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

Employment Diversity and Effect on Job Loss during the Recession

Thanks to Don Campbell for keying me on this fundamental.

When the Conference Board of Canada publishes its quarterly economic outlook for Canadian cities we take a particular interest in how they rate the diversity in the amount of industry groups for the town.

Diversity is a strong indicator for how resilient the town will be in the future when shocks to the local economy happen.

Resilience, rhymes with Brilliance, is defined as “the power to return to the original form after being bent or stretched; elasticity; buoyancy; ability to recover readily from illness or adversity

During the current recession the oil and gas sector in Alberta had overall job losses as the price of oil faltered and investment in Oil sands was postponed. Edmonton and Calgary have weathered the storm of job losses (in fact they gained 0.2% and 0.4% new jobs respectively) in part because the cities were diverse outside of oil and gas.

Toronto with its massive job market (almost as big as the combined labor force of Alberta and Saskatchewan) is an example of great resiliency. The number of people employed in Toronto has decreased 2.0% vs. the 2.3% loss for the entire province of Ontario (Ottawa has a less diverse economy and lost 4.8% --more jobs than the provincial average).

Toronto has survived the Nortel crash and it has survived the NAFTA transition away from manufacturing in the past...and will survive the global financial meltdown and the auto sector mess today.

As for the anomalies in Quebec and Vancouver...who cares!

I won't even begin to explain Montreal and Quebec City because I would never invest their anyway....one of the most anti-landlord places in North America and Vancouver is currently the real estate bubble capital of Canada because the homes are not affordable.

In closing:

Why should the diversity the local economy is a factor to look at when looking at investing in real estate in a town?

Diversity = More jobs created in good times and less jobs lost in bad times = higher population growth in good times and less population loss in bad times = more stable real estate investments.