DailyStats.ca

Who makes the determination about what is a "sellers" vs "buyers" market according to the ab rates? I've seen different numbers quoted.

It seems to me in a "balanced" market, prices should remain very stable but despite the absorption rates being "balanced" for the most part this year in Calgary, prices have gone up.

Funny as nothing comes from Squidly's OR any bubble blog.

Why are some people so scared of accurate information? - Bob

I would assume that a balanced market is a market where everything stays relatively stable and prices for homes increase close to the current rate of inflation.

Depending on the market, you would think absorption rates would be different in order to achieve this.

I still predict that there will be up to a 20% drop as interest rates rise.  The interest rates are, hopefully not, going to sky rocket to "normal averages" overnight.  What we will see is a long drawn out decline.

So, do I think we will see a biggest drop ever headline, no, but I do think that things will change going into fall 2010 and spring 2011.  

You guys are pretty quick to call out Garth (past topics).  You should hold off until this whole thing is over before you start to hound him too much.  If everything turns around, and he is right, you will look pretty foolish.  He has a ton of great info and any first time home buyer should flip through his pages/blog.  Agree or disagree, at least it will bring awareness to the downside potential.  He had a couple of great reads yesterday and the day before.

Newt

I definitely agree about educating yourself and looking at the picture from all angles.  I also agree that Garth has an agenda of promoting himself.  

But, he is a good balance to many realtors and agencies like CREB that have an agenda to sell homes.  

I was not talking about you or anyone in particular, but was more referring to posts such as "Garth Turner is a failed politician and a once financial journalist now turned book pimp".  If you flip through the entries you will find many more.

For followers of Turner.  Have you every wondered why Turner was kicked out politics?  It's simple, he was to controversial.  He's not that way because he thinks he's right, he's that way because it stirs the pot and put him in the spotlight.  He is a media hound, pure and simple.  He loves being in the limelight and the controversy that gets him there.  His books, his supposed insight and everything else he does is a means to stay there and he uses his followers as tools to accomplish this goal.

Newt do a google news search on any topic Garth comes up with.  I can guarantee it has been posted in the Globe and Mail or the National at least 2 hours previous to making it on his blog.   He is just trolls the MSM for any negative news story that validates his claims and regurgitates them to his followers on his blog, which they lap up like the little lap dogs they are.  One day they will figure it out as just a shame.  But then again probable not, remember the Jim Jones cult in Guyana.  When they finally did figure it out it was to late, it was a little to late when they finally found out.

I read every post on Garth's blog, even I need a good laugh once in a while.  Not all are funny, a few can be insightful, but most are from conspiracy theorist that what to blame the world/governments/banks/stock martker/neighbors/the family pet for their miserable existence and Garth take full advantage of that fact to peddle his wares and keep his name in the spotlight.

Did you know that Garth Turner's most recent tour was sponsored in part by....GASP...ReMAX Realty.

What is funny is that the many "champions" of Garth Turner also dislike the realtor business.  While I am personally not too fond of it (sorry Bob), I respect that realtors are a needed service for many homebuyers and sellers.

The next time some of you think Turner is "raging against the machine" maybe you read up on where his money comes from.  He's just another part of the machine, and still charges the same dollars you and I use...still buys the homes in Canada you or I would buy...etc.  He's just being a smart business man... saw a niche, filled it, and took the money to the bank.  Pessimism-Porn has never had a more lucrative time than the last few years - Turner is the Canadian Larry Flynt of it.

What... me worry?

http://edmontonhousingbust.blogspot.com/2009/10/leading-nation-at-falling-behind.html

"Through August the rate sits at 0.65%... getting ever closer to the modern day high of 0.69% from February 1997. As these numbers are two months old now, in all likelihood we're already at or past that mark now, but we won't know for sure until the numbers are officially out..."

Some more fear mongering...

"As we can see, we're also well above the long-term average and showing no sign of slowing... and with the interest rate shock no doubt awaiting those that bought into the market at the recent all-time low rates, we haven't seen anything yet."

I think that all the comments here backed the point I was trying to make.  

It doesn't matter what his personal intentions are, who is paying for him to do what he does or if he is raging against the machine or fueling it.  It is all about that he brings to face the downside potential in a society of short thinking people who assume that prices only ever go up and don't plan for the future.  

What would be even better is if realtors/mortgage brokers and everyone in that profession actually cared for their clients and advised them on affordability and downside potential.  

I went in for a new mortgage last year.  I clearly told the broker what my affordability level was and the terms that I wanted.  When he came back to me a few hours later, it was "GREAT NEWS!  You were approved for 60% more then you wanted!  I just erased some of the payments that you are making, bumped your salary up a little (he included the bonuses that I make instead of just my base salary) and extended you amortization period.  Now you can buy a bigger, better home.  It is definitely the best thing for your future."  The realtor I was working with also tried to up sell me a lot of times - "you know 35 year mortgages are the new norm".  I know it will be hard at first to make the payments, but down the road it will only get easier." I guess he didn't catch the memo on interest rates can only go up from here.  So if it is tight now, wait a few years.  

In a land like this, Garth is a valuable resource.  It would sure be nice if he wasn’t needed though.  But everyone for themselves, full steam ahead, don’t look back.

Newt

Your right Bob, that was a general assumption and I believe that you and a select number of realtors do sincerely care about your clients and are not only thinking about making a sale.  I did not mean it to sound as harsh as it did.  I should have wrote "... if ALL realtors/mortgage brokers..."

I have worked with a lot of realtors/mortgage brokers as well as have many family members and friends who are realtors.  I know the way most of them think.  It is a business to them.  Based on the mortgage arrears spike that has happened since 2007, it is obvious that this is not just me.  Luckily I am able to run simple economics and know where I actually stand with respect to how much I can spend on a home.    

Newt

I think the problem is a lot of people are under the assumption that the realtor is somehow there to guide you with making the decisions that you should be making for yourself.

