Saturday, March 24, 2007

Will Real Estate Prices keep on rising if there is no fall in oil prices?

Today, new sanctions were imposed on Iran. And oil market is likely to go up further following the nearly 5% jump in the last few days after Iran's arrest of British soldiers.
Due to heightened geopolitical tensions, it is possible that the oil risk premium
increases, causing further spike in prices. If nothing else, it is possible that in an environment of almost perpetual geopolitical conflict afflicting primary oil producing nations, oil prices remain close to their current level ($50-$70 range).
And even if there is no more political risk premium to be paid, there's always the story of increased demand from Asia. And the 2 billion new consumers theory has very respected champions like Paul Krugman(thanks bearclaw for the link). And he says this time is different, in the context of energy markets.
Perhaps it is. Perhaps oil prices have reached a permanently high plateau. We will never really know till the prices fall or remain high for the rest of our lives.
Let us assume for a moment that what peak oil theorists and Paul Krugman are saying is indeed right. We are running out of oil (actually we started running out of oil just after we drilled first oil well) and oil prices will remain high. I won't go any further in terms of consequences of peak oil. For our subject here is Alberta real estate.

Ask any Alberta real estate bull or flipper and they'll tell you everything going on in the Alberta market is built around Oil. No doubt. Oil is the only story Alberta has ever had (the so called Alberta advantage hardly brought any prosperity and even Paul Krugman advises Alberta to diversify) .
So the question is, if oil stays high, will real estate prices continue to climb higher? Is there any limit on how high the prices will go? Will we actually manage to go beyond Vancouver prices? Remember, at the time of last 'temporary' boom, Alberta actually had the distinction of being the most expensive housing market in Canada. Can we repeat the feat. Why not?
If BC housing market can no longer provide livelihood to flippers and Alberta is still less expensive than Vancouver and the oil story is way more sound than the Olympics story
why won't we have more 'investors' coming in from the BC market? Not that there is any shortage of any housing investors in Alberta. But those with leaky condo expertise will always have an edge!
Will the 'high oil prices' story be strong enough to mitigate the risks caused to housing market by the weakened US economy, the sub prime woes and a potential slow down in global economy?
blog comments powered by Disqus
Real Estate Blogs - Blog Top Sites