Friday, October 28, 2011

Calgary real estate prices down while Canada's is up?

Over the last couple of years, we, Calgary real estate investors experienced the frustration of no or little real estate price appreciation. Not only that, to rub some salt in those wounds, Canada's overall real estate prices seems to reach every month new highs. There is even 'bubble talk'!

How come, despite Alberta's population growth and spearheading Canada's economic growth that Vancouver and Toronto seem to outperform us?  Also, these two markets form the bulk of Canada's real estate and if they rise, then Canada's real estate prices rise.

The answer to Alberta's real estate pricing conundrum is clearly displayed in yet another gem of a graph from ATB's Weekly Economic Bulletin. The graph (see below), compiled from CMCH data shows the story at a glance. 'Just one look is all it took'.

When normalized for January 2004 (all markets are priced at 100), you see that Toronto's prices increased over time at a very gradual pace from 2004 until today. Remember the shape of a 'bubble market'? Well there is nothing asymptotic about the Toronto market appreciation.  In fact, Toronto prices rose at 3.33% per year similar to the inflation rate. Meanwhile, including the recent disappointing performance, Calgary's market averaged 7.25% per year.

An earlier post showed that Calgary real estate prices rise based on a combination of inflation and oil price changes. Around 2005-2007, high gas and oil prices resulted in Alberta's oil industry to boom and so, as you can see on the graph above, did housing prices. REIN's Don Campbell calls the years that followed Tiger Wood's years. Lucky for us, the analogue did not persist until today;  we all know what happened after Tiger's meteoric rise!

Alberta's real estate market exploded and in 2005-2007 it caught up with real estate prices in large cities elsewhere. In fact, it overdid it a bit and thus now the Alberta, in particular Calgary and Edmonton's markets, swung back into a more stagnating pattern while Toronto stayed on its 'Steady Eddie' track. (Oops, no Stelmach pun intended).

Now that the overbuilt inventories in both Calgary and Edmonton start to even out and rental rates along with economic growth are again on the upswing, Alberta's lack lustre real estate market is set to take off once again. When exactly? I don't know but I would not be surprised if we're close to a turning point and that Alberta's real estate prices would appreciate again with inflation at an annual rate of 3 to 4%.

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