At the end of the day, a realtor's job is to sell you a house. Would you walk into a car dealership and ask the salesman, "Do you think this economy car is enough for me, or should I buy the luxury SUV over there?  Should I get it with or without all the options?  Are those options a good deal?"  Believe it or not, this is how a lot of people approach their relationship with their realtor.  As though the realtor has an incentive to steer them away from a house they can't afford.

I don't like it either when I see realtors attacked with abuse for things they don't deserve.  They don't deserve any more flack than any other sales person that has sold you a product that dissatisfied you in some way.  You never hear people whining about the car salesman that sold you a luxury car you couldn't afford.

Of course, smart realtors like Bob know that a satisfied customer is one that will return, and repeat business is one of the keys to success.

And painting realtors as 'greedy' or 'coniving' is just BS once you realize their job is to sell homes and earn commission, like any other sales industry.

I met Garth turner a long time ago and he actually seemed a nice guy in real life - that was 1993.

I used to check his blog regularly for a different perspective and a chuckle but stopped when it became clear it's a classic bear echo chamber complete with name calling and extreme thinking. He often will call someone a name instead of debating their argument which is what kids do I thought.

Honestly it's weird and immature for him to be calling people idiots or fools or dweebs when I seriously doubt he would say that in real life to someone who disagreed with him.

I guess it puts food on his table though

Newt I take it you were going to buy a house in 2008. For someone who is so bearish with inventory low and prices heading up, why would you consider buying when inventory was full and prices were crashing? Just curious.

To CM:

RE: "Edmonton Housing Bust" mortgage arrears

First off, I would like to say that when I posted information regarding mortgage arrears on the EHB website, that it was censored and removed from the website.

Secondly, I do not believe that one can make accurate judgements if you come up with a thesis first, the thesis being that the Edmonton housing market was crashing in 2009, and then find all the points to back that up.  In fact, that is exactly the opposite way that you collect information for an essay.  Normally, one goes about collecting information first, and "rolling around in the data" so to speak, before forming an opinion.

Thirdly, my points regarding mortgage arrears on the website was as follows:

Mortgage arrears increased by 140 from the previous month in Alberta.  This compares against 3,452 new listings in Calgary, last month and over 2,000 new listings in Edmonton.  Provincewide this likely adds up to more than 6,000 new listings in the last month.  A comparison between the mortgage arrears (140) and new listings (6,000) illustrates the viewpoint that foreclosures and mortgage arrears still are a very small portion of supply of mortgage arrears.  In fact, I have been arguing for some time now that mortgage arrears would increase.  But I have also argued that mortgage arrears and foreclosures would continue to be a low contributor to supply.  Seasonally adjusted new listings are also down considerably from 2007\2008 and that has created some upward pressure on prices.

Lastly regarding interest rate spikes and your comment that, "As we can see, we're also well above the long-term average and showing no sign of slowing... and with the interest rate shock no doubt awaiting those that bought into the market at the recent all-time low rates, we haven't seen anything yet."  Again, if you do a calculation of average household income, of roughly $95,000, and look 5 years into the future, with only a rate of only 2% inflation you would be making an extra $9,900 annually.  This compares against a loan financed at $400,000 and going from a rate of 4.14% to 8.28%.  This is obviously a very large increase in interest rates, and would be fairly conservative.  Not only that, but I believe one can get a 5.40% mortgage for 10 years, so you can hedge against that risk of having to refinance in a higher rate environment.  The extra cost of going from 8.28% from 4.14% is $12,200 annually.  So comparing the expected revenue increase of $9,900 to the extra cost of $12,200 one can see that many people will still be able to afford the payments even in an environment with higher interest rates.  The last three years have seen household income increases by between 5% to 6% and therefore I believe 2% annually is a reasonable expectation for household income growth. Also, bear in mind that after 5 years you will have paid down some of the principal, so your mortgage principal would be smaller you go to refinance.  This will also help reduce ones payments.  Again, note how EHB points this risk out but fails to quantify how much of an interest rate shock it would take to actually change the current market dynamics.

I honestly, don't know where prices will be next year or even 5 years from now.  EHB's censorship though highlights a problem that the bears aren't disclosing all the information, and even going so far as to censor dissenting opinions that are based on facts.

Thanks Radley, I enjoy reading everyone's different points of view, especially when those views are as well thought out as yours and not just flippant comments.

I'm surprised Kevin would censor your comments, did you contact him about that?  Just to make sure it wasn't a technical error?  I know he changed to some new system where you have to log in to post now.

I would have thought he would be all up for debating the points that you're making above, especially since they involve technical analysis.

The comment above regarding the interest rate shock was actually from Kevin's post, I was just quoting it.

Personally, I believe that an assumption the average combined income in Alberta will be $105k in 2015 seems highly optimistic, but hey, anything's possible.  

No matter which way the numbers are run, a $350-400,000 leveraged debt load being placed by a large segment of the population who are banking on continual price appreciation and guaranteed wage increases still doesn't sit well with me.

In 2006, according to Statistics Canada average household income was in 2006 dollars $84,600 for “All Family Units” (as per Statistics Canada Table 202-0403) and then extrapolated using the following numbers for hourly wage increases are:

2007: 6.0% hourly rate increase

2008: 5.7% hourly rate increase

2009: 5.3% hourly rate increase

As per the latest data, as of September 2009, the hourly rate has increased 3.7%.

I think it's more than probable that we will see an hourly rate which will continue to increase at 2.0% annually (that is in line inflation expectations over the same time horizon).  Secondly, it's likely we will have some real GDP growth over that 5 year horizon as we are already seeing signs that the economy has stabilized.  I expect through the 2011-2014 time horizon that an economic recovery will be underway.  That means wages may increase beyond the base 2.0% forecast.

This contrasts with your statement that, "Personally, I believe that an assumption the average combined income in Alberta will be $105k in 2015 seems highly optimistic, but hey, anything's possible."

