. I imagine a large chunk of those were the 0% down variety (frankly, I’d consider any 40yr mortgage as ‘exotic’, but I digress).

In the US only about 22% of mortgages were “subprime” where as here in Canada 7% were “subprime”… but those were not including 0/40′s. As I explored in this entry, our non-prime lending was just as bad here in Canada, as it was in the US. As prices creep further and further down, we’re increasingly finding out we are just as susceptible here North of the 49th.

Now, I don’t want to come across as picking on her, as two years later we are obviously privy to a lot of information she was not, and many of her assumptions were widely held at the time… it was appealing, who doesn’t like to think they’re on a gravy train with biscuit wheels?!

What I wanted to do was to take a definition of a “bubble” from during the boom as well as the contemporary thought of the time… then re-examine it from our current context and what we know now… and it now appears that it’s quite arguable that we in fact filled all five of the criteria for a ‘bubble’.

I’m sure in two years some of the thing I have written here will be laughable… heck, there is stuff I wrote three months ago that I now cringe about and know they’re going to be wrong. Alas, that’s the beauty of blogging, once you hit publish it’s out there for better or for worse, typos and all.

Alberta Canada Commodity Prices Historical Prices

Oilberta Redux

Earlier this week I did an entry on the relationship between oil prices and housing prices in Edmonton, and there were some interesting findings which led to new hypothesis’. There was also some good ideas that came up in the resulting discussion.

So tonight I’m going to take a bit of a deeper look at possible relationships with housing prices… or maybe I’m just doing it because that last one got lots of comments and I’m an attention whore… it’s really hard to say.

In any case, beyond just oil we’re going to look at natural gas, stock markets, and several other possible indicators. Be forewarned, there is going to be a ton of charts and graphs in this one, so if that isn’t your thing, well, you’re probably on the wrong blog. Anyway, this one will be a big’uns.

Like the last entry, I’m going to use Toronto as my control sample. Partially because Toronto isn’t exactly known for oil and gas (well, other than hot air… I kid, I kid), and it’s also the city I have the next best data set on.

This time we’re going to be using yearly averages rather than monthly, so you’ll notice the graphs look a bit different. As real estate tends to be a bit of a lagging indicator and prone to a fair bit of seasonality, yearly may actually be the better measure. I also have the yearly averages for Toronto going much further back, so that should improve the findings.

And here we have a plot of oil (West Texas Intermediate) and natural gas (Henry Hub) over the same period, also yearly. You’ll notice they chart fairly similar paths. You may be thinking to yourself that this graph doesn’t show prices getting as high as you recall, or diving last fall, but remember, these are yearly averages and/or spot indexes. These won’t look nearly as volatile as daily, weekly or monthly figures… for example here is the the monthly figures semi-transparent over the yearly ones.

As discussed in the prior entry, oil and home monthly prices in Edmonton had a high correlation… but they also had a very high correlation with Toronto prices. Which led me to conclude it was a spurious relationship.

These correlations remain using the yearly figures over a longer term… and are also present with natural gas. Though that shouldn’t be surprising, as noted earlier, oil and gas followed quite similar paths and actually have a correlation of 0.89 from ’72-’08.

Over the full term, ’72-’08, Edmonton had a correlation of 0.90 with oil, and 0.86 with gas. Toronto came in at 0.71 with oil, and 0.82 with gas. While the gas values came in quite close, there was a fair difference in oil.

This appears to be a timing issue though, as over the last 10 years both cities came in at 0.89, and over the last 20 years Toronto came in at 0.91 and Edmonton at 0.92.

On the natural gas front Toronto actually came in higher over the shorter terms, 0.84 to 0.79 over the last 20, and 0.80 to 0.63 over the last 10. Quite a large difference there on the latter.

As a result, I would again hypothesize that the correlations are due to a spurious relationship, due to a common lurking variable.

Here are a couple scatter points to illustrate the what we’re looking at.

You’ll notice the R2 value is lower than the correlation. For those unfamiliar, R2 is the coefficient of determination, and is the correlation squared (so, obviously its symbol would just be R).

In those graphs you can see the general trend formed over time. The higher the correlation, the tighter the plot points correspond with the trendline.

