Alberta RE Thoughts after 50bps Cut in Interest Rates

[Matt Crowley]

Dear REIN members and blog readers,

I am very interested to hear the balance of opinion on the Alberta real estate market after a few landmark developments:

On July 15, BOC cut its prime lending rate by 0.5%.

• This is going to result in depreciating the CAD/USD dollar further. For oil companies with a majority Canadian expenses, the balance may still sway towards a favorable outcome as they are paid more Canadian dollars for the oil exported to use for the payment of their Canadian operations. Unfortunately, a majority of these companies have USD expenses and the low Canadian dollar will act as a net detriment.
• Real estate buying stimulus: as you may be aware, Toronto had a record number of GTA condo units rented in Q2 and a all-time high for MLS sales of 11,992 for June 2015. Similarly, Vancouver saw a record-breaking highest sales ever for June (second highest month of sales overall). In the midst of these pockets of growth we have an uncertain Edmonton and Calgary market. Lower interest rates increase the amount of home you can afford. Do you believe we are avoiding a needed correction here?

Oil hovering at $51

• What will the effect be on rents? We have the combined effect of lower in-migration, fewer permanent and professional jobs, and lower interest rates. All of these point to pressure on rental rates as the same product now has a lower cost base and lower demand

Uncertain new oil royalty review

• During some research I conducted in 2014 on oil companies, CAPP stated that 70% of the Alberta economy is driven by investment capital
• Has the investment appeal of Alberta changed? We have the shale gale to the south of us changed the demand for our resource for the foreseeable horizon

In the midst of these changes, what are you doing to protect your portfolio? Do you view this as a good time to hold or are you looking at developing due to, perhaps, more capacity available in the construction market?

Let's try to keep this economically fact-based and in perspective of our actual actions...avoiding garbage comments like "buy low sell high" would make this a much more constructive conversation, for example.