Economic Recovery in Alberta

Here's another reason why it's important to have a long term perspective when investing in real estate: You can spot trends that indicate that prices are going up in a particular area.

Every bank is predicting that Alberta will lead the country in GDP growth in 2010. BMO currently bases their GDP numbers on a $52/barrel of oil in 2009 and $65/barrel in 2010. Currently oil sits at over $70/barrel. As oil price increases, we can expect the GDP number to be higher in Alberta.

GDP growth is a good signal for the an economy's performance because when GDP goes up we can expect consumption, investment, government spending and net exports to be higher. Going through a conceptual example, let's say the is a new road built in town (government spending), this allows a business to open a location that was previously undesirable. The business buys a warehouse and equipment to set up shop (investment), this new business exports goods to the US or gets used at home (net exports) and provides jobs for people (and for new people moving in the area). People use the income from their jobs to buy stuff like buy real estate, and to pay rent...driving real estate up (consumption).

Taking a look at the change in the number of jobs available in Alberta vs Canada illustrates the effect GDP has on jobs. So it's no surprise that every bank expects Alberta to lead in GDP growth will also forecast that the province will lead the country in job creation.

The reason why no one tells you to look at the GDP of the region you buy real estate in is because its not sexy. Sales people know that investors want the nonsensical no money down deals or just look to buy as much real estate as possible...this is not a focused plan to achieve your goals. Study the fundamentals...buy for cash-flow, buy when no one else is buying, and buy under-market value.

After setting a goal you will have perspective on how to invest...Being consistent and persistent in your wealth creation is so empowering. It simplifies your life because you can make a decision on whether something works for you very easily.

This is why I love making 5 year plans for my clients. While people often overestimate what they want in a year...they underestimate what they could do in 5.

Call me, let's make a plan together

Myth Busted: McJobs in the recession

I think we have established that simple supply and demand drives real estate prices. So the key to my business is to understand what drives supply and demand.

On the demand side, one of the key drivers is jobs and incomes.

Lets take a look at the latest research from people who don't care if you buy real estate: CIBC.

CIBC World Markets measures employment quality through its employment quality index (EQI). The EQI measures the distribution of distribution of part-time vs. full-time jobs; self-employment vs. paid employment; and the compensation ranking of full-time paid employment jobs in more than 100 industry groups. Basically it measures if people are leaving high paying jobs to go into McDonald's (McJobs) or starting a new network marketing business.

From the latest EQI stats, despite employment has decreased 2.1% (or 356,000 jobs) the EQI has decreased 0.2%.This is quite different from past recessions where the EQI falls faster than the jobs.

From the report:

During the 1991 recession, the 3% drop in overall employment coincided with a 7.7% drop in the quality of employment.

So what is happening?

Most of the job losses have been in low paying jobs (gasoline station operators, real estate, textile and accommodation services). These are basically jobs by younger people who are less likely able to buy real estate (which won't drive down prices significantly).

So what is going on regionally?
Western Canada EQI is falling faster than the rest of the country because the high paying jobs in construction and in the Oil/Gas industry has fallen dramatically. This is perfect for people seeking opportunities in Alberta because these are the sectors poised to gain the most in 2010 and beyond.

Ontario EQI has fallen only a limited degree (despite losing high paying manufacturing jobs). Quebec and Atlantic Canada (Halifax real estate is kicking butt).

Have a telescopic view and MAKE MONEY

To make money in real estate...in fact any investment vehicle, you must have a long term view. Look what the numbers tell you about the future.


How do we determine a future in real estate: we study fundamentals from people who don't care if I buy real estate or not.

So here's a sample of what I look at:




From this Graph, I want to pick the winner so lets analyze this data compiled from the Alberta Governement.

Compared to all of Canada, Ontario, and BC. Alberta's population increased the most, it lost the least amount of jobs, and its wages increased the most.

Based on these facts, I'm going to do a a thought exercise:

If population of the province increases won't the demand for housing increase?

Won't it make sense that there will be more renters? Could this not lower vacancy rates and drive up the rents?

In addition, 2-3 years from now won't there be more people available to buy homes? Won't this drive demand for homes higher than any other province?

And if the wages are increasing and the number of jobs are stable won't that mean that more people can afford housing?


Ok, let's look at GDP

In 2008 Alberta was near the top in the country in percentage increase in GDP and according to TD bank, this year Alberta will be near the bottom in GDP in terms of change in GDP and in 2010 will be back near the top.

What does this tell us: a temporary downturn where you can invest on sale.

As an aside, TD expects BC will lead the country for GDP growth in 2010. Why? Let's think: where is the location of the biggest sporting event in the world? umm Vancouver. Wouldn't having millions of people visiting and the construction that goes along with the Olympics have a huge effect on their economy?

Of course.

Study the numbers, see what they are telling you and take action. If you get stuck in the moment without a long term point of view your chasing shadows and will lose.

Do you want facts or sugar coating?

Here are sample of my sources no particular order:


CMHC
Statistics Canada
Canadian Real Estate Association and their particular local boards
Alberta Finance
City of Edmonton
Canadian Association of Petroleum Producers
Alberta Energy
Federal Reserve Bank and their particular state representatives
Moody's ($300/report)
IMF (International Monetary Fund)
World Bank
Canadian Bankers Association
Trends Research Institute ($185/year)
Urban Futures Institute
University of Toronto Innovation Systems Research Network
Centre for Urban Studies at the University of Toronto
Economic Cycle Research Institute
Urbanation
Centre For Spatial Economics
Genworth
Conference Board of Canada ($5,225/year)
RBC Economics
Scotia Economics
BMO Capital Markets
TD Economics
CIBC World Markets

Be contrarian: Be a real estate Hero

I often get asked why are you investing in Alberta when you are from Toronto? It's an excellent question. I'm not going to say the GTA is a great place to invest into and hope the property will do well.

Simply put: I never HOPE. I always make expectations based on fundamentals.

I can invest anywhere in North America, I choose Edmonton because the fundamentals show growth long term.

I know my goal is to make money for my partners, in order to achieve that goal I have to do things that are uncomfortable.

It can be hard sometimes pushing through. I have to get past the dominant thinking from my friends and colleagues, many who are rightfully scared, to achieve these goals.


When things go as planned, It may look like luck from the outside...It requires constant diligence, education and action.

So what does this mean for you? study the fundamentals especially from people who present facts and don't care if you buy real estate or not.

No Growth Expected for any province - Scotia Bank

Curious article from Scotia Economics in their provincial outlook I'm really surprised at the short-slightness in their article. Especially in light of my previous post.

Investment in non-conventional oil production has virtually disappeared and weak energy prices will reduce conventional oil and gas production as well as drilling.

and

The precipitous decline in oil prices from their mid-2008 peak, coupled with still-high costs and tighter credit availability, have led to the postponement or cancellation of over $40 billion worth of capital projects, including new oil sands upgraders.

According the latest report from the Government of Alberta there is $234,001,200,000 in projects planned, $86 billion of this amount is on hold.


They believe that this huge slow down of only having $148 Billion in projects will cause the economy to shrink by 2.3%. Hmmm....That works out to be $41,000 in spending per person.

According the Conference Board of Canada (who don't care if you buy real estate), they expect to see a 0.5% drop in Alberta output. This seems to be more realistic


According to AIC, There is $25,000,000,000,000,000 (i just wanted to see how $25 trillion looked like) in worldwide stimulus that is being spent world wide, plus the hundreds of million new middle class people in China and India will require FOOD FUEL AND FERTILIZER


What kind of impact do you think this will have on our economy?