Alberta CHBA Nov YTD Results: Prepare to Weather the Storm!

[Matt Crowley]

I find that CHBA (Canadian Home Builders Association) puts together one of the better economic summary reports and goes a little deeper than most.
Source: http://www.chbaalberta.ca/economic-analysis

Reading Calgary and Edmonton YTD results side by side:

• Calgary: 2015 YTD total housing starts have decreased by 28.3% from January to October 2014
• Edmonton: 2015 YTD total housing starts have increased by 27.7% from January to October 2014

• Calgary: 2015 YTD detached housing starts have decreased by 15% from January to October 2014
• Edmonton: 2015 YTD total housing starts have decreased by 14% from January to October 2014

• Calgary: 2015 YTD multi-family starts have decreased by 23.5% from January to October 2014
• Edmonton: 2015 YTD multi-family starts have increased by 68% from January to October 2014

• Calgary: YOY residential MLS sale prices have decreased by 4.4% to $444,535
• Edmonton: YOY residential MLS sale prices have decreased by 3.1% to $372,833

• Calgary: YOY residential sales have decreased by 29% to 21,268
• Edmonton: YOY residential sales have decreased by 9% to 16,525

* don't read too much into increased average absorbed price. This is due to down payment changes in CMHC rules.

What is to come?

 

[Kir Luong]

I'm looking to see what happens to net migration numbers. So far, AB still has a net migration (but I didn't check the specific numbers t for Calgary and Edmonton).
Even if prices and rents go down a bit, I'll be happy. Good time to buy, I think (?). But the Notley government's policies makes you think a bit . In any case, people still need a house...so long-term rent-hold strategy for me. Having said that, I think house prices will decrease more, but not sure of the magnitude.

 

[Matt Crowley]

Kir, I am a long-term investor as well. We have to be conscious we are buying into a market where the prices are headed further downwards (and rents soon to follow!). People need a house, yes. But at what yield? Where is the opportunity if rents fall off 15%?

Funny you should mention migration numbers...just came out today!
http://finance.alberta.ca/aboutalberta/population_reports/2014-2015/2015-3rdQuarter.pdf
Of note: "Alberta has lost population to British Columbia for the sixth straight quarter, and the losses have been increasing in magnitude."

• continued net outflows of NPR (YOY 24,000 left province)
• natural increase 10,000 in Q3
• AB positive for international migration...more likely buyers?

 

[Thomas Beyer]

Prices in Calgary have declined about 2-5% only, less in Edmonton, but we will see further declines in 2016 and as per a very recent CBC interview with Don Campbell it is about 8-9% in Calgary and area, likely a bit less, later, in Edmonton.

 

[Thomas Beyer]

CBC's interview with Don is here, about 15 min in: http://www.cbc.ca/player/play/2680469087/

 

[Matt Crowley]

^ Don has a great way of clarifying the issue. Am I understanding correctly REIN presently forecasts 9% decrease in Calgary home values with fairly steady rents? Opportunity for the strategic buyer who is not trying to time market.

 

[Dustin Racine]

I like to think of economic slow downs as realignments and reality checks. Just as employment goes, it's the weak links that will be feeling the pinch. In 08' there were layoffs, but it was the weak links who have been dragging their feet and living on easy street that were let go.
Same goes for landlords. Those who maintain their properties, communicate with their tenants and understand that its a two way street, wont have any issues with vacancies.
I think prices will decline slightly in 2016 for sure, maybe 2017 but not too far, just a blip in the radar. May be a good time to scoop up some good deals in the next coming years if you're planning to buy and hold long term. It's a competitive rental market right now, so may not be able to ask the rent you would ideally like, but its just temporary. I wonder how many homeowners are feeling the pinch and are selling their homes and beginning to rent...at least temporarily? I know Don said the housing market will be hit harder than the rental market, which isn't a bad thing. May be a host of investors looking to unload some properties from their portfolio too.

 

[Thomas Beyer]

"Slightly" as in 10-15% ?

What radar system do you use to show a blip only ?

I came to this fine city of Edmonton in this fine country 1986 to start my MBA

2016 will be my 30th year here and might be the worst ever for Alberta as the onslaught of low oil, higher income taxes, higher corporate taxes, higher royalties, carbon taxes, higher minimum wage, carbon caps, socialists in power and a general anti-oil anti-carbon crowd in Ottawa crushes to mush what we used to call the Alberta Advantage, i.e. low taxes, pro-growth attitude and export of valuable stuff attracting hundreds of thousands of in-migrants and billions of investments. I see all this coming to an end in 2016.

We shall see. I appreciate your optimism though. Perhaps my radar needs tuning, or perhaps yours, or we just don't know and will discuss it with more clarity in 2018 ?

 

[Dustin Racine]

Hey Thomas,
Poor wording on my part. Maybe it's the holiday rums talking? Damn u sailor jerry! It's good stuff, just don't try to be a keybpard worrier on REIN after you might have your bluff called on you. There's a lot of speculation, skepticism and uncertainty. I'm just saying that there is also opportunity, particularly if someone is willing to buy and hold for the long term. I'm not thrilled either: "modernizing" oil revenues in the midst of a recession when a barrel is hovering around 35$!, safe farm tax, carbon taxes, increasing minimum wage which looks good on paper but in reality will either:
a.force small businesses to increase costs and pass it onto the consumer, (increasing the cost of living in a already challenging economic climate)
b. force small businesses to cut costs and lay off personnel
c. put businesses under and have them shut their doors altogether.

The way they're going, they will be one and done and the conservatives will be back in. If Danielle Smith didn't cross the floor, she would have been premier. But that's another story. In the mean time: prepare for the worst but hope for the best. Maybe I'm being to optimistic and unrealistic, please tell me if I am,but in my eyes if you're plan of attack in too buy and hold there are bargains to be had (if not now, then next year) the challenge is to get them rented for the next year or two, then , hopefully after that, we will see some sustained growth.

 

[Thomas Beyer]

Yes there will be buying opportunities, of course, in 2016 or better 2017 as you will still need renters and those are far tougher to find in 2016 with lower net wages and lower rents.

We own a large portfolio - as do many REIN members - and values are dropping as are rents and will continue to dip into 2017, likely about 15% from its 2014 peak, some areas less others more.

Alberta will calibrate downwards towards a normal province with less jobs, higher taxes, higher unemployment lower wages and higher taxes. This downward correction into normalcy will take a few painful years !

The NDP is utterly clueless and has added CONSIDERABLE ANXIETY, COST AND RISK to Alberta with utterly unknown outcomes, none positive for real estate investors except those buying foreclosed and highly discounted assets.

I strongly disagree with the "blip" theory. It is a long term correction back to the Canadian average, then slow growth due to weak economic leadership.

Of course there will always be opportunity for those that dig for them but the wind has changed. Rather than sailing with wind at your back you will have to tack into in the wind. You still move forward but it will take longer, is harder and takes far more skills ! Watch for orange land mines in the shark infested waters, too !

 

[Rickson9]

Thanks for the updates. I'm looking forward to seeing how things unfold in Alberta.