Here today, gone tomorrow

smalltown · 发表于 2007-5-18 08:13

Here today, gone tomorrow
Everyone is asking, 'What's yours worth?' But better questions might be: 'How'd this happen?' and 'Where will it stop?'
Alexandra Zabjek, The Edmonton Journal
Published: Friday, May 18, 2007
EDMONTON - A few weeks ago, a Vancouver investor called Jon Hall at the Realtors Association of Edmonton to ask where she could buy a house in this city for $140,000.

Hall laughed.

Anyone living in Edmonton these days would laugh, too. Housing statistics in this city are as well-known as they are mind-boggling.

In April, the average price of a single-family home soared to more than $413,000; less than a year ago, those homes sold for about $282,000. Condo prices have also skyrocketed, averaging $261,000.

It's a phenomenon that has everyone talking. Long-time residents shake their heads at what their property is worth, and scoff at the asking price for the house across the street. Newcomers and twenty-somethings nervously watch the prices and wonder how they'll ever break into the market.

If real estate watching has become a sport, two questions keep people on the edge of their seats: Just how high can prices go? And what might cause them to fall?

Analysts agree that 50 per cent increases can't last for long, but they can't identify a limit on housing prices. They do, however, offer some explanations, straight from Economics 101.

"What's largely been driving this is the very strong levels of in-

migration to the province and into the city, to the point where the new home industry can't keep up," says Richard Goatcher, senior market analyst for the Canadian Mortgage and Housing Corporation's Edmonton office.

"You've got a new home industry that's running flat-out but it can't keep up."

Population growth is one of the "fundamental" drivers for rising house prices. Add strong levels of job creation and low mortgage rates, and "you've got a pretty heady brew for strong housing demand," Goatcher says.

Mortgage rates -- which have been steady at around six per cent for several years -- have fuelled demand for housing in Edmonton and around the world. During the last boom in the early 1980s, buyers faced fluctuating rates that sometimes rose into the 20-per-cent range. Today's homebuyers seem to expect single-digit rates.

But that creates a catch-22.

Low rates lure more people into the market, but that creates increased demand, which translates into higher prices.

A quick look around this city shows signs of the other "fundamentals:" Help-wanted signs dot store windows, signalling job creation and the potential for in-migration.

So what, then, will turn the tide on rising price increases?

"We're starting to outstrip income growth," says Goatcher. "There's going to be a whole segment of the population who are going to get priced out. That should put a brake on demand because they won't be able to afford the size of mortgage that's required to get in the door."

Compared to other Canadian cities, Edmonton is still a relatively affordable place to buy a house.

The Royal Bank of Canada, for example, calculates an "affordability measure" that looks at the percentage of median gross household income needed to own a home. The measure includes costs like mortgage payments, taxes and utility bills.

At the end of 2006, the affordability measure for a two-storey home in Edmonton was 37 per cent, according to Amy Goldbloom, an RBC Financial Group ecnomist.

That's a significant jump from the 29-per-cent affordability measure at the end of 2005. And it pushes the cost of owning a home beyond the recommended 32 per cent of a household's annual gross income.

Edmonton might seem like a terrific deal compared to Calgary, where the 2006 affordability measure stood at 43 per cent, or Toronto at 49 per cent, or the alarming 74 per cent in Vancouver.

But most job-seekers aren't coming from those cities, Goatcher says. Migrants to Alberta have typically come from Manitoba and Saskatchewan. While Joe Vancouver might not blink at paying $500,000 for a starter home in Edmonton's suburbs, Jane Saskatchewan just might decide to stay home.

There is already evidence that a new demographic swing is taking place; in March, Statistics Canada reported that in the last quarter of 2006, more people moved to Saskatchewan from Alberta than the other way around.

At first glance, the slowing in-migration might seem like a solution to runaway housing costs. But it would cost this province one thing it desperately needs: labour.

Edmonton's home building industry is hooked on the horns of a dilemma.

"Our industry today is facing labour shortages never seen before, plus a demand way above what we can deliver," states the Edmonton region website of the Canadian Homebuilders' Association.

The labour shortage is driving up costs to the point where homebuilders are reluctant to take on new projects because they're unsure if they can recover their money, says Patrick Adams, vice-president of the association.

"If you sell a house today ... you have to deliver it in a year and you have to absorb all of the costs that go up during that period," he says.

"When it took us three or four months to build a house that wasn't a big deal. But now that it's taking us 11 or 12 months to build a house, it is a big deal."

Builders need more money up-front if they want to build first and sell later; they're also contending with a backlog of unserviced lots.

But despite the construction boom, Adams says homebuilders today are not making more money than in the past.

"You can say in absolute terms, there's more money and that's true," he says. "But everything we buy costs more, so you need more dollars to pay for it."

Adams' description of labour shortages and mounting costs raise concerns for the future of Alberta's housing market.

If housing prices are being driven more by capacity constraints than by "fundamentals," a slight decrease in demand could cause the prices to fall as quickly as they rose.

Once prices start to tumble, no one knows where they'll stop.

"The biggest concern for Alberta right now is simply the overheating," says Carl Gomez, vice-president of research for Bentall Capital, a full-service real estate firm. "When the economy grows so quickly, inflation is always a threat and when inflation picks up, it makes things much more difficult."

