New home price decline largest in the nation

So, another week goes by, another apparent bull market rally turns out to be little more then a trap… but at least the Eskimos won last night!

Anywho, so I guess the big news this week for Edmonton real estate was that the decline in the new housing price index… down 11.7% year-over-year as of June, biggest drop in the country.

This of course if more then the 4.2% down the resale market was down year-over-year as of June (using the SFH Median fwiw). So you may be wondering why it’s down so much more, but as we discussed a few months back, new home prices tend to lag the resale market.

That’s predictable just from the nature of the transactions, resales generally go down over the span of weeks from deal to closing (sometimes even mere days)… whereas new construction can have months between the deal being made and it actually closing. Often they are bought on spec and construction doesn’t start until there is a deal in principle. So most of those properties figuring in that 11.7% drop were actually negotiated back in the fall or winter (or even earlier).

So, long story slightly longer, while the June numbers for resales reflected a market surge, the June numbers for new homes reflect the major slump we were experiencing during the fall and winter.

As I don’t think we’ve discussed this measure before, here are the historical figures for the new housing price index.

Here we see a pattern quite reminiscent of the resale market, but shifted about six months later. Beyond being down 11.7% year-over-year, we’re also down 16.7% from the peak… which is in the ballpark of what’s happened to the resale market.

So, in the coming months it will be interesting to see is the new construction market had a spring bounce of their own or not, unfortunately that won’t show up until November or December.

Though, as we’ve been seeing with the Teranet HPI figures for Calgary, the overall market numbers trending up are not necessarily a reflection of actual property values as these HPI’s more accurately measure… as while the market stats are increasing month-over-month, the HPI is actually still declining slightly… so property values are still actually dropping, but there has been a shift in what’s selling and thus the market stats increasing is actually rooted in more activity at higher price ranges.

Since I had the numbers handy I figured I’d include this as well, it breaks the earlier graph into ‘house only’ and ‘land only’.

It’s interesting to see just how reactive the land prices have been, when before the boom they were actually lagging behind home vales in appreciation but then took off and ultimately ended up increasing far more then house values.

From January 2004 to their respective peaks, land values increased 139.5% and didn’t actually top out until last fall… house only values increased 81.4%, and topped out in the fall of 2007 on the other hand, a year earlier.

So, food for thought, something to send you off on your weekends with. Have a good one guys and gals, and if you’re looking for something to do, check out The Frige!


April showers…

April is fast drawing to a close.

We probably won’t get the final numbers until Monday, but indications are that it was a fairly typical April. Prices look to be up a point or two over March, and sales figures are looking like they’ll be in the normal range for the month, 1750-1850… which would actually be an improvement over the winter which saw sales well below average, and welcome news for those trying to sell

For those of us looking for indicators of long-term trends though, we’re kind of stuck in a holding pattern. Observing it all, it seems somewhat counter intuitive since asking prices keep coming down, but the averages continue to hold. But perhaps that’s an indicator of what’s selling more than market direction. Or maybe it’s the incredibly low interest rates. Who knows, maybe we really have hit bottom… nah.

If this year is anything like last year, it won’t be until the second-half of the year that we’ll find out whether prices will sink or swim… until then we’re stuck waxing philosophic, arguing banalities and over-analyzing indicators.

Not that over-analyzing indicators cannot be fun… one of which is the Teranet/National Bank House Price Index. We looked at this a bit back in January, so it’s a good time for an update.

The overall trend looks to be down, particularly in the uber-bubbly Calgary and Vancouver markets. Everyone is down month-over-month. Montreal and Ottawa are up year-over-year, but as can be noted, they didn’t appear to really have ‘bubbles’… not anything like the western markets anyway.

It’s still striking how similar our graphs look compared to what happened in the United State (graph prepared back in January).

Forecasts HPI

The shocking truth about the value of your home

Had actually written another entry for today, but came across this article from Macleans, and decided to do a write up on it instead.

I highly recommend everyone take the time to read it in full, as it is a very interesting piece and gives some great insights on the inner workings of all these forecasts coming from the various real estate outlets.

It also discusses a few other subjects I’ve been noting here, including the National Bank / Teranet HPI and Case Shiller.

