Edmonton Real Estate Blog

Housing Starts Down, Commercial Construction Skyrocketing

March housing starts were down 59% from March '07 and were down 31% for the first quarter according to a report released by CMHC today. Single family homes are down for the 9th month in a row, representing the lowest level of activity since 1996. Completions meanwhile are actually up 13% from last year - that means more inventory coming on the market now, but less in the future. Completed, unoccupied homes stands at 902 (a record) - although I'd have to disagree with this stat. By unoccupied I think they mean unsold, since there are clearly plenty of new, unoccupied homes listed on the MLS as resale that the builders would consider occupied.

The sale price for a new single family home is up 33% from last year, setting a new record of $501,499, but CMHC cautions that most of these prices were negotiated before construction on the home even began.

As for multi-family starts, they're down as well - 57% since last March. Units under construction are up 42% from this time last year though, and CMHC expects unoccupied inventory to increase from the current "normal" levels.

"Condo resale inventories were looking very well supplied in March and new units will face stiff competition from these existing units that are in many cases priced below the current cost of new construction."

Meanwhile there are new retail developments popping up all over the city. Retail vacany rates have been steadily decreasing while rental rates are on the rise, so developers have responded to the demand by building all kinds of new space.

Windermere in South West Edmonton will add about 1 million square feet of retail space on about 100 acres featuring Wal-Mart, Home Depot and Canadian Tire making it Edmonton's second largest outdoor shopping centre, after South Edmonton Common which continues to grow.

The Meadows in South East Edmonton has about 500,000 square feet of retail space planned with another Home Depot and a Superstore.

Existing malls are also expanding (South Gate and Kingsway) and there are also large developments in Spruce Grove, Sherwood Park and Leduc.

Makes me wonder if the commercial guys have learned anything from the residential guys about over-building?

Quotes from the Papers

There have been a whole bunch of articles about Alberta and Edmonton and the economy in the past few days. So I thougt I'd just put some of the quotes from these articles here...enjoy:

• Alberta remains an island of prosperity in a roiling sea of economic uncertainty. Geoffrey Scotton, Calgary Herald
• There almost seems to be distinct economies between Alberta and the rest of North America, really. It's a rather interesting situation -- we're pretty well insulated from the stuff happening in the U.S. Calgary Economic Development chief economist Adam Legge.
• Our proprietary housing valuation models, driven by both affordability considerations and individual market conditions, suggest that Victoria is currently the most overvalued city in Canada, with average house prices at 23% above “fair value.” Edmonton is next, at 21%. By contrast, Miami and Los Angeles both got to more than 60% overvalued at the U.S. peak.  David Wolf, Canadan Business Magazine.
• Alberta is doing even better than most people thought . . . and we expect Alberta to remain quite strong." CIBC World Markets chief economist Jeff Rubin.
• Alberta is slowly losing its advantage in terms of having the lowest business taxes, having the lowest personal taxes, having the best set of regulations and being the most attractive province to invest. Niels Veldhuis, director of fiscal studies at the Fraser Institute.
• Albertans are optimistic -- and that optimism is rising. Job creation in Alberta is running at 3.4 per cent annually compared with 1.9 per cent nationally according to a new consumer and business confidence survey from PricewaterhouseCoopers LLP.
• Statistics Canada projects a stunning $20 billion will be spent in the oilsands this year, more than in all of Canada's manufacturing sector. Wages in Alberta are surging, climbing nearly seven per cent in March from a year earlier, to the highest level of any Canadian province and 11.2 per cent above the Canadian average.
• Multi-unit housing market that started heating up in 2006 has turned into a buyer's market, multi-family homes under construction have continued to rise -- unlike single-detached homes -- and are just starting to slow down in the last two months. Canada Mortgage and Housing Corporation analyst Richard Goatcher.
• Sales in Alberta of new vehicles -- clearly, a big-ticket item -- are on track to set a record for the fourth consecutive year.
• If I were trying to capture the market today, I would say it's uncertain and confusing and we're hoping that the market starts to find some footing as the year goes on. Raymond Townsend, a senior vice-president at CB Richard Ellis.
• Alberta exports were running at a record pace in February, up a stunning 32 per cent -- or $2 billion -- from February 2007, up nearly 10 per cent from January and for the first two months of the year ahead more than 20 per cent. That follows a fifth straight annual record in 2007.