Statistics for April show Alberta continues to lead the country with an inflation rate of 5.5 per cent. In Edmonton, the inflation rate rose to five per cent, up from 4.6 per cent in March.

Record-breaking prices and spiralling costs can also create a frenzied environment for homebuyers, which can be just as dangerous for a housing market as labour shortages.

"(With overheating) there's this fear where people start to say, 'If I don't get into the market now, I'm never going to get in.' That's the sort of thing that causes the speculation to pick up," Gomez says

Market demand that is based on speculation rather than fundamentals can lay the ground for a much feared real estate bubble, which forms when the rising cost of housing becomes unsustainable compared to income growth.

But bubbles are difficult to spot until after they burst. And at that point, it's too late -- prices have flattened or fallen and can leave some home owners carrying debt loads that are higher than the value of their homes.

In the United States, home buyers in places like San Diego and Las Vegas are reeling from burst bubbles. From about 2002 to 2005, house prices rose in ways that didn't correspond with population growth. A frenzied mentality grew as people took advantage of loose regulations in the mortgage industry.

"People were stretching themselves as much as they could to get into the housing market," Gomez says about the U.S. bubble. "People were saying that houses were always the best investment possible."

Despite 50-per-cent increases in Edmonton housing prices since last year, analysts are confident we're not in a bubble, maintaining that population growth and first-time movers to this province are fuelling much of the demand.

And this is Alberta, so there's something else bubbling in the background of real estate costs: oil.

Many analysts predict the rise and fall of Edmonton's housing prices will ultimately correspond with fluctuations in the energy market.

Goldbloom, from the RBC Financial Group, says her company predicts housing costs will start tapering this year, and particularly in 2008, alongside a cooling in Alberta's overall growth.

Whereas the province experienced 6.8-per-cent growth in 2006, it's expected to dip down towards 3.6 per cent in 2007 and 3.2 per cent in 2008.

Homeowners won't lose the equity they build up in their homes, but the wild increases are likely to end.

Gomez agrees that easing energy prices are the ultimate key to tempering the housing market.

In the meantime, industry experts urge people to step back and think about whether this is really the time to cruise the MLS listings.

"I'd like to think that people would spend as much time on buying a house as they do on buying a car, but unfortunately it's not that way," says Alan Silverstein, a real-estate lawyer who has written books about real-estate buying.

"People should be buying according to the fundamentals -- debt ratios and incomes. When you start tinkering with those things, then you have people who are going to be suffering down the road."

Experts say people who buy property as rush investments are most likely to take a hit if prices fall.

And Silverstein reminds buyers of a more basic truth.

"It's a place to plant some roots, to bring up your kids and to be part of a community," he says.

"Yes, (real estate) is an investment, but it's also a place to live."

azabjek@thejournal.canwest.com

MARKET MADNESS

A five-day series on winners, losers and what's going on

- TODAY: Economics 101

- SATURDAY: Allendale, a neighbourhood in flux.

- SUNDAY: Homeless and hopeless.

- MONDAY: Where do we grow from here?

- TUESDAY: Million-dollar baby or the home next door?

Go to www. edmontonjournal.com to see photo galleries and to have your chance to Sound Off.

IT'S NOT YOUR DAD'S MORTGAGE ANYMORE

Annual price comparison of an average single-family dwelling, as compiled by the Edmonton Real Estate Board.

- 1966: $13,752

- 1971: $22,227

- 1976: $58,064

- 1981: $91,438

- 1986: $74,306

- 1991: $107,076

- 1996: $109,042

- 2001: $133,441

- 2006: $250,915

- 2007: $340,886*

* Average of monthly house prices between January and April 2007.

Prices not adjusted for inflation

THE LAST BOOM

Some explanations from Mike Percy, dean of the School of Business, University of Alberta:

- What contributed to the last housing boom in Edmonton in the early '80s? Higher energy prices, investment and large net migration to the province.

- What was different then? That was a period of rampant inflation -- interest rates in the 20-per-cent range, inflation in the double-digit range.

- What led to the collapse? The National Energy Program, and interest rates were so high that it was impossible to carry and finance debt. This was the period of the walk-away, the $1 sale of a house. People couldn't afford to maintain their houses, so they would sell it for a dollar to get it off their credit record.

- What happened after the collapse? A tremendous number of bankruptcies ... . In Edmonton and Calgary you had see-through buildings, ghost buildings -- they were in place, but there were no tenants. You saw a net negative migration from the province. It was dramatic and it was sustained. It wasn't until the mid '90s that housing prices on average had reached their '81 level.

w Is that kind likely to happen again? I think it's far less likely. The economy is inherently more stable ... and what's driving growth in Edmonton and Calgary is sustained capital investment in the oilsands. ... After living through '81/'82, I'm still reasonably optimistic that we'll get the policies right.

© The Edmonton Journal 2007

MyFairy · 发表于 2007-5-18 11:44

牛眼熊心 · 发表于 2007-5-18 13:35

这文章内容好象与标题不符合啊, Edmonton的affordability好象是最低的, 你往哪里Gone啊?

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