You may be wondering if there is a relationship between year-over-year gains… and to answer that in a word… no. Regardless of the city and the commodity (or any of the multitude of other indicators discussed later for that matter) any relationships are negligible at best.

To give you an idea of that, lets contrast the above graph of Edmonton vs natural gas prices to Edmonton’s year-over-year price change plotted against those of natural gas. You’ll note in the earlier graph that the points are often grouped and you can see an overall trend.

Now note in this year-over-year graph that the points are all over the place with no apparent rhyme or reason. The R2 is also almost 0, which just reinforces that there is little or no relationship.

As I have said before, I think the relationship between oil/gas and real estate is a spurious relationship due to a common lurking variable… and I’ve theorized that variable could be the greater economy and/or financial markets as a whole.

To further explore that line of thinking, I compiled a couple spot indexes for the NYSE Composite and S&P/TSX Composite. Here is a look at how those have performed over time.

These being composite indices they give you a good idea of the overall stock markets. With the NYSE being the largest stock exchange (by dollar value) in the world, and TSX being the dominant one in Canada they should be pretty good indicators for our situation.

The findings also may support my earlier musing, with both having significant correlations with real estate prices in both Edmonton (NYSE-0.87 TSX-0.92) and Toronto (NYSE-0.88 TSX-0.89).

To go a little deeper even, I consulted a Statcan report of the leading business indicators. These include ten different measures (including the S&P/TSX index) from various sectors of the economy.

Here is a list of the others, average work week-manufacturing, housing index, United States composite leading index, money supply, new orders-durable goods, retail trade-furniture and appliances, durable goods sales excluding furniture and appliances, shipment to inventory ratio, finished products, business and personal services employment.

Here is a look at just a few of those and how they’ve charted out.

I’m not going to look any deeper into these specifically, I just wanted to give you guys an idea of what they graphed out like. All the measures listed above appear to have a decent correlation on one level or another with real estate prices, except the average work week one which didn’t appear to have any correlation.

What I found most interesting was the composite of those ten different figures. As it covers many different sectors of the economy, it gives you a measure of the economy as a whole. As such, I’m going to focus primarily on that single measure, and here is how it graphs out.

And here is a scatter plot of the composite vs Edmonton real estate prices.

You’ll note that the points all plot fairly close to the trendline. Also interesting to see the snakelike pattern, which is present in the the natural gas plots earlier, but are not as clear as in this one.

Here is the time series for the leading indicators and Edmonton’s real estate prices. We can see there is far less variability in the composite than in housing, but they both are clearly trending up. This also reveals itself in a high correlation between the two, 0.92. The relationship also remains very strong regardless of the term, something that cannot be said for oil or gas which vary from very strong to moderate depending on the period.

Here we see the same composite graphed with Toronto prices. Again they look quite similar, and real estate remains the more volatile. The correlation for these two come in at 0.90.

FINALLY, we’ve arrived at the last graph. Here is the Edmonton prices plotted out with the composite, oil and natural gas prices for comparison. Yes it’s a bit of a mess, but I tried to make it as understandable as possible considering the multiple axis’ values. But I think it’s a good visual anyway.

I’m sure some will take exception with the scaling, but I tried to be as fair as possible and match up the various lines with housing prices long-term as best as possible. So just as a disclaimer, scaling can be misleading, so take it for what it’s worth and remember these can be made to appear to back up any conclusion.

Alright, here we can see the relative volatility of the four indicators. Oil and gas being the most so, then real estate, and finally the composite which is very smooth and relatively straight. It’s this smoothness is probably what yields the consistently high correlations, as all the prices increase over time.

I suppose one can see any number of things from the graphs, but I feel that these findings largely back up my earlier hypothesis that housing prices are probably more closely tied to the overall health of the economy, than to individual commodities.

While positive correlations exist between home prices and oil/gas in Edmonton, the same correlations exist in Toronto, a market without such resources close at hand… therefore implying a spurious relationship between the two factors.

While oil and gas certainly effect financial markets and the economy as a whole, throughout Alberta and Canada, it is still but one factor, granted one of the bigger.