• [I predict] a short-term housing glut as projects under construction are finished, adding to an inventory of empty single-family houses that aren't moving. I think you'll see some prices drop. You're going to see some rentals take place, corporate company rentals, all sorts of things. Definitely, in the short run, there's going to be a problem. Investors who bought spec homes "are going to get their clocks cleaned. Greg Christenson, president of Christenson Developments.

Seems like the experts are all over the map!

Consumer Confidence Takes a Hit in Alberta

"There is "slow erosion" of optimism that perhaps can be attributed to the slowdown in the natural gas side of the petroleum industry, where layoffs and idle equipment have been witnessed over the past six to eight months," according to a survey of 727 Albertans.

The poll completed by PricewaterhouseCoopers and Leger Marketing measured consumer confidence in Alberta and showed that nearly half of Albertans think that now is not the time to buy a home.

These kind of polls can become a self-fulfilling proficy...it doesn't matter whether they are right or not, just by saying it makes it so. If everyone is talking about how great things are, everyone starts to believe it and behaves accordingly.... the opposite is also true.

The poll shows people are feeling cautious about Alberta's economy... caution can move to doubt awfully quickly. I believe people should always exercise caution when making big decisions.

Lower interest rates, lower prices, less competition, and lots to choose from, make now a better time to buy than last spring, but confidence last spring was way higher than it is now.

Perhaps sometimes feeling confident can be a bad thing.

Fed Slashes Rates

CNN:   "The U.S. Federal Reserve dramatic 75-basis point cut in interest rates Tuesday intensified speculation that other central banks could soon follow in slashing the cost of credit...The Bank of Canada, which had already been easing interest rates, on Tuesday again cut its interest key rate by 25 basis points to 4.0%. It was unclear if the steps were concerted, nor werer there signs of similar moves among other central banks Tuesday. But markets speculated that the big Fed cut could usher in a new era of falling interest rates globally."

Globe and Mail: "The U.S. Fed’s massive unscheduled rate cut this morning is the clearest sign yet of how worried it is about the states of the economy and the markets, and more cuts are pretty much sure to follow, economists say."

New York Times: "For the shaken world markets, the move seemed to provide some relief. When trading resumed after a Monday holiday, Wall Street initially joined in the plunge that had shaken Europe and Asia for two days. But after opening down by more than 460 points, the Dow Jones industrial average was off about 75 points, or 0.6 percent, at 1 p.m."

Moody's Chief Economist: “It’s a once-in-a-generation event.”

Forbes: "Gold jumped by more than 10 usd in the immediate aftermath of an emergency 75 basis point rate cut from the US Federal Reserve, as the central bank of the world's largest economy moved to try and stave off a recession which could spread around the world."

BBC: "This is huge....The last two such emergency cuts were on 17 September 2001, shortly after the attacks of 11 September, and on 3 January 2001, in the wake of the dotcom bust...The last time the Fed cut rates as much as three-quarters of a percentage point was in August 1982, almost 26 years ago. Even if it isn't going to work as well as it did in 2000 [in response to the dotcom crisis], it might at least prevent markets and the economy driving themselves ever deeper in to a quagmire."

Reuters: "The Canadian dollar rose off a four-month low versus the U.S. dollar on Tuesday as a surprise rate cut by the U.S. Federal Reserve and a smaller cut by the Bank of Canada put the interest-rate spread in Canada's favor...the reaction of the Canadian dollar over the next few days is going to depend on whether or not we get some stability and confidence returning to the market."

What are your thoughts? Will it make a difference? Too little too late? Will it scare people or encourage people? How will it affect Alberta? Canada? The housing market?

Realtor's Association of Edmonton Economic Forecast 2008

The newly name Realtors Association of Edmonton held its annual economic forecast seminar for the 20th year on Wednesday. I was delighted to get up at 5am after arriving the day before in Edmonton after 15 hours of travel, with only about 2 hours sleep in 48. Sara bailed on me...something to do with a cold. Anyway I met Gord McCallum for breakfast, the president, CEO , founder and owner of First Foundation Residential mortgages (www.firstfoundation.ca) for a tete a tete about almost everything. I enjoy his bright insightful mind on the mortgage industry and always leave learning something new.

