Edmonton Real Estate Blog

Housing Starts Continue Downward Trend in April

CMCH released their monthly report today, showing that housing starts were down again in April. For the year so far, starts are down 41% from '07 in the greater Edmonton area. If you compare April '08 to April '07 starts fell 60% in the greater Edmonton area, and 44% across Alberta (the only major city that saw an increase was Lethbridge).

"For the tenth month in succession, single-detached housing starts registered another year-over-year decline in starts in April. Home builders poured foundations for only 178 units last month, representing an 80 per cent slide from April of last year. For the year-to-date, single starts have fallen by over two thirds from the first four months of 2007 to 835 units, the lowest level of activity since January through April of 1996. “High levels of unsold spec home inventories coupled with an ample supply of resale listings continue to undermine new singledetached construction this year,” observed Richard Goatcher, CMHC’s Senior Market Analyst for Edmonton. CMHC expects single-detached starts to begin improving in the second half of the year once new house inventories turn the corner in the months ahead."

Multiple starts were also down - 38.5% - "Multiple unit starts are expected to cool for the duration of 2008 due to an expected run-up in new condominium apartment inventories and a relatively well supplied existing condo market,” added Goatcher.

At least things have slowed down, and the new homes aren't contributing to the overall inventory as much - I certainly haven't heard about anyone buying a new home to flip lately.

Weekly Update on the Edmonton Real Estate Market

Here is our weekly update on the Edmonton real estate market. (Previous week's numbers are in brackets). For the past 7 days:

New listings: 671 (566, 823, 869)
# Sales: 279 (293, 336, 272)
Ratio: 42% (52%, 41%, 31%, 36%)
# Price changes: 603 (493, 679,567, 550)
# Expired Listings: 450 (115, 181, 125)
# Canceled/withdrawn/terminated listings: 71 (39, 65, 65)
Net loss/gain in listings this week: -129 (119, 241, 407)
Active listings for single family homes: 3985 (4088, 4063, 3888)
Active listings for condos: 2953 (2969, 2921, 2851)

That is the first decrease in overall inventory we've seen since January. Granted, we see a larger number of expired listings at the end of each month, which certainly contributed, but a shrinking inventory is good news for everyone right now in my opinion.

Edmonton Real Estate Market Balanced

After three consecutive months of a buyer's market in Edmonton, April saw some balance (barely). The new listings to sale ratio hit 42%, even with almost 4,500 new listings and inventory creeping over 11,000 homes.

The steep competition did affect pricing as the average sale price dropped slightly, falling just below last April's average:

As you can see, competition and inventory are closely related to the average price:

As we've seen in the weekly updates, the last two weeks of April saw the pace of new listings slowing, and we predict the inventory will peak sometime around June.

The one thing that seems normal in Edmonton are sales; they are following the normal annual pattern for our marketplace albeit slightly lower than average.

I haven't included any exact figures, since some of the data is still to come in. The Real Estate Association requires that all sales are reported within 2 business days, so we won't have the exact data until the monthly press release expected early next week. More analysis to follow tomorrow when we're not so busy with clients takeing possession of their new homes.

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?

Old Vs. New

Yesterday Sheldon talked about the number of new and vacant properties on the market, and it made me wonder - what's been happening with the prices of resale homes compared to new homes?

At the end of 2007, CMHC explained at the Housing Outlook conference that the gap in pricing between new homes and resale homes had grown quite large in the Edmonton area, and suggested that new home prices would need to come more in line with resale homes.

Now, my stats only include homes sold on MLS, and may in fact include a number of resale homes since I can only separate the sales values by the age of the home. Never the less, I plotted the average sale price of homes built in 2007 and newer, and those built in 2006 and older. Here are the results:

It seems the average price of new single family homes and older single family homes has dropped at approximately the same rate. When it comes to condos, the older ones have held their value better than the newer ones (and single family homes for that matter).

I also noted that the newer homes and condos were larger on average than the older ones - newer homes were 1800 square feet while older ones were 1365, newer condos were 1050 on average and older ones were 970. Now, when it comes to single family homes, some of that difference in size can be attributed to the different styles of homes; just by driving around a new subdivision you can see there are more 2-story homes being built these days than bungalows which tend to have smaller square footage.

Which leads me to price per square foot...

Before you get too far thinking about this chart, there is one fact to keep in mind and that is the larger the home, the lower the price per square foot. We know that the newer homes are larger on average, so it makes sense that their price per square foot would be lower for the newer, larger homes. 

I was surprised to see that older condos and newer single family homes are very similar in price per square foot, as were older single family homes and newer condos. I guess this is partly attributed to the fact that with a new home comes a lot of extra expenses like landscaping, fences and decks, and sometimes garages and basement development, while those costs are already built in on a resale home. One thing for certain, they've all come down over the past year, and all at approximately the same rate.

Edmonton Housing Starts Drop Again....Phew!

After starts in Edmonton dropped by 37% (year over year) in February, they dropped 59% in March. Good news for our inventory issue in the area. Starts have dropped by 31% so far this year compared to last, single family starts have dropped 61% and multi-family representing the lowest number of first quarter starts since 1996. I think the builders have finally caught on!

