According to Teranet-National Bank’s report released today, Canadian house prices were up 2.6% from the previous November. It was the 7th straight month in which the index for Canada was up from the month before, leaving it down only 0.1% from the peak recorded in August 2008. The month-over-month gain was a positive 0.8%, but was the first time in 6 months it was under 1.2%.
In Calgary prices continued to rise – up 0.6% between October and November but are still down 2.1% from a year earlier and 10.7% off their peak recorded in August 2007. It is the only market in the index that is still showing a negative % year-over-year.
Source: www.housepriceindex.ca
All indices have a base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.
click to enlarge
Usually SFH sales ramp up between December and January, but it seems this year will be different for some reason.
Sales Figures for December/January
Dec ’02: 826
Jan ’03: 1059
Dec ’03: 868
Jan ’04: 956
Dec ’04: 933
Jan ’05: 1002
Dec ’05: 1142
Jan ’06: 1445
Dec ’06: 1190
Jan ’07: 1497
Dec ’07: 846
Jan ’08: 1083
Dec ’08: 449
Jan ’09: 550
Dec ’09: 799
Jan ’10: 576 (Jan 1-26, 5 days left )
Thanks Mike. Good stat and objective analysis.
For me, now I also consider to rent if the price cannot reduce largely. I looked at some new listings. They are really way much over priced. eg. one foreclosure house is labeled 499000 with very poor condition. It is unbelievable that the bank/seller still asks so much. That might be the reason for low volumes.
You were pretty much reading my mind Mike, I was going to wait until month end to ask, but I had noticed that it looked like January was going to be a lower sales volume than December and wondered if that was normal historically.
Does the Real Estate marker is bound to the Alberta economy? Obviously yes unless it is a bubble.
The whole energy sector (especially NG) is weakening. The NG exports to the south are set to decline in 2010,2011. The NG price is weak and will probably remain really weak. Alberta gas is competing with new shale production, growing lng imports etc. So i think in general the alberta economy will stay weak (compared to 06-07). The big question for me why the housing is so draggy and has not started diving yet inspite of weak energy prices.
If you’re looking ahead, December and January numbers should be taken with some grains. They never seem to predict what will happen with prices in the year following and the inventory that moves is often the bottom of the heap from the year before. At least they allow us to get our stat fix in the winter though.
I guess its like comparing the 3rd line on the the Flames with the 3rd line on the Oilers to see which team is better.
If you look at January absorption rates, another way of expressing inventory change, they don’t correlate well with year on year price change by December of the same year.
That being said, I think sales:new listings ratios are a better leading indicator and if you look back you’ll see that they always spike in December, crash in January and rebound in February. If you don’t see that rebound in February my guess is it’s a bearish sign, maybe those rental units you’re talking about CM.
Cooley:
if you think NG is a leading indicator of Alberta Real estate you should be buying right now – it’s doubled in the last 5 months. I’ll admit the medium-term outlook is murky at least.
If the energy sector is weakening then why are billions of dollars of oil sands projects coming back on line this year? Why is drilling activity picking up? I’m not sure how long you’ve been around but $70-80 oil is very high compared to the last 5 or 10 years.
Comparing any economy to Alberta in 06-07 is an odd yardstick. If you’re waiting for that economy to come back, good luck to you.
Mike F:
I’m skeptical of your Teranet index – Vancouver is now the least affordable place in the world and the average price is in the mid $500,000s , yet Calgary is still safely in top spot on the graph.
I understand the methodology involved but I think all it does is hide the effect of the energy boom on Calgary’s wages and affordability. I guess it helps give Calgary bears and Vancouver bulls a false sense of security though.
All great points CoffeeTim.
To me, the more I learn about various real estate markets not just in Canada, but everywhere, the more I feel our manic real estate ‘episode’ in Calgary from 2004-2008 can be attributed almost entirely to a trifecta of cheap money and credit expansion, the fact that real estate became the ‘next big thing’ to dump money into after the stock market crash of 2002, and good old fashioned bubble-mania speculation.
The further that 2007 gets in the rear-view mirror, the more it seems that the price of NG, oil, etc were simply justifications made by Calgarians for higher real estate values rather than actual causes of it.