I guess what struck me is that this is the first real main stream article to really take the real estate industry to task for their so called “forecasts” and statistics, and in many cases just flat out calls them out.

It is really quite damning that the leading economist that they spoke to would only give his honest assessment on the condition of anonymity.

“There’s clearly a lot of spin,” he says. Even the CMHC, which promotes home ownership and depends on home sales to sell mortgage insurance, has an interest in seeing the market prosper. “There is quite a lot of uncertainty regarding the market in general right now, and there are too few uninterested parties who are giving any sort of reasonable analysis on that outlook.”

It pretty much tells you everything you need to know about the integrity of these forecasts when the sales pitch takes priority over silly little things like accuracy. The ‘economists’ these outlets trot out are little more then paid mouthpieces, merely using their degrees in a thinly veiled attempt to lend credibility to bogus forecasts.

It’s basically shill or gtfo, and even if you shill there is no guarantee you don’t end up like David Lereah. Robert Shiller summed up their motivations nicely in this passage;

“The predictions from those guys are very biased,” he says. “They know that in a declining market, the volume of sales falls dramatically and real estate agents lose their jobs. So they don’t want to say anything that could be seen as contributing to a falling market. If their economist predicted a decline in the market—and then it happens—that’s deadly. The guy would have to watch out for his life.”

It’s scary that people are making decisions involving their long-term financial health when practically all the sources have a common vested interest… and for the most part these ‘forecasts’ and ‘industry experts’ go unquestioned by the media because they are dependent on the industry for their advertising dollars.

In any case, it’s nice to see these kind of stories are starting to get out there, and in the coming months I imagine we’ll be seeing many more as prices continue to decline. I recommend all of you take the time to read the entire thing, it’s really an excellent article.

Forecasts Foreclosures HPI

More Odds and Ends

Don’t really feel like running numbers today, and there were a lot of housing relevant stories coming out this week, so we’ll look at those.

  • Mike Fotiou wrote up an interesting piece on the CREA forecast for 2009, and their past fortunetelling exploits. Their predictions for Alberta are not going to make sellers any more hopeful… an 8.9% price decrease AND 19.1% fall in sales. And this is from the real estate pumpers. I don’t recall seeing any Edmonton specific predictions from the CREA yet, but I’d have to think it’d be right in line with their provincial guesstimates… or as Mike jokingly pointed out, in light of their rather rosy predictions for Calgary released last month, could be far worse… though I suspect there was little consideration for the numbers they pulled out of their ass last month, when they yanked them out this month.
  • Statscan released their latest New Housing Price Index for December, no surprise there, we’re down 8.2 points from last year. By far the biggest decline in the country, almost double the next closest (statistically and geographically), Calgary at 4.3. I should probably run their figures next time I do a piece on new construction, so stay tuned for that.
  • A couple interesting stories out of Calgary that also ring true for us up here. First, an article about the effect of falling resale values on mortgage default rates. More and more people are finding themselves upside down in negative equity, some are saying it’s the worst they’ve seen in 25, which not so coincidently is when the last big boom ended. Scary thing is we’re just getting our feet wet this time around, I have a feeling this is going to become a very big issue in the next couple years.
  • The other article was about the increasing number of vacant new condos hitting the market. With builders and speculators all heavily diving into these entry-level homes, when the market finally hit it’s critical mass, suddenly the bubble kind of burst on demand and we’re finding the cities significantly overbuilt… and still with plenty heading down the pipeline. This is of course leaving developers unable to find buyers, and speculators unable to unload or even rent out their properties.
  • Then we also have the news about unemployment drastically rising. While maybe not directly effecting housing, when people are unsure about their jobs, or losing them, they are not going to be buying houses. Which also kind of ties into the prior two articles mentioned, because with a significant number of developments still under construction but very few new starts to replace those jobs upon completion. That’s only going to swell the ranks of the unemployed, take more potential buyers out of the market, and increase mortgage defaults.

So, to make a long story short, there is a whole lot of downward pressure on prices at the moment.

Oh yeah, and happy Friday the 13th, you have just over 12 hours left to dump your significant other… or I suppose you could just get them something nice, it’s up to you.

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

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.