Edmonton housing bubble?
There is a recent study from Canadian Centre for Policy Alternatives that suggests that Edmonton is in a housing bubble. The article states that our prices should be a lot lower based on an inflation adjustment from the prices housing here in the period of 1980 to 2000. Here are my 2 cents on the issue.
The main flaw in this study is that it bases todays values on housing values from the 80's and 90's. In the 80's and 90's Edmonton real estate was severely depressed in relation to the rest of Canada. Edmonton was hit by two shocks. The National Energy Policy of the early 80's and then Premier Klein's cutbacks in the early 1990's (which I believe was necessary to get our debt and deficit problems under control). These political changes caused a severe negative reaction in the housing market. So, extrapolating numbers today from depressed values in the 80's/90's is one problem.
The other problem is that when you look at incomes in Edmonton, our prices are not in bubble territory. The most recent stat I could find on average household income in Edmonton was from 2007. In 2007, the average household income in Edmonton was $87,300. The Metro Edmonton August 2010 average home price (including condos, duplexes and single family) from the RAE (REALTOR'S Association of Edmonton) is $325,588. If you divide $325,588 by $87,300 that is a ratio of 3.7 times income. The "experts" say that housing should be 3 times household income to make it affordable. So, 3.7 is not really bubble territory in my opinion. The other factor that isn't included in this 3 times income figure is the tax structure of the area. Alberta has the lowest tax rate in Canada. These gross income figures don't factor in the net income to a household after taxes are paid, it only looks at gross. So, I would expect Alberta's cities to be a little higher than other provinces and states due to our lower tax structure. I'm always surprised when people criticize Alberta's housing values, and downplay Toronto and Vancouver values. Alberta is where the jobs are, taxes are low, and many people immigrate into this province for that very reason.
Do I think that our market has some room to fall when it comes to prices? Yes, I do in the short term. We have an oversupply of homes for sale now in relation to our sales. That normally causes prices too fall. A 40% drop? I don't think so. Our last price adjustment was 18% (from spring of 2007 to Feb 2009), and much of that was caused by speculation in the housing market. Many single family homes were built in order to flip or built on speculation by the home builders. That clearly hasn't happened since the market corrected. The oversupply we are seeing today in our market is in apartment style condos. These were overbuilt in response to the 2006-2007 boom and are all finally coming on stream now as these projects often take much longer to complete than a house.
Lastly, I would like to say that in my 17 years of selling real estate in the Edmonton area, I have heard many predictions. I remember people complaining that we were overvalued in the late 90's and the market was going to crash. Our average price was in the $110,000 range at that time. These people were going to rent until the prices came down. I guess they are still renting.
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