Every now and then I like to do a little crystal ball forecasting by looking at the developments around us and then taking an educated guess as to where this will lead us. While it would be nice to have an actual crystal ball, understanding how economics and the world work can quite often provide the same effect.
Would you be interested in a little foresight into what will happen with the Alberta Real Estate market over the next few years? Now there are no guarantees it will play out as many others, along with myself, are starting to see, but I’ll leave that up to you to decide.
Ever so slowly, over the last four years, we have been gradually recovering as a province and a country and depending on whose statistics or numbers you listen to or read, provincially we are pretty close to being back to pre-recession levels. Not the crazy levels of 2006 and early 2007, where there weren’t enough workers, there wasn’t enough housing and there was unbelievable optimism (oh how I miss those days!!). Simply levels that many other regions can only dream about.
Look at some of these numbers, in January 21,600 new jobs were created in Alberta, in February it dropped to only 13,700, but we are still outpacing the rest of Canada. Nearly 78% of all the jobs lost during the recession have reappeared and all the current forecasts only show the trend of new jobs to continue. Alberta is accounting for 20% of the entire countries new jobs.
Hand in hand with these new jobs Alberta has also been leading the country in average wage increases. This combined with the downward pressure on Real Estate prices over the last several years has led Calgary to become the most affordable major city in Canada. Simply put, if people make more money they will pay more money and that is why values in Calgary are where they are and values in New York are at the stratospheric level they are.
Back to Alberta, work in the oil fields has increased dramatically; work in the trades in Fort McMurray has also increased significantly. The majority of the jobs in these types of industries definitely fall into the higher paying category and the forecast is there will be many more jobs appearing in these fields and the accompanying support fields.
Word of this growth in jobs is attracting workers from all over Canada as we are also seeing some of the highest in-migration numbers in years. Eventually this will lead to more pressure on both the rental market and the home sales markets, although likely not enough to cause major impacts in the near future, but a year down the road, who knows.
This type of information is all fairly obvious, but the real crystal ball moment comes when we look at the current headlines which are being dominated by the horrific tragedy in Japan. The devastation caused by the earthquake and the nuclear power plant issues will ultimately result in making Alberta more profitable.
Once all the rebuilding starts (which could be many months away), there will be huge demand for raw materials to rebuild, which will include demand for energy which will include oil and natural gas. All which are found in abundance right here. Rebuilding the devastated areas will require billions of dollars of new construction, new infrastructure and potentially even lead to a resurgence in the Japanese economy, but with a devastating initial toll.
Couple this with the uproar over possible nuclear power plant meltdowns and there will be an even larger surge towards increased use of natural gas for power generation. Several countries around the world have already stepped up and said they are discontinuing upcoming nuclear power projects or will decommission older nuclear plants. This will force these countries to pursue alternative options to generate power with the predominant one currently being natural gas.
Currently natural gas is quite cheap and there are huge reserves of natural gas worldwide. With more areas potentially switching to natural gas to create energy, this may be the catalyst for gas prices to start gaining some upward momentum. Once again, this will result in even more work and employment in the province.
It’s all these indicators showing us that both jobs and the economy are looking very rosy for us that help us see the potential for the future in our crystal ball. We saw these same indicators during the mid 2000’s. The era where the job market exploded, home values skyrocketed and everything was booming.
This time though, I would like to think we will be a little more grounded, at least initially. I don’t see home values going through double digit percentage increases, but there will be significant gains. As usual though, this will come as a complete surprise to people, so consider yourself warned!
Investor’s Perspective
It seems we have reached that point again where many people who take action now will be deemed “lucky” yet again by their counterparts. These are the people who can see the writing on the wall, who see the long term implications of another growth spurt in the energy sector and who actually do something with the information.
Investing in Real Estate is not an easy task, there are a significant amount of pitfalls and it is not a get rich quick scheme. This will scare a majority of the people away. The mindset of the masses is often tuned towards the easy path and the quick rewards. This does not describe Real Estate investing in any manner. Creating wealth in Real Estate requires a longer term vision and the ability to last through the inevitable bumps and pitfalls that show up.
Understanding how the economy plays into the pricing of Real Estate and it’s potential to increase values over time is key to any long term Real Estate investing and hopefully my articles are providing some insights for you. Ultimately it is up to you to decipher what you see happening and where we are heading.
Things really are looking up.