The preceding graphic was the housing market in the US where prices eventually crashed. Early symptoms included a decrease in sales and high inventory levels.
Notice the very "shocking" similarities to the trend of the Calgary real estate market. In Calgary, home sales are plummeting 30%-40% YOY. Inventory has risen to all time record highs (~7000 city SFH, ~3200 city condos). By exhibiting the same symtoms, it seems that the Calgary real estate market will suffer the same illness.
According to this article, CREA is forecasting the resale market in the province will drop by 18.9 per cent to 57,900 units this year and experience a further five per cent drop in 2009 to 55,000 MLS sales. Interesting to note, the report says the average sale price in Alberta will rise by 4.7 per cent to $373,000 while it will only go up by 2.8 per cent in 2009 to $383,300.
So how exactly does retracting sales contribute to rising prices?
As a commodity, real estate is rather complex. But don't be fooled, real estate is still bound by the same simple economic fundamentals of supply and demand. The price function isn't perfectly elastic (but rather "sticky"), therefore price fluctuations will take more time to develop.
This type of reporting should be insulting to any economist. By CREA's estimation, economists around the world should be going back to their post secondary institutions and demand for refunds on their educations. Adam Smith is rolling twice over in his grave. Insulting the intelligence of the common person will only cause CREA and its members to further lose credibility.
Contrary to real estate perma-positive pumping reports, increasing inventory and decreasing sales will reduce property prices.
It's inevitable.
Offending Economists Around The World
Thursday, May 8, 2008
Posted by crebb at 1:13 AM
Labels: calgary real estate bubble, economics 101 fundamentals, inventory increases
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2 comments:
Some of those articles really prices just how stupid organizations like CREA and CREB are. Predictions are based on their pocketbook and no other regard for humanity.
Canada may not have the mortgage lunacy of sub-prime loans, but even though we hear about those a lot, the reality is that people in the usa are having problems even with normal (non sub-prime) loans, as rates rise. And Canada is not immune to that. Those 40 yr mortgages will peter off as those homes are sold and refinanced.
My son is 27. Two years ago, I saw that he was priced out of anything but a condo, and condo fees in Calgary are ridiculously high. I convinced him to move into my walk-out basement to save on rent. His bank account has over 35,000 in cash now. By next year, if he sticks to the plan, he will be in a position to buy a nice little bungalow for under 200,000. How do I know this? Because I am old enough to remember the 8o's ... what are Mom's for? lol
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