Buoyed by a surge of sales in the luxury end of the market, average prices reached their second highest level ever recorded for the month of May with $483,240. Median prices remained fairly stable with $420,000. The only year with higher May prices was back in 2007 when the average was $487,523 and a median of $435,000.
Sales weren’t as strong. With 1262 transactions, it was the lowest May sales level since 2000.
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With the drop in sales and increased inventory, the Absorption Rate reached 4.47 Months, climbing further out of a balanced market.
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Pending sales numbers are showing that transactions will be down year-over-year for June as well.
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For more indepth month-end statistics (including condos) visit my website: www.FindCalgary.ca
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A point to remember is that fixed-rate mortgages are dictated by bond yields, not the Bank of Canada’s benchmark rate.
What I fail to understand about the market today is why absorption rate is now up to a buyers market level even with rates just about as low as possible. Where are the buyers and why are they not buying with this great inventory and low rates?
@Sean: This is still one of my favorite reads regarding the psychology of a housing bubble:
http://www.irvinehousingblog.com/blog/comments/bubble-market-psychology-part-2/
Take a look at that chart, where would you place the label ’2007′ for Calgary’s real estate market on that chart? I would put it at the top, after Greed.
How about ’2008′? I would place that label after the drop from the peak, near where it says ‘bear rally’
’2009′ ? At the uptick after the bear rally, moving towards denial.
And now, how about ’2010′ ? Could we be moving towards the ‘fear’ end of the bubble?
Fear Stage
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In the grieving process there is a shift from denial to fear when the reality being denied becomes too obvious to be ignored or pushed out of awareness.
There is no acceptance of reality, just the idea that reality might be fact. The fact that an investment might turn out to be a very poor financial decision with long-term repercussions to the speculator’s financial life is generally very difficult to accept.
The imaginings of a horrifying future creates fear, and this fear causes people to make decisions regarding their investments.
The most important change in the market in the fear stage is caused by the belief that the rally is over.
Price rallies are a self-sustaining price-to-price feedback loop: prices go up because rising prices induces people to buy which in turn drives prices even higher.
Once it is widely believed that the rally is over, it is over. Market participants who once only cared about rising prices suddenly become concerned about valuations. Since prices are far above fundamental values and prices are not rising, there is little incentive to buy. The rally is dead.
Once prices stop going up, people realize they are simply renting from the bank, and the only way to get ahead and build equity is to pay off a mortgage.
The desire to borrow 8 to 10 times income diminishes rapidly as people realize they could never pay off such a large sum.
What started in the denial stage as an involuntary contraction of credit, in the fear stage becomes a voluntary contraction of credit as people simply do not want to borrow such large amounts of money.
Anyways, not saying that’s what’s happening here, but it’s something interesting to think about.
Another point to keep in mind is that rates have been “great” for a long time. Most people interested in purchasing their first home, or upgrading, have most likely already done so.
This is what I don’t understand: lowest level of sales since 2000 and the 2nd highest average price.
Would someone care to explain this to me?
Real estate price = sticky downward:
Quote:
Even though the current housing bubble is probably the largest ever, both in price terms (relative to fundamentals) and geographically (the bubble was widespread), the bust is still following the normal pattern.
A typical housing bubble does not “pop”, rather prices decline slowly, in real terms, over several years. This is because house prices display strong persistence and are sticky downward. Sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices.
Source: http://www.calculatedriskblog.com/2007/10/housing-busts-and-sticky-prices.html
On the subject of “sticky prices”, there was an interesting paper written a few years ago in the US:
How Housing Booms Unwind: Income Effects, Wealth Effects, and Sticky Prices
(“Sticky Prices” research begins on Page 5)
Steve – “This is what I don’t understand: lowest level of sales since 2000 and the 2nd highest average price. Would someone care to explain this to me?”
Low sales + higher than average sales of luxury homes = a skewed average $.
I’ve been expressing concern about this fact since last year that as sales die higher priced homes start skewing the average. The Median price is the price you need to watch. But even then if you have a low sales number it’s unreliable.
If 1 home sold in Calgary for $1m, would the CREB report home prices jump over 100%?
Calgary house prices are still falling (regardless of what the average/median says). Take a look at these:
Is it possible a 3bd, 1011 sq.ft (attached) house for $129k in Calgary?
http://www.realtor.ca/propertyDetails.aspx?propertyId=9572855
When was the last time you saw that?
$192k for a 4bd, attached, 1216sq/t home.
http://www.realtor.ca/propertyDetails.aspx?propertyId=9288172
and some detached deal:
http://www.realtor.ca/propertyDetails.aspx?propertyId=9547027
http://www.realtor.ca/propertyDetails.aspx?propertyId=9536852
New house? Sure thing! The builders are undercutting those who bought from them now:
http://www.realtor.ca/propertyDetails.aspx?propertyId=9537289
http://www.realtor.ca/propertyDetails.aspx?propertyId=9537294
Yes, all great deals. But why buy when next month EVERYTHING will be even cheaper again?