Hilites from the forecast

First up was the prez and CEO of the SERVUS credit union with a infomercial on SERVUS.  Fortunately his Chief Financial Officer, Ian Glassford hit clean up for him and came to the plate swinging. His presentation was titled “Earthquakes and aftershocks and maybe a happy ending.” An obvious reference to the liquidity crisis and its effects on lending and its other impacts. 

“Its hard to convey just how big of a hole this really is” he stated. He continued by saying that there were still “serious challenges ahead.” He was impressed and spoke about the reaction to the infusion of capital by sovereign states, and I think he was implying the central banks response as well.

He indicated the liquidity issues affect Canada as well.  He pointed to mortgage rates to show its impact on the economy already.  They have always been tied to certain bond yields and based on current bond yields we should have seen reductions in the 5 year mortgage rates by now. Instead the bond yields have changed and the mortgage rates have not dropped. The extra cost being passed to the consumer right now is almost an extra full percentage point. In simplistic terms his perspective is that it will be harder to borrow money and more expensive in 2008. This should slow down asset inflation(including housing) and could put the U.S. into a recession.

His forecast for Canada was that the economies of Ontario and Quebec are really going to soften in 2008, due to the higher dollar and weaker U.S. demand. Western Canada won’t be as bad since there is still good global demand for our extensive natural resources. He did spend some time expressing his views that Canada is not as exposed to credit issues as the U.S. He expects at least one more .25% cut in the prime, and more likely two, which will likely depend on what happens in the U.S.

His commented: “if there is any where in the world I’d want to be watching the subprime parade go down its from Alberta” which is something I’ve been saying for quite some time.  It was weird to hear it come out of someone else’s lips.

His forecast for Alberta is that it's probably the best place in the world to be in 2008. House prices will face confidence issues with constent negative headlines from the U.S., but there is stronger demand and the ability to work off inventory is greater here than anywhere else. His reference in his title to a happy ending comes from the his belief that this may actually help towards sustainable growth by tempering the prices and labour costs.

Just before Ian’s presentation, Ron Gilbertson, president and CEO of Economic Development Edmonton Corp gave his presentation.  In December we posted the full report to EEDC’s an economic power house redefined (there is a video version that’s awesome).

Key points

• If the Edmonton – Calgary corridor was a country it would be the WORLD'S #1 economy today.
• The world is noticing Edmonton.  He feels like the prettiest girl in the room when he goes to presentations.  He referenced just one article from a United Kingdom financial magazine titled “City's potential is without peer...best economic potential of large cities in North America”
• Stressed that his figure for $200 billion in major projects in our service area is on the low side and that it could easily be higher.
• He pointed out that Edmonton’s GDP growth  will be slowing down to around 4 – 5% down from 5.8%  which still ranks it as an over heated economy
• Cited housing affordability compared to other major Canadian markets is still favorable with affordability under Calgary, Vancouver and Toronto. Vancouver is almost double the cost of Edmonton.  He made a reference to affordability in Europe being at 100 – 200% of income where Edmonton is at 42% as a comparison for standard of living.
• He noted that if Alberta goes ahead with its Oil and Gas value added strategy that would add another 179 Billion in major projects for Alberta.  “No place in the world can match our economic environment” he added.
• U.S economy expected to decline in world prominence as India and China rise and Alberta is well positioned as an “economic super power to take advantage of that”
• Edmonton is becoming an industrial power and ranks extremely high in the world among comparable cities in terms of economy, health, education, environment, and culture
• It ranks poorly in safety (something I’ve ranted on), urban transportation (something else I’ve ranted on) and image (something I’ll rant on later)

“Mr. Sunshine” ended his presentation that Edmonton is on the threshold of a  becoming a great city and that it is up to us to determine where we want to go in that regards.

Next I’ll go to the CMHC presentation.  I’ve often picked on CMHC (Canada Mortgage and Housing Corporation is Canada’s dominant player in mortgage insurance) for their conservative predictions.  This is probably the first time that I can remember that my expectation is lower than theirs. They gave a the same qualified 7-8% increase in prices that they gave in November - if we can burn through some of the current inventory.

Hilites from CMHC:

• Job growth for 2007 after 10 months was in the bag was predicted at 5.3% but was actually 6% and is expected to be 2.5% in 2008
• Edmonton currently has a 7-8 month supply of residential listings
• They expect sales this year to be below 2006 and 2007 levels but above 2005
• Huge amount of multi family inventory coming down the pike

Actually the speaker was really hard to hear so even though her presentation was the largest I caught about 1/10th of what she was saying. We did cover CMHC’s thoughts fairly substantially in November at their forecast seminar. 