It just seems a little bit more than coincidental that cities all over Canada, the U.S., Britain, Australia and other westernized nations all went through the same real estate mania at the exact same time, despite everyone having vastly different localized economies.
There must be some commonalities that bind them all together? I think it might be ‘House Hunters’ on HGTV.
Looking back one day, I think we’ll all remember it as a period of excess where everyone seemed to need granite countertops, stainless steel appliances, and hardwood floors and not really knowing why.
2 CoffeTim
Well my logic is that in the province where revenue from NG and Oil is a huge portion of budget and a half of population is working in the industry the NG price should drive the RE market. (NG revenue is twice bigger than oil).
I may be wrong tho – I agree that bubbling plays big role. I simply thing the activity on RE market is a combination of sentiment, credit availability/price and true income. The latter is a function of energy prices.
btw – NG price doubled only on cash market and only compared to summer. In general NG is very weak. Rigs count doesnt matter – its a proxy – the overall bcf/d forecast for 2010-2012 matters.
Mike Fotiou “Usually SFH sales ramp up between December and January, but it seems this year will be different for some reason.”
I believe this is because the gov’t has moved forward demand much like the US did for “cash for clunkers”. With the lowest possible interest rates and 35 year mortgages there is simply not enough demand for housing at this time as anyone who could afford with a 2.15% 5yr var mortgage amort over 35 years has already purchased.
Plus everyone knows it won’t be many months till mortgage and prime rates start moving up to historic averages again.
CM – I agree 101% with you on your thoughts.
Cooley – Re: NG prices – Alberta is in a lot of trouble for the future of NG with shale gas coming on extremely strong in the USA and Alberta NG companies are spending their money south of the border on exploration and slowing BC/Alta/Sask NG exporation and production down severely. Even IF NG prices move up to the historic levels there won’t be much Alberta NG activity thanks in part to the royality scheme, higher production costs and lagging demand.
Overall, it’s a very bad time for Alberta NG.
Mike
I wouldn’t get too excited about NG prices doubling in the last year…much (if not all) of this is seasonal flucuations (think about when you run your furnace). IF you believe that Calgary RE should be influenced by NG prices (and I don’t see a correlation) then I would encourage you to take a look at this hsitorical price chart:
http://www.tradingeconomics.com/Economics/Commodities.aspx?Symbol=NG1
Peak Calgary RE prices were in July 2007 while NG didn’t peak until July 2008. Unfortunately, what eveyone here is saying is quite true – NG prices are depressed (less than half of peak, $6 vs $13) and are expected to stay low for a long time due to the shale gas phenomenon (ironic how the high prices in 2007-2008 helped producers ‘crack the nut’ by being able to spend lots of money on R&D in tight sand and shale gas reservoirs).
Having graduated in 2006 and joining a large producer, it is very interesting to see the paradigm shift that has occurred in this industry over the last year. We have gone from a mantra of “production is king” (i.e. spend whatever it takes to get gas on production simply because try as we might we can’t make it un-economic) to a situation where “cash is king” (i.e. count every penny, discriminate your spending, cut costs at every opportunity, the bottomline is foremost).
And I can tell you that the executives in my company have repeatedly harped that we must get used to saving as much as possible and the expectation is that we will never see gas over $10 in our lifetime again.
Yes, we are still drilling wells, and yes we will continue to do business. But we are putting unprecedented pressure on ourselves and all of our service providers to reduce our bottomline and as a result we are unfortunately getting to a point where the service companies that can’t keep up are going under. And everyone, top to bottom, is making less money (no one here has seen a raise in almost 24 months).
I guess I have to start getting used to Kevin over EHB scooping me on all the stories: Mortgage Arrears Hit Record High
CBC Marketplace looks like it will have an interesting program airing tonight regarding real estate seminars by Rich Dad Poor Dad author. Read more…
It reminds me of the Dilbert strip ending with, “Beware the advice of successful people; they do not seek company.”
Inventory seems to be moving up a good % again, any peek inventory number predictions (#/month).
