Prepare for lower real estate prices

Prepare for lower real estate prices
No guarantee that U.S. meltdown won't spread here

David Berman
Financial Post
Wednesday, April 11, 2007
It's hard to find experts in Canada who are concerned that the real estate chaos swirling around next door could hop the border and rattle the housing market here. Well, not yet anyway.
Those who believe the Canadian market is on solid ground will find evidence to support their views when they get a look at housing starts for March (released this morning) and the new housing price index for February (tomorrow). Both are expected to show that Canada's housing market is holding steady amid the downturn to the south.
But if you're the sort of investor who can't help but wonder if Canada must eventually follow the U.S. lead -- a natural instinct given that Canada follows on so many other issues -- you may want to skip the Canadian figures.
Instead, head straight for the words of U.S. central bankers and get their take on housing: The worse it is in the United States, the more reason to worry about the situation here.
This afternoon, the U.S. Federal Reserve releases the minutes from the last Federal Open Markets Committee, on March 21. At that meeting, the committee left short-term interest rates unchanged, but said in its statement that "the adjustment in the housing sector is ongoing."
That is likely code for "quite frankly, the housing sector scares us" -- and the minutes will say more about it.
They have good reason to be scared. In the United States, home prices are tumbling, foreclosures are rising and few are confident the downturn has hit bottom yet. It's a rough time to contemplate buying a home.
Just as worrying, tightening credit conditions and the fact that current homeowners can no longer count on an appreciating market could wreck consumer confidence, which can hit economic growth.
Most Canadians are fully aware of our neighbour's problems. However, the prevailing wisdom is that real estate is a local market and it all boils down to the ''location, location location'' mantra, which should protect us from any sort of copycat debacle.
"Can we say that there are ominous parallels between what is happening in the U.S. and what will happen in Canada? I doubt it," said Bart Melek, senior economist at BMO Capital Markets. "It is a fundamentally different market. The structure is different."
U.S. consumers had to ride an upswing in interest rates from 1% in 2003 to 5.25% today, a much more volatile ride than that experienced by Canadian consumers.
At the same time, U.S. loan requirements -- which included 0% downpayments in some cases -- were far looser. And lastly, the Canadian economy is in better shape.
But there's at least one important factor Canada shares with the United States: overvaluation. House prices here have risen to a point where BCA Research believes they are 28% overvalued, based on comparisons with gross domestic product and competing assets, just as house prices were once widely believed to be overvalued in the United States.
With U.S. prices now coming down, it's not hard to envision a similar price-chop here. Few see it now, but that's the best time to prepare yourself.
dberman@nationalpost.com

Real estate market still on boil

Real estate market still on boil
Southwest-area houses average half a million dollars; solid gains expected until late summer

Ron Chalmers
The Edmonton Journal
Thursday, April 05, 2007
CREDIT: Bruce Edwards, The Journal
HOUSE PRICES HOT: Average home prices in southwest Edmonton topped half a million dollars last month. The house shown above sold recently for $499,900.
EDMONTON - Average house prices now exceed half a million dollars in southwest Edmonton and are almost $400,000 across the area.
"Housing prices have not yet peaked," Carolyn Pratt, president of the Edmonton Real Estate Board, said Wednesday, releasing the March figures for sales through the Multiple Listing Service.
Edmonton-area prices averaged $398,476 for single-family homes and $325,339 for all housing forms.
In only the first three months of this year, average house prices have climbed 16.5 per cent, surpassing Pratt's original forecast of a 15-per-cent rise for the full year.
"We're predicting that prices will continue to rise until August, at four to five per cent per month, then at two per cent per month," she now says, citing Edmonton's continuing in-migration, strong demand, low inventory and prices that still are below Toronto, Vancouver and Calgary.
Averages for single-family homes ranged from $501,838 in southwest Edmonton and $484,168 in St. Albert to $320,600 in Morinville, $312,730 in northeast Edmonton and $281,480 in central Edmonton.
The high-priced southwest has high-quality homes, says Madeline Sarafinchan of Jayman Realty. It also has good access to the University of Alberta, South Edmonton Common and the International Airport -- and its newest neighbourhoods "are well planned with a lot of park space."
Sarafinchan recently sold a 1,689 square-foot house in Rutherford, in the southwest, for $499,900. It has hardwood floors and a gas fireplace on the main floor, three bedrooms, two-and-a-half baths, attached double garage and upgraded insulation -- on an 11-metre by 35-metre lot.
Edmonton-area condominium prices actually fell $547 in March from February, to an average of $246,719.
Condo prices normally are more volatile than house prices, Pratt said.
This March, 1,236 condos were listed -- almost double the 621 listings in March 2006. Pratt thought the spike was caused by investors selling condos that they had been renting out.
Among all housing forms, the EREB reported 3,091 new listings in March, 2,359 sales and a month-end inventory of 2,574 units.
ComFree Edmonton acquired 664 new listings in March, with 513 sales at an average price of $350,300 and a remaining inventory of 893 units.
rchalmers@thejournal.canwest.com
© The Edmonton Journal 2007