Real Talk!

Today’s blog isn’t about www.giftsforyourwife.com although that is a really cool site.

I was reading about the Oil Sands economy and something about how it is causing an extreme labour shortage out west and has increased homelessness in the area by over 30% in the past two years.

The workforce has had to shack up in hotels and motels or RVs or tents, which is turning the area around Calgary into shantytowns. Money isn’t the problem, it’s finding space. In the past year, the area’s population has grown by some 25,000 and the supply of housing is sparse. The old laws of supply and demand apply and presto, prices are way up!

10 years ago, in Fort McMurray, the average first time buyer was looking at a 1000 square foot, 3 bedroom, 2 bathroom home at an average cost of $46,000 (about $42 per square foot). Today, in that market, the average first time buyer is looking at an average cost of $285,000 (about $237 per square foot).

Most cities are up. The stats for Calgary show that 10 years ago, the average first time buyer was looking at a 1300 square foot bungalow with 2 bedrooms and 1.5 baths and an average cost of $90,000 (about $69 per square foot) and now, a 1200 square foot, 2 bedroom and 2.5 baths for $180,000 (about $150 per square foot).

In Toronto, the 1200 square foot bungalow or condo (a bit smaller), with 2 or 3 bedrooms that was popular 10 years ago and cost about $220,000 (approximately $183 per square foot) is now offering a 700 square foot, 2 bedrooms with 1.5 baths for $196,000 (approximately $280 per square foot) to the same market group.

Montreal: a 1500 square foot duplex or condo with 3 bedrooms and 2 baths goes for about $265,000 ($177 per square foot) when ten years ago, the market was looking at a 1200 square foot townhouse with 3 bedrooms and 1.5 bathrooms for $125,000 ($104 per square foot).

Vancouver: That 1 bedroom condo with 1.5 baths and a den in the west end was going for $150,000 ($240 per square foot) and now a 650 sq foot, 1 bedroom with 1 bathroom in Yaletown will run $250,000 (about $385 per square foot).

Yikes.

CBC Marketplace reported (Dec/05) that the estimated increase in home prices for the past decade was 50%. They also suggested that Buyers needed to be well informed and should select an agent that they felt they could trust and develop a good working relationship with- NOT necessarily an agent with the most fabulous sales record.

Good advice!

Scotiabank Group economist Adrienne Warren says household wealth "has reached unprecedented highs, thanks to years of solid, uninterrupted economic growth accompanied by falling unemployment and rising home and stock prices." She says that slower growth is coming and may require households to start saving more money, but that "by current metrics, the finances of Canadian households are in good shape."

Craig Alexander, VP and deputy chief economist for TD Bank Financial Group predicts that Toronto and Vancouver will see larger than average price gains because of their attraction to immigrants. Calgary and Edmonton are also expected to "break away" from their historic performance, he says. Benefiting from high oil prices, a low provincial tax rate and a younger population.

London-St. Thomas board president Costa Poulopoulos said a prolonged strong market tends to exhaust the inventory of available homes and drives up prices, leading to an inevitable collapse as homes become unaffordable. He also said that although the housing market in the United States has seen a sharp downturn, he is expecting a "soft landing" in Canada.

Lawrence Yun, a senior economist for NAR (National Association of Realtors), is more optimistic. He claims that the market has returned to more earthly figures after a period of unsustainable growth. "Any decline will be very short-lived," he said. "By the spring of 2007, the market will begin to see increased sales and strengthening in home prices."

Others are less willing to prognosticate an end date for the slowdown, due to a host of unknowns, including future interest rates and job markets. One reason for the holdup is a disconnect between buyers and sellers, said director of the UCLA Anderson Forecast, Edward Leamer.

Many property owners are reluctant to cut their prices. Unlike builders, who are so desperate to sell their properties that some are throwing in extras like upgraded countertops and one-week vacations, many sellers are willing to wait. Their logic is simple, Leamer explained: "A lot of owners figure, 'My idiot neighbor sold his home for $1 million, and I'm not taking a penny less.' "

On the other side of the equation are the buyers, equally strong-willed. Unwilling to fork over those sums in a wavering market, they are watching from the sidelines, waiting for prices to drop. "Buyers are holding back currently to see how long and far this cooling will go," said NAR's Yun.

What's more, two key sources of housing demand are locked out of the market- the first-time home buyer, who can't afford to buy given the mix of rising interest rates and still-high home prices and speculators, who can no longer benefit from dramatic appreciation by flipping real estate.

Of course, real estate is a highly fragmented market and what happens in one area, may be completely different from what is taking place in another. Not everyone benefited equally from the boom, and not everyone will suffer the same in a bust. And in Alberta, there may not be one… not for a very long time!