I’ll go with 7,150 in May 2010 for SFH and 3,600 for Condos in May 2010 as well…
Mike
2TT,notMikeF,CM
so what is your conclusion about RE prices.? We all agreed NG under pressure, producers save every penny etc. Does it mean bearish RE in Calgary in your opinion?
I can not see any bullish points but old realter mantra “Yes, Alberta sucks but since everyone else sucks even more people will keep coming to our provice looking for jobs and this will push re prices higher”.
Well, from my standpoint I am thus far extremely thankful to not have been layed off. If I’m not mistaken, AB has lead the country in EI claim increases, on the order of 350-400% between Oct 2008 and Oct 2009 (of course we had very low unemployment prior to the recession).
So, less people are working in the patch and those that are still working are facing stagnant income growth, or in some cases less compensation. People are welcome to come West and join the crowd, but I am not sure who is going to be hiring them…if prices take any kind of hit then companies will look to cut payroll to maintain bottomline. With the price outlook as poor as it is, there is no advantage to hiring until you are totally strapped with what you’ve got already (the company I work for has an external hiring freeze – we fill needs by moving people internally).
IMO there isn’t a lot of upside for RE in Calgary over the next couple years, especially in the first time buyers market. I really don’t know where first time home buyers are going to be coming from. I am 25 years old and the list of friends and relations in my generation that are not working has been increasing. My younger brother, who has just graduated engineering, cannot find work for the life of him (probably going back to school). My younger sister, a nurse, has had her PT hours cut down to next to nothing (she is lucky to work 8 hours a week).
I myself (although not a first time RE buyer), an engineer, and my fiance, a teacher, would love to purchase a home that we can start a growing family in, in a good neighbourhood. But, at these prices we cannot do it without risking our financial security (I need to be able to make payments on my salary alone if she is raising the kids). That to me, signals a serious problem for this city. O&G is driven by the engineering profession.
Together my fiance and I make well above the average income (I alone am above average) but I’m not throwing everything we have (and we have saved diligently for a 20% downpayment) into an uncertain market….because ultimately that is what this is. Our stringent saving strategy will allow us to maintain a 20% downpayment as long as house prices don’t increase faster than 13% YOY (which I believe is very very unlikely). Unfortunately, I don’t know if others in my position are as conservative, but these are the ones that have purchased in the last year and as a result are out of the market anyways. Another thing to consider is that everyone my age watched their parents houses increase 120% in the last decade (which is A-typical when compared historically) and they want in on the ‘action’ and see it as a road to riches…everyone is house crazy and low interest is too enticing for most to resist. Don’t forget – PRICES CAN’T GO DOWN! And people think I’m crazy….
Besides the job picture, there may be a chance that Flaherty raises the min DP % to try and ‘cool’ things off across Canada. Interest rates are set to begin rising (although I doubt we will increase until the USA does as well – could be 2011, not Q2 2010). Current low interest rates seem to have pulled forward demand, which reduces buyers in the future as well.
Longwinded – I know – but that is where I am at. Why buy now if I am not afraid of being priced out forever (this principle is impossibly flawed to me)? There is too much on the horizon that can swing things in either direction and uncertaintly is rampant….is there going to be ‘double dip’? how much are interest rates going to rise (I myself am calculating my affordability at 7% rates)? what is the price of oil and NG going to be? When are people going to stop losing jobs? When will I see a pay increase? Will I have a job in 12 months?
Once this becomes clearer then I can be more comfortable. It’s just a matter of how many others look at it this way to see if sales decrease enough to put downward pressure on prices. It will be an interesting year and I am anxious to see how it unfolds…I will be ready when the time is right for me.
Ah Mike, you’ve been beating me to the punch on those arrears numbers for a couple months, I was bound and determined to be all over it when we crossed the threshold… I’ve been checking their site 3 or 4 times a day for two weeks!
2TT
thanks for your post TT, its is very informative. I am selfemployed and dont talk to people from THE industry much. I hope your sentiment represents the general population.
Reply to TT , I could of not said this better! My gal and I echo your thoughts exactly.
to TT
thanks for your post TT. My opinion exact the same.