It was an interesting year in Alberta. We started off with uncertainty due to a recent collapse in oil prices. This coupled with new political leadership on both Provincial and Federal levels-each of whom respectively did not share the same vision as their predecessors, thus contradicting new policies were to come. We then watched our neighbors down south experience a historical political change (queue same statement as above). We were caught off guard with a major change in mortgage rules and to top it off, we experienced a major natural disaster in Fort McMurray. That is essentially a hurricane of economic factors for one year. Despite (and perhaps IN spite of) this, Edmonton’s real estate market remained relatively resilient. The statistics are out for the year and here is my interpretation:
What happened last year and why?
Total unit sales in 2016 were down 6.7% from the year prior. The biggest drop being in condo sales (down 14%). Single family sales were down 5.4% while Duplex and Townhome sales were actually up by 8.3%. The drop in single family sales was partially due to buyers choosing duplex/townhouse options instead of single family. Why? Mortgage rule changes, millennial buyers and consumer confidence contributed to the shift in a more modest purchase. Condo unit sales regressed 14% from the previous years, and though that’s not positive, we’re simply back to normal sales ranges for condos pre-2014 as the past 3 years saw a spike in sales.
Another reason duplex/townhomes are gaining traction is that the gap of cost between a low-rise condominium in the suburbs and a townhome is so small that many buyers are choosing the townhouse lifestyle over the apartment style condo. More space for less, plus you generally get your own garage, a small yard space and more flexibility in terms of rules (such as pet restrictions and age restrictions).
Why do statistics show neutral sale prices?
The average and median sale prices appeared to be quite resilient with almost negligible changes. Why? 2 reasons:
- Before we took a turn in the wrong direction, the economy was booming and the real estate market was hot. Net migration was high and the people moving were here for high paying jobs, thus we not only had a hot rental market but also a hot resale & construction market. Despite this, prices hadn’t yet risen though we clearly had more demand than supply. Our Real Estate was undervalued and we were on the brink of a price boom. This was basically a calm before the storm. But in almost perfect timing, we were surprised with a sudden drop in oil prices. Everything changed and it changed very suddenly. This should have negatively impacted the market more than it did, but 2 polar opposite conditions collided and we were left with relatively neutral results (as far as statistics go).
- Though on a macro level, average and median prices don’t appear to have come down significantly, the reality is that on a micro-level many, if not most home values did come down more than statistics show. This is contradictory to what statistics report, however working in the trenches by assessing individual homes- I saw home values reduced by as much as 10%. How can that be?
With an oversupply of inventory, buyers can afford to be more selective. The great homes, on the right street, in perfect condition with the right layout and the right colours, had no troubles selling. Those that had small downsides that would otherwise be overlooked in a busier market, had to work harder to compete. We had roughly 31,000 listings and roughly 16,000 sales. That means there were 15,000 sellers, or slightly less than half, that were competing for the next buyer and those who can afford to do so, were/are competing on price.
What can we expect in 2017?
The oversupply continues, thus the competition continues. Statistics released by media over the next 6 months will begin to reflect my statement in the previous paragraph and though it will appear that prices have come down at a faster rate than last year, in actuality 2017 should be a close repeat of 2016. The caveat being that we’ll start to see signs of recovery toward the end of the year and I believe consumer confidence will grow. In short, it will get a little worse before it gets better and then I think we’re off to a modest recovery. I expect total unit sales to be on par with 2016.
Which products will be doing what in 2017?
The condo market will continue to struggle but with signs of recovery, while townhomes and duplexes will continue to gain popularity. Central areas and infill homes were by far the most resilient category in 2016 and will continue in strength. This includes skinny homes, a product in it’s infancy that will continue to gain momentum. Secondary suites are continuing in an upward trend as they provide financial aid in covering mortgage costs. We’re even starting to see them more in new subdivisions as some builders have adapted great new products with legal suites. City council is considering allowing them in half duplexes and skinny homes and in the likely event that they do, expect that to be a hot seller.
Advice for buyers in 2017
Spend more time educating yourself on what is truly a good buy. The best time to buy is generally in a buyer’s market (which we are in), but it’s not fool proof. In real estate, you don’t make your money on the sale; you make it on the purchase. If you want to ensure that you are making a good investment, you must buy right. Buy a product that is easy to sell. Don’t overpay for it, but be cautious in the popular thought that negotiating lots of money off of the list price means that you got a good deal – this is probably the most common misconception in real estate.
Advice for sellers in 2017
When selling, you’re in competition for the best buyer – the one willing to pay the most. It is a beauty competition as much, if not more, than it is a price competition. Pull all the stops before you list: patch small holes, clean the grout in your tiles, de-clutter, fix the squeaky door etc. Pride of ownership is the X-factor. Also, time is not your friend. The longer your house sits, the lower it’s value. Price it where it’s supposed to be right off the bat. Don’t “try high” – it works against you. You will sell for more money doing it right, right off the bat.
In closing, each year brings new challenges and new surprises. Though some of these circumstances can be stressful and difficult, they often bring opportunity along with them. How you perceive the circumstance and how you react to it will determine your outcome. I personally, am so excited for 2017 and I hope that you are too! There are so many amazing things happening in our city and I see nothing but a bright future for us ahead. All the best…