"Pent Up" Demand...At The Kool-Aid Stand

Recently, Bonnie Wegerich, the new incoming president of CREB was interviewed by the Calgary Herald.

Q: How would you describe the real estate market in 2008?

A: It was an interesting market in 2008. We went from a seller's market to a buyer's market and we saw sales drop, listings go up. But we maintained our average sale price and median sale price. They stayed fairly steady.

In May 2008, average and median prices for SFH peaked at $479,564 and $419,000 respectively. By December 2008, the average SFH price was $417,398 (drop of $62,166) and median SFH price was $380,000 (drop of $39,000). In June 2008, the average price of a condo peaked at $315,042. February 2008 saw the median price peak at $295,000. By December 2008 the condo average price was $274,919 (drop of $40,123), median price was at $254,000 (drop of $41,000). Stability is not clearly not definable by those price drops.

Q: Has the market hit bottom?

A: All of a sudden we're seeing some buyers come out again and start looking for houses. I think they want to buy before the market starts to go up again.
...

Q: Will 2009 be a buyer's or seller's market?

A: I think we're still in a buyer's market at the beginning of 2009, but I see it going into a balanced market, which is better for both the buyer and the seller.

Perpetual sales pitch that prices will go up forever. In reality, sales in January 2009 are down 50%-60% compared to last year. The market, which participated in the greatest asset bubble in history is on the other side of the boom. Sales will not recover in 2009, and a buyers' market is here for the long term. Stop blaming the snow.

Q: What are some of the factors contributing to this optimism about the market?

A: Calgary has got a low unemployment rate. Alberta is the lowest in the country as far as unemployment rate goes. We still have a good economy. We have a great young population here. Interest rates are really good. So we have a lot of positive factors there that lead us to believe that it could be a really good year.

In reality, we are in the midst of deflationary pressures. Oil prices have fallen and have maintained low prices. Canada is now joining the global recession. Unemployment and layoffs will grab headlines in 2009.

The demand function has been exhausted. The element of "pent up" demand is waited upon by the real estate food chain (realtors, speculators, etc). Sadly, this phenomenon may not materialize for many many years, if at all. As evident in the past Canadian recession, demand recovery occurred four years later. Currently, we are now in uncharted waters while the sales to list ratio is the lowest in history. Year over year, January 2009 sales will be down approximately 50%-60% from last year. "Pent up" supply will accelerate as demand falls. Many conditions exist in today's reality that will continue to put downward pressures on real estate demand and prices (in no particular order):

• Unprecedented economical chaos resulting in a prolonged US recession (precipitating Canadian recession)
  
• Contraction of credit, mortgages will be more difficult to obtain
  
• Falling commodity prices in a deflationary environment
• Falling consumer confidence and psychology
  
• Increasing layoffs/unemployment
• Pool of buyers remaining is small
• Prices still remain unrealistic, sobering demand
  
• Supply still at all time highs
  
• Time and patience are now abundant commodities for the buyer

By the way, Happy Belated New Year!