I think my numbers on income growth are based on a conservative estimate and more than likely scenarios.

Thanks for the stats. I was curious as to what your thoughts might be on the price to rent ratio as a metric?

For example, one can see that the current median rental price for a SFH in Calgary is $1600/month...

http://tinyurl.com/ygt7uj2

and the current median price is $410k month to date for October.

Which translates to a price/rent ratio of 256.

Virtually every investment article or book that I've ever read has quoted a price/rent ratio of 150X being 'normal' and anything above 200X being outrageously overpriced.

Indeed, if I'm recalling correctly, our long term average in Calgary is approximately 170.  In the U.S., the most desirable areas along the coast (ie San Fran) usually hover around 200X.

To reach a ratio of *only* 200X, one of the following would have to happen...

- median rent would have to increase to $2050 from where it is now (it's fallen about 8% since spring)

or

- median prices would have to fall to $328k (20% decrease)

or the two would meet somewhere in the middle.

OR have we reached a new paradigm where price/rent ratios remain a good 50% higher than historical levels ?

Trying to predict macro-economic events seems like a fool's errand to me. You can take the attitude that the end of the world is around the corner, but then you may as well just move to as remote a small town/village as possible and settle down there. If you're living in a city, then by definition you're putting a certain amount of faith in the future of that city. Even if you're renting, if you suddenly have to move your whole family in the middle of an economic meltdown, that may not be so easy! My rule of thumb is simply: Don't buy into markets like what we had starting in about 2006 where prices were going up tremendously on a weekly basis. That type of thing really does smell like a bubble.

CM,  I am not saying this is true, since I don't know, but I wonder if the discrepancy could be accounted for, at least to some extent, by the fact that the rental market in Calgary is mostly in apartments and the purchase market is still focused more on houses. For example, I own an apartment condo that is probably worth about 200k now and I am renting it out at 1150/month. If I am doing the calculation right, that is a ratio of about 174 - close to the long term average you reported.

Price to rent ratio really depends on the quality of the mortgage market as well.  House prices have much more volatility if the mortgage originations were done to people with poor credit quality.  Also, you have to look at the marginal cost of supply.  If there is little supply coming from foreclosure market, and little supply coming from new construction market, you can still have rising house prices even though the price to rent ratio would indicate prices stay flat.

What I think is a better indicator, is factoring in prevailing mortgage rates as well to come up with a homeownership costs to rent ratio.  When there is a large gap between these two metrics, then people will preferentially sell and rent, or buy and hold.  My understanding is the current ratio is a bit less worse then it was at the beginning of the 1990's but nowhere close to as bad as it was in 1982.  Price to rent ratio is definitely one element you want to look at.  However, one should also consider that bond yields were approaching 20% back in the 1980's due to inflation, and that they are nearly 0% today and with a very mild outlook for inflation.  With little inflation in sight, it is possible that bond yields stay down for an extended period as per BoC inflation target.  And if this is the case, it can be quite justifiable that price to rent ratios are higher than normal, and capitalization rates are lower than historical.

In this sense simply going on price to rent ratios compared to historical averages doesn't always make the best sense, because long term bond yields are also low in comparison to where they were several decades ago.

I believe that over the next 5 years that investors will see the rising vacancies and a lot of new product being brought to the market (under construction for MFH is still too high but starts are low), and that over the course of that time period that vacancy rates will start tightening up again and rents moving up.  I have also found that it takes vacancy rates of up to 7% in the market before rent drops, and even then it only dropped a few % historically.  This also compares against the United States where vacancy rates reached a record 11.1% in Q3 2009 against Calgary where they were 4.3%, but rising in June 2009.

I expect less investment to continue, and will end up causing vacancy rates to start falling by as soon as next year as most of the MFH product will be finished construction with little new starts.

I think people that are evaluating buying should look more at what there rent is, and if you have cheap rent relative to buying then it's probably a good idea to rent a bit more until the gap between renting and owning is reduced.  And particularly moreso, if you are highly mobile, have a hard time making rent.

"CI wonder if the discrepancy could be accounted for, at least to some extent, by the fact that the rental market in Calgary is mostly in apartments and the purchase market is still focused more on houses."

But is the rental market in Calgary a higher percentage than other cities?  Here's the breakdown in # of listings, according to the data on RentFaster...

SFH - 760 (20.5%)

Apartment - 742 (20%)

Condo - 824 (22%)

Adding to the confusion there is also...

Townhouse - 361 (9.7%)  (which can also be condos of course)

Mainfloor - 308 (8.3%)  (which I assume would normally be for a SFH, but not always)

Basement - 479 (12.9%)  (same comments as above)

Duplex - 230 (6.2%)

Total: 3704

So SFH + Mainfloor + Basement = ~42%

and apartment + condo + townhouse + duplex = ~57%

So yes, SFH is in the minority, but not by that much.  And the question really is, is the situation really any different here than any other city where the price/rent ratio is applied ?  

When you look at the median price for condos in Calgary, as according to CREB, I'm assuming they are including what RentFaster would define as condos + apartments + townhouse + duplex.  

But of course, technically anything could be a condo.  But if we go by that definition, then according to RentFaster the median condo rental price is $1200.  http://tinyurl.com/yhm7pvt

And according to CREB the median condo sale price is $262,000.  Which makes for a price/rent ratio of 218.  

Radley

You make an excellent point about starting with a conclusion and looking for data to back that up. If you make decisions by looking for data to back up what you think is true, you will be wrong for a long time (potentially forever). Needless to say that kind of thinking is all over the news and blogs. I think the reason for this is simple laziness and lack of due diligence on the part of most people to do some research before they come to a conclusion. How many times do we hear "The stock market declined today because "X" happened" when that's almost never actually true. ( "X" might happen all the time without lowering stock prices)

Many variables affect home prices - inventory, salary increases, population growth and demographics, interest rates to name a few. Right now in Calgary most of these are supporting stable or slowly rising prices. Unemployment levels and US debt destruction are supporting lower prices - so is the rent:sale ratio trend.