It’s a new month and we know what that means – a new forecast
CREA’s forecast for Alberta was “revised downward due to weaker than expected activity in the first quarter.”
Sales are expected to drop 2.2% this year and a further 0.9% in 2011. (CMHC still expects sales to increase over 2009 levels for Calgary)
Alberta prices are forecast to increase 2.1% in 2010 and 0.7% in 2011.
Chief Economist Gregory Klump:
You can compare the revised forecast with the one issued February 2009.
Personally, I enjoy reading how the same factors can have different projected outcomes:
Feb 2009: “Fewer active listings reduces buyer choice, and in time puts a floor under prices.”
June 2010: “An increase in listings will result in a more balanced market.”
On the other hand, CREA projected a much steeper decline in Alberta prices in 2009 (-8.9%) than actually ended up happening (-3.3%)
Mike but not mike F
Thanks for the explanation. Makes a lot more sense now.
So are you saying it’s not a good time to buy? The non-luxury homes are cheaper next month?
Steve “Mike but not mike F, Thanks for the explanation. Makes a lot more sense now. So are you saying it’s not a good time to buy? The non-luxury homes are cheaper next month”
You are welcome.
History says June is a “peek price month” in normal times. We are not in normal times. Everything I’ve seen thus far homes are going down in value (you are getting more for less), the average and median only reflect sold, not what is for sale.
I’ll go out on a limb and say yes, July will be cheaper than June and June should be cheaper than May. But I’ll say while price may not move much, you’ll get more home in July than you will now for the same $.
Take a look at this non-luxury home that just came up: http://www.realtor.ca/propertyDetails.aspx?propertyId=9507179 . Or even this one: http://www.realtor.ca/propertyDetails.aspx?propertyId=9425794 . You could not have found that price even 2 weeks ago.
It’s worth waiting. In fact, you are getting PAID to wait.
Interesting observation.
There is so much inventory for sale now in Calgary that:
- There are 391 properties for sale under $200k. 31 under $100k.
- 591 are over $1m.
- You can no longer look at zoom level 6 (or greater) at connaught as it is over 600 properites.
I expect to see less for sale over $1m now and more under $200k.
Now I would say the old rules apply Location Location!
Mike but not Mike F – you sure know how to pick the neighborhoods!
I think OneofAKind nails it on the head- these homes are going for “extremely cheap” because of their undesirable location.
Will – Think outside the box (or neighbourhood), these prices affect the entire city as it draws a buyer away from other more $$ properties, thus, everyone loses a little as prices fall, no matter what the hood is.
As for location… I don’t think they are that undesirable, you could live in worse areas.
If you base your assessment of real estate values by watching some overpriced listings drop on MLS, you would get a very inaccurate picture of things.
In fact I’m surprised you would ever think prices go up since listing prices don’t…
In my mind sale price = market price.
Mike but not mike F – I agree on the prices affecting the city all together. It’s only natural that less desirable areas start to decline in price before the more desirable areas – so I’m sure the rest of the city might follow, if this were indeed the beginning of a trend.
I’ve lived in that area before, and found it to be highly undesirable, but I guess that just depends on what you look for in a neighborhood.
If anything the high degree of price drops is an indication that people realize they can no longer get the absurd prices they want. We’ll see if it sticks.
I was just posted low prices, but Please, post any “amazingly cheap” deals you find. Here are Top neighbourhoods where YOU want to live that are cheaper today and you would have found in 2006. It’s not just the undesirable hoods, but the good ones as well:
http://www.realtor.ca/propertyDetails.aspx?propertyId=9583079
http://www.realtor.ca/propertyDetails.aspx?propertyId=9577136
http://www.realtor.ca/propertyDetails.aspx?propertyId=9572131
http://www.realtor.ca/propertyDetails.aspx?propertyId=9568052
There are hundreds more I could post (but I don’t want to make my post that long).
Take a look at Bowness RIVERFRONT prices. so many under $1m now (one in the $7′s too) when before it was always over $1m.
I can afford any of these but I don’t buy because I know if I wait, they might be gone but better will come up cheaper.
Here are some of Bob Farrell’s market rules that seem particularly relevant to today’s Canadian real estate market:
1) Markets tend to the mean over time.
2) Excesses in one direction will lead to an opposite excess in the other direction
4)Exponential rapidly rising or falling markets usually go further than you think, but they
do not correct by going sideways
10) Bull markets are more fun than bear markets
And here is one of Dr. A. Gary Shilling quotes:
“Markets can remain illogical longer than you or I can remain solvent”
CREB’s recent comments seem to directly oppose item 4. In this case, I’m betting against the CREB.
Mabus
March mortgage arrears numbers have been released by CBA. Arrears in Alberta dropped 0.01% from February to 0.72%. In March 2009 the arrears rate was 0.5%.
EHB has a post on the numbers here.