June 2022 Market Update

A handful of weeks have passed, and now here we are, at what I suspect is the downward trajectory after a very robust housing market peak. We have seen record sales, record prices, and rising interest rates. See Liv’s Market Update HERE

The last market check-in was in February, at which time the market in Edmonton was skyrocketing and continued to do so until mid-March. Home prices and sales are still at record numbers, and while inventory is increasing, it remains historically low. Condo sales shot up higher than we have ever seen in the last 10 year and their prices along with them. Previously, mortgage rates were in and around 2.64% for a five-year fixed and 1.3% five-year variable. Since then, lenders have seen 10+ mortgage rate hikes. Consequently, we are now looking at 4.19% on a five-year fixed and 1.9% on a five-year variable. Check out Rate Hub HERE.
Since the number of sales remains historically high, and inventory low, we will likely still see high home prices for months to come, with multiple offers and a competitive market.

Interesting Tidbits

Client Identification

The Canadian Government has now introduced an app to verify identities remotely. As a result, I have been able to sell real estate in Edmonton, to Canadians living abroad, without ever meeting them, or them ever seeing the property until possession day. Why this demand for Edmonton Real Estate from out-of-province buyers? The people I am meeting are attracted to Edmonton for the comparatively low cost of living. For some people, the nature of their work has changed, so they can afford to live here and work remotely; for some families, they are sending their children here for more affordable living; and for others, they are using their windfall earning of sales in hotter markets to become debt free and move here. Whatever the case, this new technology has made it easier for realtors to sell to out-of-town buyers, and has given buyers greater access to real estate professionals. The catch? Apart from a more competitive housing market here at home, this app collects a lot of information about buyers and sellers. What they are buying, for how much and when, etc. all this and more is being collected and stored in one central database instantaneously. I suspect this will make it a lot easier for the Feds to create taxation structures to maximize their return. Before this, client identification and deal tracking was all pen and paper, so it would have taken a lot of resources and honest tax reporting to collect the data and then analyze it, let alone build tax structures off of it. I suspect this app will change all of that.

Multiple Offer Situations
If you have been paying attention, multiple offer situations are common right now. Let’s talk about some of the ins and outs. Multiple offers are when several different buyers want to buy the same house. Every party submits an offer with price, terms, and conditions to sale. Offer price is based on what a buyer values the home at, and terms and conditions are what, if any, due diligence is required by the buyer to complete the purchase.

What we have been seeing across the country for some time, and most recently here, are unconditional offers. This is where a buyer submits an offer to a Seller, and all the Seller has to do is sign the offer for the home to be sold firm. There are no “buyer’s conditions”. No “if the buyer is satisfied with a home inspection, the buyer will complete the purchase”, or “if the buyer’s bank likes the mortgage, the buyer will complete the purchase”. Buyers are simply submitting offers, over listed price, and waiving their right to inspection or mortgage approval. The Seller, if they are savvy, will usually request a large deposit at this point. Therefore if the buyer breaks contract, the Seller and their real estate brokerage will still share the proceeds of the deposit, and the home will go back to market. Plus, the Seller can then sue for damages.

You might be wondering, so what’s wrong with unconditional offers? Technically nothing, if you are confident in the home you are looking at, and you have the money to cover a home purchase, whether the bank likes the deal or not. However, it seems most of the people who write unconditional offers don’t actually have the cash to cover the deal. They are submitting the deal to their mortgage professionals after buying the property. Even with a preapproval, there is some risk here.

When homes are selling for record prices, there are rarely good comparable listings to justify the asking price. So when the banks are getting deal sheets that say their buyer client is buying a home for $30,000 over list price, the bank is going to order an appraisal. The appraiser is going to book a viewing of the already sold home, take notes, and then scour the MLS system looking for an approximate market value (what have other homes like it sold for recently). As you might guess, there may not be any recently sold homes to justify the value, therefore in this case, the bank will lend on the appraised value rather than the value on the purchase contract. The buyer is now liable to cover the cost between the appraised value and the value they committed to on the sales contract. That could be the full additional $30,000.
This is simply one angle of better understanding multiple offer and unconditional offer situations. What it’s meant to do is show the different angles of a real estate purchase, to those who may not see them on a day-to-day basis. Most industry professionals will agree, unless one has the financial means to cover an unconditional contract, it is always best to have a financing condition. The financing condition does not have to be for long; if the buyer’s agent and the mortgage professional are communicating openly, financing approval can take as little as 24-72 hours.

Home Builders
I have been nothing short of astounded by home prices over the last few months, and home builders lead my amazement. A short story to demonstrate: my son was playing soccer in Griesbach last night, and my daughter ballet the week before. I had the chance to walk some of the trails and parks with my kids, as we went to set up a lawn chair fieldside, to cheer on the Incredible Hulks U5 soccer team. Griesbach appears to offer a clean, quiet, and family orientated experience, unlike much of what I see on a day-to-day basis in many other areas of the city. Afterwards, we packed up the kids post game, with their snacks and juice boxes, and out of curiosity, entered the first show home we saw. $750K for a laned home, with a rear detached double garage and small yard. Now I am not going to get all elitist and complain about the finishings, the views, the build quality; I am not a wealthy person, nor do I live in the Taj Mahal, or even want to pretend I do. But oh my!
And don’t get me wrong, Griesbach is already expensive. The developer has strict requirements which keeps prices high. But that is Snoop Dog high! Pre-covid, smaller version landed homes ranged from $360-$420K, depending on community. Tag on $15-20K for a detached double garage. Out of curiosity, I asked the show home representative in Griesbach how sales were going. Turns out they had a waitlist of 65 buyers for lots, and the starting price on the homes for those lots was in the 800s.
Another example: some of my folks and I were shopping in Laurel in March. Pre-covid a 2,200-2,400 sqft single family detached home in the Southeast/Southwest would sell in the $550s. Now we are talking $850K for a similar home! Another one: a gal I was working with, walked into a builder’s office, and walked out paying $415K for an attached townhome. Pre-covid we were paying $315-$335K! I suspect, with time, and as rates increase and demand decreases, these prices will moderate. I’ve spent most of my career in Edmonton, watching home builders find ways to cut cost and price to be able to continue selling anything. This change has been remarkable.
There is an interesting transition in the Edmonton market right now. We still have relatively high unemployment, with increasing net migration, and increasing mortgage rates. Housing Inventory is still on the lower side of things, while the number of sales and prices are at record highs. Sales are dropping sharply after peeking in March. My hope is that the high price of oil will bolster our economy like years past. Our communities will once again become a destination for global professionals seeking high wages, and safe and stable living environments for their families. This will in turn stabilize the housing market prices and sales volume for years to come.

A Personal Note
Thank you for taking the time to get this far. Our little family has been busy. Our kids are getting older and we can do more, so we are now running a few days a week with them to ballet and soccer. We’ve discovered Rundle Park, and this place is underrated! While I’ve spent most of my younger years frequenting Hawrelak, Rundle is now our go-to for walks and impromptu soccer matches, as it offers equal or better space and facilities, without the crowds Hawrelak draws. The title image is a globe flower My wife and I were inspired after coming across one in Lake Louise to plant our own at home. So in its second year, our little plant has its first globe! I hope you all have enjoyed this check-in, I look forward to touching base again in a few weeks.

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