But:

Rent:sale price is highly variable depending on the distribution of homes and which ones are rental properties so it's completely different from one city to another. If you read in a book that it should be constant at 150, that's frankly BS. Which investment book told you that?

Calgary is not the same city it was in the 80s and I'm guessing there is a lot more SFH inventory relative to apartments now. It's obiously a variable that is supporting lower prices but to suggest 170 is fair value means that the median needs to drop 30-40% or that rental rates need to almost double. I don't see those things happening so I think that either we are in a new paradigm CM or maybe 170 just wasn't accurate to begin with - I would be interested in seeing your sources for that information.

Here is a link to American city historical P:R ratios. It's apples and oranges to compare one city to another obviously and I think Calgary is different than it was 10-20 years ago.

http://money.cnn.com/magazines/fortune/price_rent_ratios/

By the way have a look at the Detroit data in this article - their model actually predicted that Detroit home prices should go up during the recession (they were right about a lot of the other cities though). That made me chuckle.

That's a good point about price to rent ratios being different in different cities.  A city like San Francisco has always typically had a higher P/R ratio than a city like Detroit.  I believe some of this is sentimental, but also is due to differences in civic regulations, marginal cost of supply, and forecast economic growth.

What I have found as the biggest indicator of whether a market is headed for a correction or undervalued is the "ownership premium" compared to the historical rates for that city.  This is a comparison of the cost of renting against the cost of a mortgage at the current rate and the current house prices.  I have seen this analysis performed for Vancouver housing market as well as Calgary housing market, and I believe this a big factor at determining whether housing is possibly overvalued or undervalued.  Likewise, afforability is important as well.  The price to rent ratio has not actually been a good predictor of what the relative value is in comparison to historical value in Canada, and I think a lot matters in differences in mortgage origination market, and that is why different economic phenemona are consistent in Canada, versus what has been a consistent economic phenemona in the US.

Hi Jimmy,

"Rent:sale price is highly variable depending on the distribution of homes and which ones are rental properties so it's completely different from one city to another. "

I couldn't agree more Jimmy, I don't think it is really relevant to directly compare our P/R ratio with any particular city somewhere else.

But taking a look at the link you provided...

http://money.cnn.com/magazines/fortune/price_rent_ratios/

I think it would be fairly safe to conclude that those cities that deviated the most from their long term P/R ratio were the ones that fell the furthest.

With that in mind, I guess the question becomes, how far did we deviate from our own historical P/R ratio?

I think the best analysis of it that I've seen so far is from Kevin over at EHB...

http://edmontonhousingbust.blogspot.com/2009/05/price-to-rent-ratios.html

He wrote the article based on my suggestion, after I became curious about just how high our P/R ratio had become in Alberta (and he's great at digging up data).

By his calculation, the long term average (since 1990) for Calgary condos is 15, or 180X.  For Edmonton it is 150X.

"So it's interesting to note some of those figures with our findings above. Firstly, that the nationwide ratio in the US was generally between 10-14. This would certainly describe Edmonton's situation until the run up... and would largely also ring true for Calgary though they were closer to 15, so they were close."

"In any case, Calgary would be at the high end, while Edmonton would be right in the mix. So it's interesting to compare the peaks, Calgary at 25.4, and Edmonton at 22.9. These ratios are very close to those experienced in Boston, NY, LA and south Florida."

There are numerous reasons I like the price/rent ratio...

1) If you want to be an independent adult you essentially have two "product lines" to choose from, the ownership product and the rental product.  They are the biggest competition for each.

2) Supply & demand are factored into both products.  If the local economy suddenly becomes hot/cold, this is reflected in both products.

3) Inflation/deflation and wage increases/decreases are factored into both sides.

To me the only factor that remains is speculation.  Rent prices aren't really subjected to wild swings based on speculation the way home prices are.

"If you read in a book that it should be constant at 150, that's frankly BS. Which investment book told you that?""

I agree that it's ridiculous to suggest that 150X is some magic ratio that is relevant for all markets.  If you do a Google search for price/rent ratios you will find all sorts of discussion in various markets.

Some examples...

San Diego

---------

http://piggington.com/what039s_an_acceptable_pricerent_ratio_in_san_diego

"I think the historical average for San Diego is somewhere around 150-160.

My breakdown would be (using current rates)

1) Fantasy investors dream - < 80

2) Ideal (cash flow investment) - 80-120

3) Break even investment - 120-140

4) Rent neutral - 140-180

5) Overpriced - 180-220

6) WTF Bubble territory 220+"

Boston

------

http://www.boston.com/realestate/news/blogs/renow/2009/06/im_a_fan_of_ren.html

"You are correct. I didn't make this entirely clear in my comment, but the numbers in Rona's first example are not just good, they are very good. As I have said before, a rough price target for rental properties is usually somewhere around 100-150x gross monthly rent."

http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/

http://www.nytimes.com/2008/05/28/business/28leonhardt.html?_r=1&pagewanted=all

So it really is just a generalization or 'rule of thumb' that gets thrown around, but I have yet to find an investment article that quotes a 200X or higher price/rent ratio as anything but extremely high, for any city.  

So if we truly have reached a 'new paradigm', and our P/R ratio is now to stay at 200X or greater, what caused this change exactly?  Why did the ownership product become so much more valuable than the rental product?  

What truly makes our market so different now than the past that would affect this ratio?

The price to rent ratio does not really compare what happens when you consider that bond yields have fallen over the last period as well.  If non-risky assets like government bonds have lower yields, then it makes sense that riskier assets like houses also have capitalization rates that are less as well.

This is a snapshot of the analysis that has been done in the Vancouver market, so it is good to see what kind of trends hold true in Canada instead of making the comparisons to the United States:

http://housing-analysis.blogspot.com/2009/09/housing-market-sensitivity-to-interest.html

There is much more work, that I believes substantiates that the real tell-tale sign of correction (or simply overvaluation\undervaluation) is the comparison between mortgage payment costs and rental costs.

