Saturday, July 21, 2007

What's the market like?

A couple of friends who think that I know something about the real estate market in Alberta are seeking my advice. They of course don't know that I write this blog. One of these guys had a nice mid sized home in Edmonton and he booked another one last year. And since prices were all going up, he wisely decided not to sell either one. Of course, he doesn't want to hold both the properties and wants to sell his newer house. And he's now getting a little bit nervous as almost everyone is getting aware of the sheer vastness of inventory in Edmonton. As of today, there are over 7500 properties (apartments and condos) listed on MLS and over 2500 on Comfree. That's 10,000 properties available and I'm pretty sure this is not the peak yet. A lot of new product is going to be coming in the market soon that will further inflate the inventory. And I know a whole lot of such people, including professional flippers and 'chance investors' who hold a lot of these homes and condos. And it looks like they are all planning to exit at the same time.

The Calgary crowd on the other hand looks more confident even though almost every third or fourth post on has a price reduction. Almost everyone is counting on the magical recovery that always happens once summer is over. But it will take only one exception to rain on the parade and make life harder for a lot of people who are counting on the turnaround later this year.

And it looks like, a few people are claiming that we are past the peak in natural gas production in Alberta. If that is indeed the case, it bodes bad for Alberta and Edmonton in particular. Natural gas is the biggest source of royalty to the province and once it begins to decline, there is not going to be any replacement for it. Oil Sands is all good in polluting our province and generating immediate jobs, but over long term, the province will not collect more than a buck or two per barrel of oil produced. And lower provincial revenue will lead to lower spending and all the downstream consequences.

So it looks like a lot of people are still clinging to the Alberta bullish story despite:

  • Rising Interest Rates
  • Severe unaffordability
  • Rising dollar impacting both provincial treasury and energy sector profitability
  • Reduced net immigration to the province.
  • Massive inventory at this time of the year.
  • Significant number of new completions going to increase inventory further.
  • Distinct possibility of US recession.
Your thoughts?
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