(Scroll further down for Don Campbell forecasts for Calgary and how they panned out)
Ah, statistics are such pesky things. Verifiable, quantitative, and easily referenced and tracked. Obviously then, statistics have no place in such an emotional asset class as housing.
That’s the gist according to Don Campbell who said in the Calgary Herald today that people who try to guess what the real estate market is doing by looking at housing statistics are “doing the equivalent of driving across the city staring at their rear-view mirror.”
The full quote from his blog is this:
Many people and pundits use housing market statistics to comment on the health of a housing market. This is like trying to drive across Canada while staring into your rear-view mirror – you just can’t be accurate. GDP & Job Numbers and in-migration are the underpinnings of any property market – without these you will have stagnation or drops in values. This being said, those who do continue to use the housing stats will find their data to be even less accurate due to this new CREA agreement. Due to low barrier of entry for listings on MLS, there will be more listing coming on, so even if sales begin to increase or even stay flat the market will look like it is underperforming. Key housing market ratios will be skewed and will be an inaccurate indicator of market health if compared to statistics from ‘pre settlement.’ Sales-to-Listing ratio will decrease even as sales increase, average days on market will slowly increase (as unsophisticated sellers leave their properties on for long periods of time).
When the statistics are not looking good according to your point of view, it’s time to jettison them. It seems that an investor on his blog agrees, posting:
Great analysis Don. I shy away from a the statistical tools. Properties values are extremely local. The municipal, regional and provincial stats are great for data-junkies, realtors who need to justify their existance and news media looking for something to do
You can be sure that if the stats were looking favorably at the moment, they would be touting them.
With regards to Alberta real estate, his viewpoint on pre- and post- CREA/Competition Bureau settlement stats is wholly inaccurate. A real estate investor should know that Alberta already had a “low barrier of entry for listings on MLS”. Flat-fee listings were always available. In fact,today there are actually fewer new listings and total listings than this time last year.
And those that choose to use the even lower cut-rate offerings from out-of-province agents – guess what? Since they aren’t part of the Calgary or Edmonton Real Estate boards, the listing (or subsequent sale) wouldn’t even show up or be part of our statistics.
Forecast Record
Some of his previous reports:
October 2006
“Fundamentally speaking, Alberta’s economy is as good as it gets. High energy prices, rapid population growth, low unemployment, an abundance of jobs, improved infrastructure and affordable housing costs translate into Alberta being the No. 1 region in Canada — if not the world — in which to invest.”
“From a homeowner’s point of view, Calgary and Edmonton homeowners are going to do incredibly well over the next five to eight years.”
Whoops. Understandably, investors would be upset if they were following the 5-year timeline that he was pitching. That would take us into 2011 where we are currently thousands of dollars off our peak (See blog post: Peak Buyers, Today’s Sellers)
Prices for Calgary SFHs and condos since the peak are down 5%, 10%, 25%, even up to 50% in some cases. Where were the warnings about investing in a market that was approaching its peak? Just think of the millions of dollars worth of equity lost by those that bought during the peak and are selling today. Will they be able to recoup all their losses if they hold on for a few more years? Only time will tell, but it would make for quite an anxious journey.
Regarding Edmonton in the same report:
“Economic diversity provides economic stability, meaning that Edmonton is no longer prone to major upward or downward swings,” he writes.
Whoops again.
July 2007
Continuing oilsands development and the accompanying secondary industries means the real estate outlook is very bright in many parts of Alberta for years to come.
It was summer ’07. The market was hot, record levels in sales and prices seemed to be increasing indefinitely, reaching highs each month. No warnings.
In fact, In December 2007, REIN forecast that Calgary average prices would increase by 12% in 2008. Yes, 12% (!)
Fast-forward to the spring of 2008:
Record numbers of homes are for sale, with inventory rising to close to 12,000 single-family and condominium homes as of the end of April.
“That clearly shows speculators who had been in the market are trying to sell now,” says Don Campbell, who heads up a real estate investment website and has written a couple of books on Canadian real estate.
“That will also dramatically affect the ability of builders to sell new homes.”
And then, just a few months after that:
In 2008, the market is making a predictable (albeit soft) correction resulting in slightly more affordable housing compared to recent years.”
“Fear and emotion have entered the market, but the economy in Calgary is stronger than it was two years ago,” Campbell says. “That’s not reflected in housing.”
“The economy is slated to be the best in the country in 2009 and 2010 and the fundamentals are strong.”
Ah yes, a “predictable (albeit soft) correction.” I wonder why this predictable correction wasn’t relayed aforetime? (Did he forget about REIN’s forecast of 12% increase for 2008?) And according to him in the quote above, even economic indicators alone don’t necessarily dictate the housing trend. Yet, he’s basing his newest forecast not on current economic indicators, but on future hoped for expectations:
Average house prices in Calgary could flirt with record levels within the next two years due to a commodity boom in the province, says a real estate industry analyst.
Don Campbell, president of the Real Estate Investment Network, said house prices could increase five to seven per cent this year and another five to seven per cent in 2012.
“And then after that, we’re going to be back in a bit of a frenzy,” said Campbell. “A frenzy as in a seller’s market. Now I hope it’s not as hot as it was in 2007 and 2006 but I’m telling you by looking at the job market and the population growth expectations I wouldn’t be surprised if it was in the double digits in two years.”
You can read the entire article here
So apparently looking at past statistics is useless, but making up optimistic projections is a much more valuable method of predicting the future of the housing market.
Frenzied seller’s market. That sure sounds healthy and sustainable, doesn’t it? But it’s music in the ears of speculators. Will emotion drive the market once again?
Agree with Don? Disagree with him? Have you found following Bob Truman’s and my statistics valuable in your home buying/selling decisions or has it felt like “driving across the city staring at the rear-view mirror”? I would like to read your comments.
In the meantime, I’ll be “justifying my existence” and updating the sales figures for yesterday 