Here is again a graph from the Vancouver Housing Analysis Blog:

http://1.bp.blogspot.com/_rt16FZ_z1N8/R5enVrpB05I/AAAAAAAAAzI/ToSkAbztWMI/s1600-h/payment+to+rent+ratio.JPG

I think Mohican bought last year a property sometime after he posted this, so I don't think it is biased interpretation.  I have done similar analysis for the Calgary market, and come up with that a better metric for determining housing valuation in Canada is dependent on a combination of bond yields in addition to price and rent.

I think one only needs to recognize that house prices have gone up over the last year, (and changed trend direction).  If price to rent mattered so much to the real estate market, then we may have seen the correction continue.  Instead, we are seeing prices change directions, and start heading up.  Interest rates (and bond yields) were likely a factor in causing to kickstart this trend.

There is another post again that compares price to rent ratios in Edmonton here:

http://albertarealestatewatch.blogspot.com/2009/10/buy-vs-rent.html

Bob,

Been reading your blog for some time now. Thanks! Quick question, unrelated to this blog sorry.

Thinking of purchasing a new build home.  Do you recommend hiring a realtor for that or could I negotiate more money off the builders price on my own?  Or is the best way to strike a deal with the realtor on the sale of my existing home?

The builder says I could have a discount if I did not use a realtor, but not sure what to do? Trying to compare the cost benefits.

Since you already have a realtor I'd suggest you discuss it with him/her. Maybe some of our readers have advice for you. -Bob

Bob,

In your honest opinion, do you think that the roller coaster ride in resale prices in Alberta since early 2007 are:

a. sustainable

b. normal/predictable

c. prelude to a crash

As well, what is your opinion with the never ending ratcheting up in resale prices since 2002?

Is it healthy that homes doubled in prices in 7 years while inflation merely went up by 18% and that a recession is still on?

While supply & demand did drive the market for a while before 2005, let's  remember: Alberta did fall victim to RE speculation

So you have to advertise your blog as "fair and balanced" because....

1-FOX News had a catchy slogan and you were too dumb to make one up.

2-You were lying all along and now is the time to deceive thru a false impression.

Make your pick asshole.

Instead of showing your ignorance by using profanity, perhaps you could point out where you feel this forum has not been fair and balanced?

While I've got your attention, do you still believe the average price for this year will be $313,049 as you predicted? Today, the avg price is $470,839. What would you say to someone who followed the advice you were giving one year ago?

I've noticed on Garth Turner's blog that you didn't curse at him, yet he still called you stupid. - Bob

Dame,

I know you are asking Bob, but I thought I'd take a stab at your question too.  In a normal scenario the easy answer would be "c".

However, with government in the mix via lowering rates to make everything more "affordable"...as well as subsidizing home purchases with CMHC... we can arrive at a very different conclusion.  The answer may very well be "b" or maybe even "a".  As ridiculous as the continual creeping up of prices are, you have to admit that something is going on to facilitate this and it is most likely government intervention.  It is the hidden inflation, hidden taxes on all of us.

Today gold hit 1100 dollars an ounce.  For those who would say that all I talk about is gold, let me firstly say that gold is a good metric on what our money can buy.  By measuring against gold, you get an idea of how much your paper money is actually worth now compared to a few months ago.  You will see all commodities boosted as our paper currencies become worth less and less.... especially Oil (black gold).  I believe that the home prices may also be affected by this reality.  Our money needs to be parked somewhere, and for some people (whether it's "right or wrong"), that money is parked in real estate.

On the "other blog", I got boo'd time and time again for mentioning gold.  As if gold was such a evil metal.  They'd rather hold all paper than even ONE ounce of gold.  Too bad when I first mentioned it gold was at $680 an ounce.  Now its $1100 and they still tell me that deflation is here and "cash is king".  All I say to that is, I'm glad I stuck to my guns.  If I sell some gold now, I'd have double the cash.  If "mike-o-rama" had put even half of his 1million cash horde into gold he'd have far bigger returns now than his much touted 3.25% GIC.

But I digress.

Worldclass -

To be fair I also thought your obsession with gold was a bit buggish (gold isn't always a marker of inflation) but hey you certainly look right now and even the Indian government seems to agree. I would be wary of a USD short squeeze at some point though.

Re: the other blog - the name of the blog is "bubble blog" so it starts with the premise that the real estate market is a bubble. Even if prices declined 10-15-20-50%, it would still be "bubble" blog. That should tell you something...

Edna -

I take it you expect a crash and so you seem to know the answer to the question you are asking. But the key question to ask yourself about your theory is: "how would I know if was wrong"

If the answer is "I am not wrong" well, why come here and ask Bob those questions then?

Carioca Canuck -  Why do you resort to name calling?  So far, Bob has been far more fair and balanced than any other realtor I have known of.  Maybe Mike Fotiou is comparable though.

Didn't Bob predict that prices would FALL this year?  Wasn't this in line with what your bubble-blogging friends were wanting?  Just because prices have gone up and you want to throw a fit, doesn't make it right to call someone an "asshole".

The stupidity of your comment is just too enormous to not comment on.  People in glass houses shouldn't throw stones.  As I recall you were a USED CAR SALESMAN, a banker, and also went BANKRUPT.  Yes, that's right, you borrowed money and couldn't pay it back.  You let society take care of your losses for you.  You say you enjoy renting... maybe it's because you have ZERO credit and can't buy diddly.

I am really surprise, of the increase from last year. Things just keep going up and up here in Calgary, I often wonder how and where is the money coming from as I know many that can not afford rent let a lone buying a place here.

I do believe it all comes down to easy money from the banks with low interest rates. One thing for my girlfriend and I we managed to save some money and have enough for a down payment, however we have choose to sit and ride this out on the sidelines. With prices way over 300,000 plus we think the decision to buy has been made for us by the current market of bulls. I am betting over the course of the next few years prices will pull back and we will have saved more and might be able to buy then. So Bob might have a lot different headlines next year.