“A large inventory of unsold spec homes combined with a well-supplied resale market has contributed to the slowdown,” noted Richard Goatcher, CMHC’s Senior Market Analyst for Edmonton.

Meanwhile on the condo front, multi-family starts are pretty much unchanged from last year. Semi-detached seem to be more popular with the builders right now that apartment and rowhouses.

Calgary lead the province posting huge gains in single family starts; while every other major city dropped,Calgary increased enough to bring the provinces total up by 25% year over year.

The full report is here.

So all in all this is good news for our over-supplied market here in Edmonton....it will take some time to feel the affects though.

Block Busting

I found this article about "Block Busting" in the Edmonton Sun. If you haven't heard of this practice before, the article basically claims that certain neighbourhoods in Edmonton are being targeted by shady individuals who artificially lower property values, only to buy up the homes and sell them later for more money.

The article specifically refers to speculators who buy homes and rent them out to drug dealers, who then cause havoc in the neighbourhood forcing home owners to sell. Property values in the neighbourhood drop, and as more homes sell, the speculators continue to buy them up, filling them with more shady characters and further lowering values.

Eventually they flip the land for re-development and make a fortune.

Const. Ryan Lawley of the Edmonton Police Service said that no neighbourhood is immune from the practice..."This is a real issue," he told Sun Media. It's become so prevalent, that this spring the EPS will hold a training session so cops can spot the signs of block busting before it destroys a neighbourhood."

I have to admit, I find this difficult to believe. There would be a high level of orchestration required, plus a lot of patience and capital.

"Michael Walters, who used to work with the Community Action Project, which hands out the dubious Slum Landlord of the Year award, said that while block busting has caused serious problems in some neighbourhoods, he wasn't aware of anyone successfully buying up entire city blocks yet."

I tried to find some more information on this but couldn't. Wikipedia has an entirely different definition of blockbusting that relates to racial demographics.

To be honest, I'm not sure who to believe, but it is certainly believable that property values can be affected when undesirable neighbours move in.

Multiple Offer Mayhem

Today's market may not have the mayhem of multiple offers it did last year, but it does seem to be pumping along. We’ve been involved in 7 multiple offer situations since the new year. So the multiple offers aren’t dead and gone, in fact they seem to have made a comeback since last September and October. 

There’s definitely a difference between multiple offers now and multiple offers at the peak of the market.  Firstly, they no longer automatically come over list price or without conditions. In our case some have come just over list price, some under or right at list price. Surprisingly enough, two this week were unconditional offers. Second, the timing has changed... at the peak you'd have multiple offers on a good listing within days of hitting the market, now you never know when the situation might arise -it could be only a few days into the listing or a few weeks.

The first question that comes to mind is why, with all the inventory would anyone go into competition?  One reason might be the price - in particular those properties priced extremely well.  It may also be the exact property that buyer is looking for, in the area or building that they really want to be in. In any case there’s no question that multiple offers aren’t dead and gone.

What is up with home prices in Edmonton?

Most people have gotten used to the fact that there are a lot of properties for sale in Edmonton. They've gotten used to sales being slower, and they've gotten used to homes taking longer to sell. I think there is one more thing Edmontonians have gotten used to: higher prices.

The number of homes for sale in Edmonton have gone through the roof, and it looks like there are still plenty more properties to come on the market. Why then, with all that choice, and so many motivated sellers dropping their asking prices, are the average prices in Edmonton basically staying put?

Well, thanks to Bob Trueman's daily stats something has become very evident - the average price per square foot in Edmonton has been on a steady decline:

I think that home buyers in Edmonton have gotten used to the fact that they have to pay $400,000 (or thereabouts) for a single family home, and therefore are willing to pay $400,000 for it, it's just that in recent months they are getting more for their money.

New Home Pricing Outpaced Resale in 2007

According to an article in the Financial Post yesterday housing affordability is expected to improve in 2008. The article points out that new home prices increased by 21.5% in Edmonton in 2007 but ignored the fact that resale home prices were only up 9%. We pointed out a few months ago that the gap in pricing between new and resale has gotten quite large here in Edmonton, how much larger can it get? Not much if they keep building so many new homes!

Also interesting, new home prices only went up 6% in Calgary in 2007. What's up with that? Is it that they inflated there first, so they are slowing down first? Or are we inflating more than Calgary?

Anyway, back to the article...

"The market has a way of cooling itself. Alberta had just got so expensive that people stopped moving there. Eventually supply catches up to demand, and that's what happened in Calgary," said Michael Gregory, senior economist at BMO Capital.

Rishi Sondhi, economist at RBC Capital Markets said housing should become more affordable as house price gains ease and interest rates fall, with the Bank of Canada expected to cut interest rates again in March following a 25 basis point cut to 4% in January.

Some economists expect rates to reach as low as 3% by mid-year.

So price gains are slowing....and interest rates are lowering. With all the inventory to choose from in Edmonton this could be a great summer for buyers!