That said, I’m not sure a direct causal relationship between be proved between the economy and real estate either. The economy is too complex for even an army of economists with lifetimes to study it to truly understand… much less one half-assed blogger.

So again, I conclude that while oil and gas certainly has a big effect on the local and national economy, I feel they do not have a direct causal relationship with real estate prices. But I don’t think any single indicator can claim a direct causal relationship. Real estate prices are effected by hundreds, if not thousands of variables… earnings, supply, demand, seasonality, land, labour, materials, just to name a few.

Oil and gas prices would certainly effect several of these, but there is a limitless interplay amongst these variables and countless others, and the effects of all these just cannot be quantified in an acceptable fashion.

That the same correlations exist between oil and gas prices and cities in both producing and non-producing regions indicate that real estate prices drill a lot deeper. Pardon the pun.

Alberta Canada Foreclosures Mortgages

Record number of Albertans in mortgage arrears

The real estate bulls out there will say I’m being sensational… and I’ll say, gee thanks! I always thought I was pretty good, but sensational?! Really?! I mean, I’ve been working out, and my girlfriend has told me I’m the best she’s ever had… but I’ve told her the same thing… and lets just say I know for a fact at least one of us is lying. Not saying which one of us though.

Where was I? Oh yeah, sensationalizing. Okay, yes, yes my title is somewhat sensationalized… but it is also true, and if the pushers out there can cherry pick figures, why not I?!

By now I’m sure you’re all wondering what I’m rambling about, so, lets get on with the show. Today the Canadian Bankers Association released their January numbers of Canadians in arrears on their mortgages, complete with provincial breakdowns.

As the title implies, as of January, there are more Albertans in arrears on their mortgages then anytime since they started recording such things. A graph of that can be found here:

As of January, 2,168 Albertans were three months or more behind in their mortgages. The first time it has eclipsed the 2,000 mark. The previous high water mark February 1997 when it was 1,835, and that number stood until December last.

As you can see, during the boom the number took a big dive, bottoming out in May of 2007 at just 649… since the market has cooled though, the number or those in arrears has skyrocketed up more then three-fold, increasing by more than 100 per month through 2008.

Now, some will argue it’s not really fair to compare straight numbers because the population has swelled greatly, as has the number of mortgages outstanding… and I agree. I just wanted to justify my “sensational” title… now we’ll get on to a better measure, the ratio of mortgages in arrears to the total number of mortgages.

So yeah, by this measure things aren’t so bad… yet anyway. Currently we are sitting at 0.45% of mortgages being in arrears. Slightly above the long term average of 0.37%, but well below the previous high of 0.69% in February 2007.

What should be troubling is that this number is rising quite rapidly, having bottomed out at 0.14% in June of 2007, and increasing every month since, and more then doubling since a year prior.

Some may blame the recent downturn in the economy for this, but remember, the stock markets and oil didn’t plunge until autumn of 2008… and this measure is only of those at least three months in arrears as of January. So the effects of that shouldn’t really be seen yet.

We should also remember all the layoffs that started hitting in the new year, piled up quickly, and continue to… the number of those in arrears is bound to really take off as for savings erode and EI benefits start to expire. When the full effects of that is felt this figure could very well surpass those heights reached in 1997.

Rising numbers of those in arrears will obviously increase the number of foreclosures, and should those start hitting the market en masse its going to put even more downward pressure on prices. This is an emerging issue, and something that will be very interesting to track over the next couple years.

For those curious, here is how Alberta stacked up against the national average:

Alberta was in the same range as the rest of the country, especially since 1995. Since 1990 the national average has been 0.42%, while Alberta came in at 0.37% as mentioned earlier. Also interesting to note that the rate has started to increase nationally over the last six months, and currently stand at 0.36%.

For an idea of how the rest of the provinces stacked up, here is the chart for western Canada.

Here we can see the western provinces have been pretty close for the last decade. It is interesting to see how much of an outlier Saskatchewan was during the early 90′s. Since 1990 B.C. has had the lowest average in the nation at 0.32%, Alberta was second. Saskatchewan (0.54%) and Manitoba (0.49%) on the other hand were on the opposite end of the spectrum.