Alberta losing jobs at quickest rate in Canada :

http://www.calgaryherald.com/business/Alberta+shedding+jobs+fastest+rate+Canada/2196657/story.html

More proof I guess that this increase in RE prices is due to strong economic fundamentals and not a re-inflation of the previous bubble by a "not on my watch" central bank.  How fortunate that Ed Clark thinks we are so "well positioned".  Quick, someone ask Ed Stelmach if he thinks Alberta is "well positioned" so that we can have the "Fair" and "Balanced" opinions.

And is this what inflation looks like Worldclass? :

http://www.canadianeconomy.gc.ca/English/economy/inflation.cfm

Four straight months of declining prices.  You let me know when that inflation gets here, I don't want to miss it.  Gold can continue to increase, it's a useless "commodity" - just the most recent hot money play.  You can't eat it, you can't fill your car with it, and you can't build a house with it.  Gold at $1,100/oz compared to $600/oz makes absolutely zero difference in the average person's life.

Read Roubini's recent comments on the mother of all carry trades that is currently going on.  Or don't, and continue to stay in gold - the "investment" that has never once paid a dividend and is still worth barely half in real terms of it's early 80's peak.

Fox News:

It's clear you place a lot of importance in the unadjusted CPI (that includes volatiles like gas prices). When January and February 2010 get here and your unadjusted CPI is 3-4% because oil was 30-40 in January 2009 will you change your mind? Core CPI has been positive (weakly inflating) all year.

Alberta's unemployment grew but Calgary's unemployment rate was unchanged last month.

Roubini correctly identifies the carry trade/USD short position. So when that is called and the US Dollar jumps against the CAN dollar, won't that help us with Nat Gas exports?

Where Roubini makes a glaring error is not realizing that once that short position is called, the dollar will overcompensate, and the underlying trend of dollar weakness and inflation will resume. So the lesson is don't sell dollar denominated assets when and if the spike hits.

While you poke holes in worldclass's advice, what investment advice were you giving to people earlier this year? If you are truly a "deflationist" then you would have told everyone to sit in cash. How has that worked out? It's obvious the more this market goes up, the more angry some people get on this forum.

Bob,

One way to figure out that RE market is going to crash or not :

1. How many %age people put 20% down payment?

2. What are ratio of salary and their mortgages?

Just wondering, why does CREB not print this data?

I know lot of people with decent salary, nice car and nice suit who wait for salary just for oil change. How long they can live with 0 margins (empty bank account) in their life?

Thanks,

Ron

CREB does not collect any information on buyers' ages, salary, down payment, or mortgage amounts. Under the Personal Information Protection Act, it's probably against the law to do so.

Why do you think people make the choice to live with 0 in their bank accounts?-Bob 

I was once a deflationist too, but then I started to realize that deflation will only be a temporary experience.  We maybe looking at a bigger scale inflation coming sooner than even I think.

Of course it's easy to poke holes in other peoples' posts... if you were to sit here and read every word on any post I am sure it would be easy to come up with little nit-picky things to debate.

Fox News said:

"You can't eat it, you can't fill your car with it, and you can't build a house with it.  Gold at $1,100/oz compared to $600/oz makes absolutely zero difference in the average person's life."

Fox News... guess what, you can stay in cash for all I care.  Hold onto your cash and don't put it anywhere else but with the lovely bank or your mattress.  All I know is that they can't dig up gold as fast as they can print more "cash".  Sure, call it a hot money play or whatever... doesn't change the fact that the money in  all of our pockets is worth less now and the gold some of us hold is worth FAR more.  

And I am sure you can find numerous instances where you think your money goes further...all I ask is that you realize that this is a temporary thing, and what you can buy today will be FAR more expensive later on.  Yes, maybe EVEN CHINESE MADE GOODS.  How?  Well if China is forced to let the Yuan appreciate more (remove it's peg), you will start feeling the failure of your dollars.  Chinese goods will be more expensive to all of us.  Why will they remove the currency peg?  Simple... the USD falls too far too fast.  Think about that in your head on why that makes sense before you post a response.

Let me set the record straight here... I am NOT a gold bug.  In fact, I used to say the same arguments to those "gold bugs" that Fox News says to me.  I changed my mind on gold because I started to see what the governments (pretty much all of the G20) are doing with our fiat money.  Obviously, many countries seem to see this too.  I also changed my mind on Real Estate, Oil, and other commodities due to this.  Like I said.... its NOT just gold...I just use gold as the main example.

If we start to see tightening of monetary policy...significant tightening (like rates rise 5% within one year and the end of Quantitative easing, not 0.25% increases) then you will see me selling gold and other commodities if the economic growth of the world is slow.  Until then, I will trade "cash" for things of substance.

Thanks for showing all the detailed information in such a lovely blog as i was searching on the net and got connected with  this blog. I appreciate your hard work you have put in for compiling such an amazing & informative blog!!! :) i will be monitoring all your updates from time to time. Maze of information, clustered in one place, Great!

More about Calgary market:

http://www.greaterfool.ca/2009/11/15/fear-and-greed-nikki/#comments

"Why do you think people make the choice to live with 0 in their bank accounts?-Bob"

Govt, banks, CHMC, CREB, business is looking for -- Spend, spend and spend. Our economy built on speculation in stocks, commodities and selling homes to each other so we do not need solid employment, savings, fiscal and monetary restraint.

These are boring conservative thoughts before buying:

- Job should be pretty stable. (News- USA has hit 10.2% unemployment; with 190K jobs lost past month, Canada lost just over 43K.)

- Good down payment so can avoid CHMC

- Living cost should not be more than 35-40% of household income (after tax) even mortgage rate hit 8%-10%.

