Sunday, April 8, 2012

The coming real estate summer

All investments are geared to business cycles and so is real estate. A number of authors have tried to divide these cycles into stages. Authors such as Don Campbell of REIN (Canada’s Real Estate Investor Network) compared the phases of the real estate cycle to the seasons of the year: Spring, Summer, Fall and Winter. The intend behind the seasons is obvious: Spring is to recover from winter and seed investment; Summer is to grow the investment; Fall to harvest; and Winter are the tough times during which the real investor has to survive before recovery and resumed growth.

Don and REIN’s research team has created another revealing schematic to forecast the various phases of real estate investing which are based on the economics of the market you’re investing in.
Click on figure to enlarge
This is quintessential REIN; explaining a complex concept in a very simplistic looking diagram such as the one above. It basically states that the basis of all real estate appreciation lies in economic growth. You need GDP growth to create jobs; in the next 12 months or so this will result in population growth (in-migration; natural growth); followed by increased rental demand and decreasing vacancies. This in turn leads to increased rental rates and about 18 months after GDP growth resumed this will ultimately result in increased property purchases and higher real estate prices.

You could have seen the Alberta and Calgary economy starting to recover from the 2008 recession and the now long forgotten ‘Royalty Review’ of Ed Stelmach somewhere in 2009. Since then employment has gradually improved and today it is as low as 4.9% in Calgary. Also, after an actual decrease in population, it is now clearly growing again; the current rate is nearly 25,000 persons per year. We have seen a strengthening of rental demand and last summer companies such as Boardwalk, one of Calgary’s largest landlords, eliminated a lot of rental incentives. In the fall of 2011 rental rates started to increase once again. So can you read in the above diagram what the next thing will be that likely is going to recover after having fallen behind the rest of Canada over the last 5 years or so? 
Right, this is probably the last summer before real estate will heat up again – hopefully at a reasonable pace. Don’t be surprised if you see a return of multiple purchase offers by mid-2013. Right now, we’re nearing the end of Don Campbell’s Spring: rents are on the increase, vacancies are fallen; mortgage rates are at lows not seen in generations. This is your chance to become a real estate tycoon! Well… if you were ever dreaming of becoming a landlord, this is the time to start or expand your real estate empire. As Don says: “Get in front of the wave!”
I like to thank REIN and Don for their superb research and leadership – they take the guessing out of real estate investing and show you the underlying fundamentals like no-one else. If you wish to learn more about REIN and their network of enthusiastic real estate investors – all customised for Canadians – then visit their website: - it literally may change your life.

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