Edmonton's "Housing Bubble"
Every few months for the past 6 years someone in the media has screamed the word "housing bubble." Mass fear and panic spreads as countless media outfits jump on the bandwagon and spread the word. And then the stats come out, prices haven't dropped, sales haven't slumped and everyone forgets it ever happened. If I had the time I'd grab all the headlines from the last few years and publish them here...
It happened again last week... TD Bank published a report called the Housing Bubble Watch. Shortly after articles started appearing in newspapers across the country, with various takes on the information, but the long and the short of it was Alberta's bubble is about to burst. We even posted two articles on this blog TD Warns of Potential Housing Bubble in Western Canada, and Western Canada Housing Bubble an Exaggeration. When you read the actual report from TD you see that the opinion of TD is that if the huge price increases we've seen in Calgary and Edmonton continue, we are in trouble. It also states that affordability in Calgary is better than Toronto and Montreal, and affordability in Edmonton is extremely good - far more affordable than Calgary. Unfortunately that type of information doesn't make for very interesting news, so if you remove a few sentences from the study it can easily be turned into this latest article that appears in today's Edmonton Sun "Housing Bubble Watch."
My thoughts are this:
- Housing prices will not continue to increase at their current rates, in fact the market already shows signs of cooling.
- Supply (the number of listings) will increase, relieving some of the pressure on the market and therefore slowing price increases. And in fact the number of listings were up almost 20% in August over July.
- A correction is likely in our future. A correction is much different from a bubble and can mean anything from a slow down in sales, and increase in inventory, a decrease in demand...it does not necessarily mean prices will drop but more likely means the rate at which prices increase will decrease (hope that makes sense).
Here is the article from today's Sun. I've made some comments throughout the article in italics, I look forward to any comments we receive from readers :)
Housing Bubble Watch
By NEIL WAUGH
It’s official, Edmonton’s percolating residential real estate market is now under a “bubble watch.”
And the heads-up about “warning lights flashing” came even before Edmonton Real Estate Board president Madeline Sarafinchan released her record-riddled August sales stats earlier this week, or her competition, upstart ComFree franchisee Travis Holowach, put out similar happy results yesterday.
All subject to conjecture, of course, after the Alberta Real Estate Association filed an official complaint on behalf of the province’s 11 real estate boards with the Alberta government’s consumer affairs branch claiming the commission-free outfit is in violation of the fair trading act, and allegedly is “grossly misleading” the public.
It’s a beef that Holowach puts down as proof that ComFree’s “growing presence” in the Edmonton real estate market is having a “strong impact on our competition.”
The red flag was raised even before Bank of Canada governor Dave Dodge did what most money market watchers expected him to do yesterday, and left the key overnight rate well enough alone at 4 1/4%. But not without a warning about factors which could change things fundamentally.
And Dodge talked specifically about “momentum in household spending and housing prices.”
Yup, the bubble.
If momentum equals bubble we're in trouble on a lot more fronts than the housing market ;)
Dodge talks of risks
Dodge noted that the risks “appear to be a little greater than they were in July.”
And how he will be paying “close attention” to them between now and when he releases a full analysis of the Canadian economy on Oct. 19.
The first official Edmonton housing market warning signal came from Toronto Dominion Bank’s economics department in it’s latest Housing Bubble Watch update.
Unfortunately TD doesn't keep the old "Housing Bubble Watch Updates" on their website. The fact that they've had an update for a considerable period of time proves they've been wrong many times over, since no bubbles have burst.
While the most immediate concern was residential markets in Vancouver and Calgary – which the TD report described as “unsustainable” and vulnerable to the “possibility of a pullback” – Edmonton is also experiencing “explosive price growth.”
You won’t get any argument from Sarafinchan, especially when the average selling price for a single-family dwelling hit $316,480 up an incredible 44.3% from August 2005. The condo average also crested $200,644 – an equally impressive 34.2% rise.
And even with the sharp jump in prices, the EREB has set sales records every month this year. Sarafinchan talked about “breaking through a psychological barrier,” and how Edmonton home buyers are “beginning to accept the pricing realities” of other Canadian cities. The 2,079 residential sales in August are proof of that.
But she did admit that the market appears to be “cooling slightly” and sales are not as “torrid” as they were earlier in the year.
When EREB realtors have so far brokered deals worth $4.43 billion – up 47.2% from 2005 – “torrid” may be an understatement.
Meanwhile ComFree is also claiming $744 million in sales to date and 463 units turned over last month. My math says that’s about 18% of the Edmonton real estate market.
That’s a little lower than what ComFree has been boasting about on its website, but it’s a big enough bite out of the EREB’s exclusive territory to justify the intensity of the real estate hostilities not seen since ReMax moved in back in the 1980s.
"They say they have 25 per cent of the Edmonton market, but how are they measuring that? Our stats, which we get through land titles, show 91.8 per cent of sales are though MLS." Edmonton Real Estate Board president Madeline Sarafinchan said. - in another article in the Journal.
“We’re not objecting to any company existing in the marketplace,” said EREB spokesman Jon Hall. “But let’s play on a level playing field.”
But the pasture could get a little more tilted if what the TD Bank economics department gurus are predicting comes true.
Supply is dwindling
While the “affordability” of Edmonton house prices remains good, the TD report noted, the same can’t be said for the supply.
The bubble watch talks about a two-year low in inventory and the “frenzy” of housing starts the shortage has created.
As I mentioned earlier, supply is up almost 20% since July.
While “economic fundamentals” (which means the oilsands) support the “explosive” house price growth, things can’t go on forever.
“Prices cannot go up at this pace indefinitely,” the bankers warned. “If the pace doesn’t soften, a bubble could form.”
And there’s another troubling thing about real estate bubbles, as anyone who was around during the Great Real Estate Crash of ’82 can testify.
“By definition, it is impossible to identify a bubble before it bursts,” the Bubble Watch sadly concluded. But when it goes pop, watch out.