- Don’t like to consider basement rental as a part of mortgage calculation

- Having some good saving for rainy days

- Mortgage for primary residence should be paid before age 50

- Home is not an ATM so keeps saving in RRSP, regular saving, RESP and others.

Ron S

I agree with your argument that people tend to overstreach but i don't agree with the way you go about it.

- Job should be pretty stable

sure but why are you stating usa numbers (8.6% unemployment rate in canada)on a side note Zambia has a unemployment rate of 50% perhaps that means i should not buy a house in canada.

- Good down payment so can avoid CHMC

this should be the rule if you are not responsable enough to save a downpayment how can you be trusted to pay a mortgage.

- Living cost should not be more than 35-40% of household income (after tax) even mortgage rate hit 8%-10%

why stop at a mortgage rate of 10% maybe you should be able to handle an increase to 21%, this is an arbitrary number you pulled out of nowhere to try and prove your point. if your going to use a arbitrary number it's better to use 6% which is the average percentage for mortgages over the long term.

- Don’t like to consider basement rental as a part of mortgage calculation

Do people actually do this? this is completely irresponsable if you do.

- Having some good saving for rainy days

I agree with you on this one. however this should be the rule for renters also.

- Mortgage for primary residence should be paid before age 50

better to have a small mortgage left at 50 then to have 0 equity and be renting at 50

- Home is not an ATM so keeps saving in RRSP, regular saving, RESP and others.

Your home is not a ATM. you should be saving but if your saving in GIC's you need to realize that every year you loseing money even with the highest return GIC right now your loseing 1% a year because or inflation.

The main arguments i see on not buying a house seem to assume you:

-don't have a job or are going to loose your job

-have no downpayment

-have no savings

I would say that the advice on buying a house would depend on why your buying it and anyone blanket telling you not to buy or that you need to buy now without knowing your reasons for wanting to buy a house has a agenda.

"If your going to use a arbitrary number it's better to use 6% which is the average percentage for mortgages over the long term."

- Just wondering if anyone has a good data source for what the true long term average mortgage rate might be ?

Here's the best one I could find...

Average Residential Mortgage Lending Rate (5 year)

http://www.bankofcanada.ca/en/rates/sel_hist.html

I averaged all the numbers from the 'January' column, and came up with an average mortgage rate of 8.9% over the last 58 years.

cM

Jeff:

Is there any other choice?

-I agree with your argument that people tend to overstretch.

Then Bank should take risk why taxpayer for irresponsible buyers. CHCM is Canadian version of sub prime lender. If everything is okay then banks are making interest on mortgage if things go wrong its CHMC baby.  CHMC is a Govt. running debt (drug??) seller on taxpayers’ money.

-this should be the rule if you are not responsible enough to save a down payment how can you be trusted to pay a mortgage.

These unemployed poor people can not buy our export including oil & gas. We are doing same thing what happened in USA. Pumping and pumping uncontrollable debt that people can not pay.

-sure but why are you stating usa numbers

How many people are buying under this criteria and keeping living cost less than 35%?

-if your going to use a arbitrary number it's better to use 6% which is the average percentage for mortgages over the long term.

Renter is not taking CHMC (tax payers) money from his/her luxury. Everything is luxury if we can not afford.

-I agree with you on this one. however this should be the rule for renters also.

There are still some ways to make 4%-5% return without taking risk. But buying overprices RE asset at this time is a gamble, not a risk. It’s a sellers market. What does means by that? It’s not buyers market.

-Your home is not a ATM. you should be saving but if your saving in GIC's you need to realize that every year you loseing money even with the highest return GIC right now your loseing 1% a year because or inflation.

Radley said:

"I expect through the 2011-2014 time horizon that an economic recovery will be underway.  That means wages may increase beyond the base 2.0% forecast."

I would have to respectfully disagree with you on this Radley as the AB Government, one of the largest employers in Alberta, has recently put in a 2 year wage freeze including no cost of living increases until March 2012.  Given this, plus many crown corps and private businesses following suite, I don't believe we will see the intended growth over 2.0% and maybe actually see a retraction.

Ron S:

you sound a bit like the old spelling-challenged Mike who posted here.

sabb:

I'm not sure what you mean by "put in" but the freeze you're talking about hasn't happened.

2 Billion just got knocked off their most recent deficit forecasts. If the deficit keeps going down or reverses into a surplus as oil heads higher, I doubt they will have the political will to do that. Keep in mind that the Heritage Fund will have huge gains off the stock market this year and that it is factored into the budget as well.

I'll starting believing in a wage freeze when Stelmach hands back his own raise. I can't imagine he'll ask nurses to cut their pay when he voted himself a huge raise last year that he only partly gave back.

Then again they do call him Special Ed for a reason.

Jimmy, I hate to disagree, but being a Gov Employee myself, I can guarentee you that I will not see a raise until March 2012.  I can asure you, beyond a reasonable doubt, that ALL government employees have had their wages frozen for 2 years, no bonuses, no cost of living increases, no nothing.

sabb:

I too am a government employee and I know a lot of them as well. I have not had a wage freeze or cut. But I guess we'll have to agree to disagree then.

You must have better powers of prediction than I do to be so sure of what will happen, beyond a reasonable doubt for the next 2 years.

Jimmy: check this out..Calgary Mayor and Aldermen gave themselves a big raise ....

Jimmy, what ministry?  I would hope you would know other government employees if you actually worked for the government, kind of an odd statement.

Jimmy,

just to add as well:  

http://www.cbc.ca/canada/calgary/story/2009/10/14/alberta-premier-tv-speech-stelmach-economy-calgary.html

When the premier made this speach, he outlined the wage freeze, he initally stated managers, senior staff, and then a notice was sent to all affected ministries that regular employees would be met with the same freeze.  I guess you missed this in your email at work?

I make less then I did two years ago.

If you are concerned that your wage will fall, then it's probably a good idea to rent.

However, you have to read back to why I made the original comment, but I believe I said that in response to that some people believe that higher interest rates will cause the housing market to crash down due to poorer levels of affordability.

