Alberta real estate – what might lie ahead
April 16, 2015
There is a lot going on in the Alberta real estate market these days. Here’s how to read the signs.
1 – The perfect storm is poised to hit: In Alberta, we all know about the inevitable slowdown and layoffs that occur during “spring break-up.” Well, this year it is timed almost perfectly to month 10 and 11 of the oil price drop. This means, not only will we see the regular layoffs and slowdowns of a break-up season, these will be piled on top of the layoffs occurring due to the low oil prices. The numbers could get pretty ugly, so prepare yourself.
Although we are seeing slight drops in average sale prices in the larger cities, we are not yet witnessing the panic selling that can have a very negative effect on average sale prices. However, those who listed their property in November, December and January (when the listing took just a big jump), will now be feeling the pressure to either lower their price or take it off the market. If they need to sell, this will lead to lower average sale prices. Traditionally, buyers move back into the market at about month 12 of an oil price drop, thus taking up some of the slack in the market.
#2 – Rents are poised to increase in Calgary and Edmonton: Despite the slowdown in the resale and new home markets, Alberta is still poised to attract 15,000 more people from other provinces than it will lose. This is on top of the last two years of near record population growth. Therefore, and with the already tight rental markets in these cities, the pressure on rental demand will continue to be strong, thus keeping rents where they are or even increasing them over the coming months. Landlords: keep a close eye on “street rents” (not average rents), as they will change quickly from week to week. You must keep checking the key rental websites on a weekly basis.
#3 – The new proposed fees on real estate transactions will have zero effect on the market: Despite all of the hullabaloo surrounding the dramatic fee increases proposed in the provincial budget, these will not have an effect on the housing market. Most people don’t know the fees until closing day, and therefore it's too late to change their decision. The market just doesn’t react like that.
#4 – Increase in CMHC fees and Genworth scrutiny will affect the market: Genworth has followed CMHC’s lead in its increase of insurance premiums for homebuyers across the country. This will definitely make for sober second thought by some low-down payment buyers. However, when you combine it with the stated “increased deal scrutiny” they have announced for properties in Alberta, you have a second perfect storm for slowing the number of sale potentials in the province. This tightening of the screws may be prudent, but it will keep more buyers out of the market, right when the market is looking for buyers. The good news? More people will remain in the pool of renters, thus keeping the vacancy rates low and the upward pressure on rents in place.
#5 – It is going to get worse before it gets better: Given the international geo-political games being played, given the dramatic increase in oil sitting in storage, given the “Frack-Log” in US oil (yes that is a new oil term) and the demand curves. This low oil price is quite likely a long way from being over. For investor-landlords, more than ever, it is important to think and act strategically. This is a business you own, and like any other business, when market conditions shift, you must adjust your priorities.
#6 – Calgary secondary suite progress: We are actually witnessing progress in the secondary suite issue in Calgary. There are now procedures in place to get secondary suites approved. Read details here. Investors, this will give you a huge advantage in attracting future renters. In addition, a public hearing will be held on May 11 to discuss a new bylaw making secondary suites legal throughout selected zones in the city. Here are the details to that public hearing.
Whether you're a primary homeowner or an investor, make sure you stay informed and strategic. Keeping emotion out of the decisions is critical during times like these.
Related reading:
Secondary suite issue a hot potato in Calgary
The sky is not falling in Alberta: home builders
About Don R. Campbell
Don R. Campbell is a Canadian-based real estate investor, researcher, best-selling author and educator. He is a Founding Partner and Senior Analyst of the Real Estate Investment Network, and owner of Cutting Edge Research Inc., both of which have entered their 22nd year of providing unbiased research and analysis on the Canadian real estate markets. He and his experienced team are leaders in providing Canada’s most current real estate investment education programs and economic research materials. donrcampbell.com