And last but not least was the Presentation given by the incoming President of the Realtors Association of Edmonton, Marc Perras.  His presentation was brief and I noted  the following:

• strong economy, global interest in our petro chemichals, positive in migration, consumer confidence still high, reduced small business confidence, caution is urged for speculators.
• The west and south areas of the city have done better than most areas in Edmonton (we’ll be doing an area breakout in an upcoming post.
• Residential average price forecast is 4%
• The conclusion spelled out guarded optimism, the market should be an orderly and balanced market, 400k average price is now a reality.

This post is already too long to add my comments and thoughts.  So I’ll give my thoughts in another post.

Economic Powerhouse. Edmonton?

Lots of discussion on the economy these days.  Where is it at and where is it going?  Plenty of uncertainty for the States and more discussion continues on the potential ramifications for Canada.  For what it's worth there are a number solid fundamentals in Alberta that haven't changed over the last 6 months and several that have. It's hardly up to me to tell you what you should make of everything that is being put out in the media or even on here.

So I'm certain that we'll have some discussion regarding the Economic Development Edmonton Outlook for 2008.  The title of their Outlook is "Edmonton. Powehouse redefined."  Click on the title to view the full report.

Edmonton's Economy Hottest in Canada

CIBC World Markets reported yesterday:

"For the first time on record, the City of Edmonton tops our city ranking in terms of economic momentum."

Cool! We've still got momentum!

Canwest news service said: "Edmonton's weather may be cold but its economy isn't, says CIBC World Markets, which reported Monday that the Alberta capital has the hottest local economy in Canada, surpassing Calgary.

Calgary, meanwhile, slipped into second spot with a score of 24.5, compared with 30.1 for Edmonton. Calgary's slippage reflects what the report said was a slowdown in the pace of job creation momentum in the city -- less than that of Edmonton, Saskatoon and Victoria -- and a cooler housing market.

Saskatoon reached third spot with a score of 23.7, propelled by strong job and population growth, and the hottest housing market in the country."

The report credits strong population growth, impressive employment gains, a low unemployment rate and below-average personal and corporate insolvency rates.

More discussion at: http://www.connect2edmonton.ca/forum/viewtopic.php?p=74816

On a separate note... Looks like the board released the real estate stats to the newspaper and prices are down...still nothing on the board's site but as soon as I have the numbers I'll get the stats for November up.

Edmonton Economic report...and some other items

Sounds official doesn't it?  Sounds like I spent hours crunching numbers coming up with something earth shattering.  Nope...I did get an automatic email I just signed up for from Economic Development Edmonton...Since no one probably reads or gets their e-letters I thought I'd post about it.  Not really much to say but that Edmonton is trailing Calgary in a number of categories in the report except for inflation: http://www.somnia.ca/eedc_doc/EEDCQ3.pdf

In other news...has anyone noticed who turned out the lights in Edmonton?  Seriously, with the number of vacant properties out there if one of them is yours you need to talk to your REALTOR about strategies for dealing with and marketing vacant properties.    We have spent a good deal of time talking to our sellers who have vacant properties on some simple tips, like lights with timers and so forth.  Cause in case you haven't noticed the sun is going down earlier now.

On another note I Got an email from some people marketing a condo complex saying they'll pay me $13,000 to just bring my client to the door then they'll do the rest.  If someone is getting paid that much and they drop you off at the door and disappear, I have some serious problems with that. They should owe you some fiduciary duties such as reasonable care and skill - In my mind how could they perform those duties if they aren't involved in the process? 

Going off track for a second, did someone every give Danny Maciocia, the head coach of the Eskimos a golden horseshoe up his kazoo? I mean, if I fail for 90 days, I'm not likely to get rehired.  He not only didn't get fired after two losing seasons of not making the playoffs, that could see Edmonton renamed from the city of "champions", but  instead most of his staff got turfed.  He must have some good dirt on his boss.  If only everybody could be as lucky as Danny.  Maybe when a house sells we'll have to say "oh they have Danny's luck".

