Tuesday, April 17, 2018

Calgary Real Estate Opportunity

Oil has started a bull market, but the Canadian anti-business climate and pipeline issues have put a damper on things. In the stock market, oil companies are priced cheaper than cheap. Assuming the Trans Mountain Pipeline goes ahead, we are looking at a multi-year bull market in oil stocks and to a lesser degree in natural gas. North American natural gas production is likely to rise with oil production and unless we get some long cold winters, the gas industry will not be very motivated in active gas drilling. On the other hand, the declining heavy oil production in countries such as Venezuela and Mexico is opening an opportunity for Canadian heavy oil producers; I am talking about a declining oil price differential due to refinery demand in the U.S.  If we also get export opportunity to Asia things will be even better for Alberta.

Calgary real estate prices usually goes down with oil prices. The 1982 Downturn being the best example of that. The difference between that and the current down turn is that Calgary real estate prices from 2008 until 2016 were relatively muted rather than the screaming bull market in housing leading up to the 1982 crash. Also reducing the severity in declining Calgary housing prices over the last few years are low interest rates. Worse hit than housing prices were rents which have fallen close to 30%, especially in the lower end of the market where apartments and townhouses reign. With the new oil boom this will change, and I foresee a booming real estate market for late 2018 until 2022 or so. Higher interest rates may be a bit of a headwind, but I suspect these rates will not go up in a straight line. After reaching 3 or 4% the rate increases will likely stop as higher oil prices will also create an economic damper.

So, the coming year may be a last opportunity to buy cheap Calgary real estate, followed by a recovery of Alberta’s economy. Only thing we may regret is the likely overconfidence of oil & gas industry workers who wish to make up for their suffering from 2014 until now. I expect Mrs. Notley to be deposed of, regardless of her latest attempts for heroics – she and her colleagues  have presided over a bad economy during which she increased taxes of all manner while spending like a drunken sailor. That has not gone over very well.  Also, so-called green thinking may have reached the end of its political road – many Ontarians are sick of being fleeced while paying super-high energy prices and Alberta has seen the true nature of an NDP, kind of like Bob Rae’s performance during an earlier downturn in Ontario which left that province with economic scars felt for many years. We have also seen what the laconic attitude of federal liberals have cost this country – we wouldn’t have been at the mercy of Americans today if Curly Justin had not destroyed Canada East and Northern Gate Way.  That is regardless of his latest impotent grandstanding that has driven us close to a constitutional crisis and an extremely divided country.  So, I suspect that we will say goodbye to him as well.  I would have preferred a libertarian like Maxime Bernier, instead we may have Mr. Personality Andrew Sheer who defeated Maxime in a leadership contest severely affected by corrupt protectionist Quebec dairy farmers.  Sorry for bashing Quebec but I don’t think they will be highly respected by Albertans who have seen their destructive attitudes now in action on several issues.  The B.C. – Alberta relationship is more likely to improve provided a significant leadership change in both provinces. If not, B.C. will likely pay a high price for today’s politics.

I would not be surprised to see annual Calgary real estate price increases in the order of 5 to 6%, which would be manna from heaven for Calgary home owners anxious to catch up. Yes, I don’t think that Alberta will easily forget the pain imposed on it by the rest of Canada even if many were deluded by dreams of electric cars and solar panels.   Dreaming of a better world is fine but not if you do it at the expense of your neighbors. I think, the Alberta separatist mood will linger for many years to come.  Once bitten, shame on you but having now been bitten twice, the West will be extremely suspicious of eastern demagogues.

With a further decline in manufacturing due to automation, I think that Eastern Canada won’t be doing so well over the coming decade, especially with large provincial government debts, super high energy prices and an Alberta that will no longer be willing to subsidize the rest of Canada so generously. Economic power will resume its growth in Western Canada; and so will Western population growth, another hot iron in the fire of Calgary’s real estate market. Maybe, this reads a bit resentful towards Eastern Canada and B.C. However, if you think so, remember the anger that has been growing in the Alberta population over the last 3 or 4 years over the support they received during these hard times from the rest of Canada. Investment geniuses such as Murray Edwards have not for nothing emigrated to Europe during these last years.

No comments:

Post a Comment