Here is the eastern half of the country. Quebec is a bit more erratic then the rest, but nothing like Saskatchewan. The average for Ontario was 0.41%, Quebec was 0.49%, and the Atlantic provinces come in at 0.41%.

Alberta Historical Prices

A Tale of Two Cities

Calgary and Edmonton, two cities of similar sizes, linked together by geography, politics, and a healthy dislike of each other. In many ways it’s inevitable they’d be compared.

One’s a little bit more country, the other a little bit more rock ‘n’ roll… one’s a little more white collar, the other a little more blue collar…one’s sports teams win a lot of championships, the others, um, well, they wear a lot of red… but it’s not all bad down South, after all, they have chinooks, so they do have something going for them! ;)

I kid, I kid. Calgary’s a pretty good town.

Anyway, with two cities quite similar in demographics, geography and governance, they should provide an interesting comparison for home prices. So lets get on with it.

As you can see here, the actual price of homes in our cities have followed very similar patterns over the years. Though it should be noted Calgary has had higher prices over the last 25 years, we’ll be touching on that later. Overall they track about the same, booming at the same time, declining at the same times. That really shouldn’t surprise any anyone, their economies are very closely tied.

Here’s a look at the same graph adjusted for inflation:

Obviously just reaffirms the above. Also as we discussed in the prior entry, those that bought during at the peak of the boom during the late 70′s-early 80′s took about 25 years for the value of their homes to return to the price they paid for them when inflation is accounted for.

One interesting observation is that during that prior boom it was also Edmonton that started seeing prices decline before Calgary did. Coincidentally, the same was also true during the current bubble.

In the comments discussion in the last entry, someone brought up a similar inflation adjusted graph done on a Calgary specific blog about a year ago. They conversation concerned the best-fit line in that graph, finding annual 1.2% growth above inflation in Calgary vs. my using a line showing 1.8% growth above inflation in Edmonton.

Just to clarify, those two plots were not of the same thing, and should not be compared as such. His was a purely statistical measure, whereas mine was looking more to mimic a long-term trend and was based more on intuition. Both have their strengths, though a statistician would probably argue that my number might as well have been pulled from my rear-end.

In any case, just so we can compare apples-to-apples I’ll do best-fit trendlines for both cities based on current numbers and 2009 dollars.

This is Calgary, 1973-current. In red is the inflation adjusted price, and in black a best-fit exponential trendline. According to this, over that period Calgary experienced a 1.33% annual yield beyond inflation (also perhaps of interest, it tells us the residential average has about $100,00 to drop before it reaches the long term trend).

Here is the same graph for Edmonton, over the same period. According to that, Edmonton only experienced 0.6% annual growth beyond inflation… less then half what Calgary did, and quite low in general. Though, as mentioned in the Calgary blog, not unprecedented, as mentioned there over 345 years the actual growth above inflation there was a mere 0.2% annually.

One issue with this kind of measure is that it can change significantly just by adjusting the period. To give you an example of that, and since I have data for Edmonton going back to ’62, here is a graph of prices and both the ’73-current trendline, and a ’62-current trendline.

Here we can easily see the contrast. The ’73-current line is almost flat, whereas the ’62-current line shows appears much steeper (relatively speaking), coming in with 1.45% annual growth above inflation. It’s really quite a significant difference.

This of course begs the question, which one is right?

The answer is… who knows, they’re just numbers.

As any good statistician could tell you, you can probably make the numbers tell you whatever you want to hear. The numbers are a conversation piece and you can certainly make an argument with them, but going forward they aren’t proof of anything.

Thus, I still kind of like my old arbitrary graph here…

Pretty, ain’t it?! And as different as the measures are, they all seem to be telling us that residential average should be heading toward the $200,000 mark.

Anywho, so another topic bandied around in the prior entries discussion was the ratio of prices between Edmonton and Calgary. As noted earlier, while the two cities follow very similar patterns, Calgary has experienced consistently higher prices for a good while.

Here we see the Calgary price relative to the Edmonton price since 1973 (Edmonton’s prices =100%, Calgary’s price plotted).