However, the Bank of Canada is not going to increase interest rates if there is no inflation, and if there is little inflation then there would be little wage growth.  So, I don't think you will see a situation where income has grown less than 2% over the next five years AND interest rates are double what they are.  My point is that even with normal levels of inflation, most people that can afford a home with a healthy safety margin now, will still be able to afford a home in 5 years from now when interest rates are higher.

Keep in mind that the Bank of Canada sets interest rates through the prism of the inflation target.

I think it's also a mindset change among newbies. They are willing to take on twice the amount of debt (low interest rates fuels that) and amortize it over a longer period of time (35 years). They can't relate to a price chart that is a nice slow consistent climb. They see this penny stock looking chart that's gone straight up, more then doubling in a few short years, think this escalation is norm and want a piece of the euphoria. imo

sabb:

I work in health care. I also know many people in education.

You are confusing what the government wants with what will actually happen. Everyone knows they want a 2% freeze (or to cut salaries as you say) but that has not actually happened apart from the bureaucrats.

My point is that the freeze has not been enacted and is simply a stated goal at this point. That goal will be difficult to achieve until the most senior positions give back all their raises or take a cut.

If you have proof that all Alberta govt employees have now had a wage freeze enacted (despite many contracts that contain a COLA increase that are still active) I'd love to see it.

http://www.cbc.ca/consumer/story/2009/11/20/bankruptcy-statistics-september.html

"Provincially, total insolvencies were up 70.2 per cent in Alberta, the highest level across the country. The gain of 18.1 per cent in Nova Scotia was the smallest increase."

Kevin from EHB writes....

"September bankruptcy figures are out, and by my unofficial calculations the national rate is at a modern day high (they've only kept track of this since 1991). Alberta is still below their prior high, but climbing too.  "

http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02300.html#tbl2

Good writeup by Kevin over at EHB about the bubble and how we got where we are...

http://edmontonhousingbust.blogspot.com/2009/11/whos-to-blame.html

Jimmy:

Specific to your health care point of view here is the blog of Dr Stephen Duckett where unionized and non-unionized employees are complaining about no raises and no COLA in the comments following his statements:

http://iblogs.albertahealthservices.ca/ceo/entry/more_updates_including_alberta_hospital

As to what the government wants as to what has happened, all I can say is:

http://www.albertahealthservices.ca/916.asp

So, thats +6500 stelmach announced, +8000 AHW non-unionized workers, tens of thousands of other FTE's from other ministries, and the list goes on.  I understand you may be part of one of the AUPE or other unionized groups within the government, however stating its not happening doesn't make it so.  The simple fact of non-unionized employee's having to take these cuts to increases puts a massive amount of internal and external pressure to do the same.  Maybe the AUPE will be able to shelter their members from these cuts to increases, time will tell I suppose.  So on the unionized point of view, I guess then not all government staff, just everyone but unionized.  I apologize for the minor exageration.

Other ministries I can attest to with these cuts are SA, Infras, Transportation, and so on for non-unionized staff.

On the last and final note, I never said that they have done salary cuts.  The reference I was making was to Radley's statement on the continuation of overall increases, whereas given the actual unemployment numbers, as these drop and business start hiring though renewed confidence, I personally don't believe we'll continue to see higher and higher paying offered positions, but rather a gradual deflation and stabalization of wages.  This is not to say there still aren't great high paying jobs out there, I just don't think you'll continue to see highschool drop outs making hand over fist money with no experience.  (before someone posts about their cousins friends uncles buddies kid getting a job at $30/hr holding a shovel, over course there are one offs)

You all do realize that all this chatter is not as relevant in comparison to the massive monetary problem we are about to see unfold, right?

In May I stuck my neck out and said those who need to buy a home should buy.  Looking back, I did not even think I would be so correct in stating that.  I thought things might have stayed stable and supply of SFH's would be balanced with demand.

Gold, another one of my favourite topics, is also up quite a bit too.  See, what is happening is that the whole world does not want their currency to be strong.  They've, including us, have all grown too dependent on the spending of the USA and the higher US Dollar.  As the US Dollar falls due to printing of money, every other country is scrambling to keep their currencies low relatively.  This opened up the way for... inflation of assets like commodities, gold, and real estate.

I do sincerely wish that someone out there took my advice more seriously in bubble-land.  Long-term, I do agree however that we may be in another real estate bubble.  But bubbles have a tendency to last longer and blow up bigger than anyone ever expects before finally popping.

Hi guys,

I'm trying to show the girlfriend what the premium cost is for renting from a bank (aka owning) versus renting from a landlord, for an average Joe in Calgary, 'owning' vs renting an average home

RentVsBuy.xls

http://www.mediafire.com/?jjygwny1uma

Just wondering if anyone had any feedback on the calculations, or anything else I could add?

Here's what I've come up with for the average Joe in Calgary so for...

price: $410k (median price right now)

downpayment: 10% or 41k

mortgage rate: 4%

+ property taxes + insurance + maintenance + realtor fees (all per month)

-

rental price: $1575/month (current median price)

=

premium of ownership: $456/month

If the mortgage rate is 5%...

premium of ownership: $763/month

If the mortgage rate is 6%...

premium of ownership: $1071/month

If the mortgage rate is 7%...

premium of ownership: $1378/month

cM

saab: re: wage freezes for AB employees

You need to reread my post - I was offering a clarification. I never said it won't happen. I just stated that it hadn't happened yet. That's a fact and not my point of view. My wage has not been frozen nor have many others.

Your original statement about having put in a wage freeze was:

the AB government has recently put in a 2 year wage freeze including no cost of living increases until March 2012.

I'm not sure what you mean when you say "put in" but if you mean all wages are now frozen then that is not true. It might be one day but there is a difference between "right now" and "maybe"

Satire, but sort of on topic:

http://www.youtube.com/watch?v=01vjlJZRw5Q