I know for many of the bubblist's they see market as kaput so I won't burst their bubble by going out on a limb and saying that it just ain't so...oh yeah, prices are still going to soften, at least in my opinion, but the buyer activity has definitely picked up.  Always late to the ball this article from the Sun on consumer confidence should have been written in September. http://www.edmontonsun.com/Business/News/2007/11/18/4665404-sun.html

Speaking of optimists, have you heard the story of the two little boys? One's and extreme optimist and the other is a major pessimist.  The mom wants them to be a little more balanced so she sees a shrink who tells her to get some special gifts for Christmas. He tells her to buy the pessimist a room full of toys, and the optimist a room full of manure.

On Christmas morning she checks in on the pessimist, who is sitting is his room looking at all his new toys. He looks at her and says thanks, but these toys aren't as nice as his friend's toys, and they aren't what he really wanted etc etc etc... She checks on the optimist, and he is furiously digging through the manure with a big smile on his face, and she says "What are you doing?" He exclaims "With all this manure, there must be a pony in here somewhere! Thanks mom!"

The point of the story is, no matter what you read or hear, how you interpret it is a matter of your perspective. Those are my thoughts for the day, hope you found a pony in there somewhere :)

Royalty Raucous

On Wednesday morning while heading to do a property evaluation I was listening to Dave Rutherford on 630CHED. I listened to him rip into some guy for making his mind up about the Royalty review when the caller clearly hadn't. It was Dave's position that the proposed increases were “bad for Alberta” and “the royalty review report was flawed”. Listening to his rant I couldn't help but wonder where does someone get good honest information about this topic.

The premier “Steady Eddy” has yet to show his hand as to what he’s going to do, we just know he says the “status quo” is not an option.  I understand that we should know the governments position on this sometime this week.  The royalty review panel has suggested a 20% increase and the oil industry has cried foul, and has suggested that there will be serious consequences if there is an increase of this magnitude, including the cancellation of numerous projects and more.  Currently Alberta receives roughly 10 billion in Oil and Gas royalties.  It’s anticipated the increase would amount to $2 billion more in the province’s hands.  Where would it go from there? Would it be wisely spent or would the money go down the pipe so to speak. 

Personally I can’t help but think that there's room for an increase.  However, is a 20% instant increase realistic at a time when the bread and butter gas industry is idling? What impact would this have on the state of the correcting housing market and the current economic situation.  Wouldn't it be more prudent  to do  an incremental increase?  I honestly don't know enough to make that determination.

I do know we'll never get everybody agree on this issue, but if “Steady Eddy” was reading this blog what would you say to him and his caucus?  So, in the spirit of speaking directly to the premier make your point and be respectful with your comments.  And as some of our finest establishments say outside their doors “No Knives”.

Mortgage Rate Alert

Alberta boom will continue to bloom and the bust is nowhere in sight, according to a new report by the TD Bank on the province’s economic future. As a result of the boom, three of Canada’s major banks are raising residential mortgage rates. The Bank of Montreal (BMO) and the Royal Bank (RY) said last week that their posted rates will raise as much as a quarter point beginning on Thursday. TD Bank’s (TD) rate changes went into effect October 10th, 2007.

BMO’s five year rate will increase 0.25 percentage points to 7.44 per cent, Royal Bank’s five year closed term will rise 0.21 points to 7.4 per cent, and TD Bank’s five year increased 0.25 points to 7.44 percent.

The increases come as bond yields rise on speculation, the Bank of Canada continues to hold the line on its own benchmark rate and may even have to raise it to keep inflation within the acceptable target range.

If you are at all considering buying a home contact a mortgage broker today and reserve a rate. If you can get today's mortgage rate, and tomorrow's pricing you can minimize your monthly costs. Reserving a rate does not commit you to anything - you don't have to buy a home, you don't have to use that rate - but it does protect you from rising rates.

However, Bank of Canada governor David Dodge is keeping a close eye on the high price of housing in Western Canada as he determines whether to revise interest rates or not. During a news conference following a speech to the Vancouver Board of Trade, Dodge suggested the central banks interest-rate policy has unduly influenced new home prices.

“One worries about the structure of the mortgage market, that we may be actually facilitating a rise in the price of housing,” says Dodge.

The Bank of Canada boss will decide Oct. 16th whether to change or maintain the current overnight interest rate of 4.5 per cent in wake of the loonie reaching parity with the U.S. greenback for the first time in three decades.