Okay, so you’ve decided to add some real estate to your financial portfolio—the math just makes good sense! Where should you buy? We all hear the news headlines about this or that “hot” place to invest. How do you decide? Greg and I look at real estate as a product with two main customers: buyers and tenants. We want our product in a great location, where the customer base is growing. There are multiple places in Canada where you can find good real estate fundamentals, but the following is how we analyze Calgary’s fundamentals.
GDP GDP is a way of measuring an economy’s output, or the size of an economy. The higher the number, the stronger the economic fundamentals for that area. Did you know that in 2017 GDP rose in every province?! Canada’s GDP overall was 3.3%. Alberta’s GDP grew by 4.9%, leading the country. Yes, Alberta was behind with the recession, but this growth is occurring and it is real. In 2018, Alberta’s GDP is expected to continue to grow at 2.5%–and this is all before a pipeline, before oil and gas businesses are fully moving forward again.
- Employment In November of 2016, Calgary’s unemployment peaked at 10.3%. Then began slow but steady job growth. Calgary’s unemployment now sits at 7.7% (May 2018), while Alberta is at 6.2% overall, and Canada is at 5.8% overall. Certainly nothing to brag about yet, but Calgary continues to move forward with employment gains. Did you know that the national average weekly earnings are $1002? Despite our employment numbers, Alberta’s weekly earnings are the highest in the country at $1154 (March 2018).
- Population What do we know? The latest numbers (from the first quarter of 2018) show that Canada continues to grow at a rate of 1.38%. Alberta is growing slightly faster than that at 1.44%. Approximately half of this growth in Alberta is natural (babies), and approximately half is from people moving into the province (from other provinces and from other countries). The most recent stats from U-Haul show that Calgary is the number 2 destination in Canada for one-way U-haul service (only behind Toronto). The tide is clearly shifting in Calgary, but the signs are still subtle.
- Vacancy Rates In November of 2016, Calgary had the highest vacancy rate in 25 years. I do note that the number of years varies based on whose article I read! As of the fall of 2017, Calgary’s vacancy rate was 6.3% and the average 2 bedroom rental was $1247. Unfortunately, CMHC only produces accurate vacancy rates and average rental prices once a year now, in the fall. The Calgary Real Estate Board is suggesting a further decline in vacancy rates, partially related to the new mortgage rules—which are preventing some people from purchasing a home (forcing them to rent, or rent for longer). Every realtor we speak with reinforces the fact that rent prices vary A LOT in Calgary. Currently 3 bedroom detached home or townhomes tend to be very popular (probably ties in with the babies we talked about under population—don’t you think?).
So what does this all mean to real estate investors who are considering Calgary?
- Yes, the Alberta recession was massive, bottoming out in 2016.
- Now, Alberta and Calgary are showing broad signs of recovery.
- Businesses are hiring, some new businesses are moving in (for example the Amazon facility in Balzac).
- Almost every industry is seeing wages grow: these businesses are paying well, leading to above-average weekly earnings.
- U-haul may have the early results of a trend that more people are moving to Calgary (Stats Can, CMHC and the Conference Board of Canada will all eventually produce statistics that we will follow and analyze). All those trucks are bringing customers, and their stuff, for our rental properties.
- All those Alberta babies will need to live somewhere with parent(s).
- Supply and demand applies to rental properties and houses, just like any other commodity. As vacancy rates decrease, landlords will have better quality tenants and eventually higher prices (better cashflow!).
- Even though many locals don’t feel it yet, Alberta’s recovery is very real, and the economy is strengthening every day.
- What we’re really excited about is the supply of houses on the market right now. This is a great time for property acquisition—more on our take on the housing market in next week’s newsletter.