Until the early 80′s the two were pretty close, then as the oil boom ended, as we noted earlier, Edmonton declined faster and we saw the first extended separation, but eventually the bust hit Calgary prices as well and they were again about even between the two for a few years.

After 1985 though Calgary pulled ahead, and has stayed there ever since. Trended about 20% above through the mid-to-late ’90′s when it shot up to about +40% (getting as high as +51% at times)… but then cooled back down into the 20′s (but did briefly spike back to +51% )… and has since cooled further, and is not back at levels not seen since the mid-90′s.

Lately we’ve been seeing Calgary at around +15-to-20% above Edmonton in the last few months. Depending on the period, the overall average is a bit different. If you include everything right back to ’73, Calgary is 21% higher (median 20%)… but over the last 20 years, they have been 27% higher (median 26%).

So, to make a long story short… I’d say Calgary prices we should generally expect be about 20-25% higher on any given month.

On a side note, this is actually a bit out of line with affordability, while Calgary does have a higher median household income, it’s only about a 10% difference currently. So we may see the margin narrow a bit in the years to come.

Oh yeah, and some more good news for our friends from the South. I heard they’re planning on remodelling the Saddledome… it’ll be perfect in every way… except for one thing… the seats will still face the ice!

Enjoy your Monday!

Alberta Canada

Edmonton is seriously unaffordable

As you may have came across in the news, or on the blogs, Demographia released their 5th Annual International Housing Affordability Survey this week. They compare 265 cities from Canada, USA, U.K., and Oceania, and rank them according to their measure of affordability.

Their calculation for that is actually quite simple and straight forward, take the median house price and divide it by the median income for that city. It’s something like the “three times rule” for house buying, where the rule of thumb is you should try not to spend more then three times your annual income on your residence.

Much in line with that they consider anything below 3.0 to be “affordable”, 3.1-4.0 as “moderately unaffordable”, 4.1-5.0 as “seriously unaffordable”, and 5.1+ as “severely unaffordable.”

As you have likely deduced already, Edmonton came in that second last range as of September of 2008… 4.2 to be exact. (Not sure exactly which/whose figures they are using, but for what it’s worth according to the last census (2007) the median household income was $79,300).

Our recent boom is also well represented by the data. Three years ago though Edmonton was nicely in the “affordable” category, with a 2.8. Come 2006 and the onset of the price explosion we quickly vaulted up to 3.5… then further up in 2007, when they came in at 4.3 and left the city in the “seriously unaffordable” grouping. So we’re actually down a modicum for 2008, reflecting the price erosion we’ve been seeing.

So while median income did grow substantially during the boom, they did not keep pace with the growth in real estate prices. Calgary has also seem a similar escalation as Edmonton, in 2004 they came in at 3.0, 2005 at 3.2, 2006 at 4.4, 2007 at 4.8, 2008 again at 4.8. For those interested, here are how the other Canadian markets stack up, from most-to-least affordable.

Cape Breton – 2.1
Thunder Bay – 2.2
Chatham – 2.4
Windsor – 2.4
Moncton – 2.5
Saguenay – 2.6
Saint John – 2.7
Trois Rivieres – 2.7
St. Johns – 2.8
Winnipeg – 3.0

Moderately Unaffordable
London – 3.2
Brantford – 3.3
Sudbury – 3.3
Barrie – 3.4
Guelph – 3.4
Ottawa – 3.4
Quebec – 3.4
Kingston – 3.5
Kitchener – 3.5
Regina – 3.5
Halifax – 3.6
Peterborough – 3.6
St. Catherines/Niagara – 3.6
Sherbrooke – 3.8
Hamilton – 4.0

Seriously Unaffordable
Edmonton – 4.2
Montreal – 4.6
Saskatoon – 4.6
Calgary – 4.8
Toronto – 4.8

Severely Unaffordable
Abbotsford – 6.5
Kelowna – 6.8
Victoria – 7.4
Vancouver – 8.4

Vancouver actually comes in as the 4th least affordable city in the survey, behind only Gold Coast, Aus (8.7), Honolulu, USA (9.1), and Sunshine Coast, Aus (9.6)… which also leaves Vancouver as the least affordable major city surveyed, as none of those other three have populations of even a million.

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