Friday, June 15, 2007

Alberta Real Estate- Driven by oil prices or Interest Rates?

We have all often heard that so long as the oil prices are high, real estate in Alberta will remain solid as steel. I just wanted to check the strength of this argument to see how well it was the case at the time of last boom in Alberta. Of course, the NEP could have played a part in making things worse for Alberta, but it's hard to quantify this number. I'm just going to present some numbers and leave the rest to your interpretation.

Year Crude Oil Price 5 Yr Mortgage Rate Edmonton Avg Price
1979 12.64 11.25 74,453
1980 21.59 13.25 78,914
1981 31.77 15.5 88,624
1982 28.52 18.75 92,313
1983 26.19 13.5 84,785
1984 25.88 12.5 81,941
1985 24.09 12.25 75,769

(Prices are not adjusted for inflation, home prices and interest rates are for January of each year, crude prices are average for each year.)

So a 50% increase in interest rates was good enough to devastate the Edmonton real estate market last time when the prices had not risen so much. Will another 50% jump in interest rates (to say 8 or 9%) do anything to this market?
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