CONSUMER CONFIDENCE
Why on earth would I care about feelings, when real estate investing is supposed to be analytical, about the numbers and UN-emotional?
Well, have you ever bought a house? Or rented a house? Even if some of you tough guys & gals deny having any emotions about it, I can almost guarantee there was some stress. Oops, snuck in an emotion there.
An absurd amount of marketing research has shown time after time, product after product, country after country – that people BUY on emotion, then justify based on their logical, rational brain. Yes, that includes buying houses, and it includes renting houses.
So that means, as a real estate investor, and as a rental housing provider, I need to be paying attention to the prevailing emotions of my customers.
I can hear a few of you laughing already. So how do we measure and learn about consumer confidence, aka feelings?
Luckily, some really smart people are already paying attention for us! In a recent Nanos research poll, 41% of Canadians say their finances are worse today than they were one year ago. In addition, a recent Angus Reid poll found that 28% of Canadians believe their finances will continue to get worse over the next year. And a different Nanos research survey, found that 14% of Canadians expect home prices to fall over the next 6 months.
Overall the Consumer Confidence index was actually up from April; this is the measure that StatsCan uses to keep track of our emotions with respect to buying/consuming goods and services. When the Consumer Confidence index is 0, nobody has good thoughts or emotions; when the index is 100, there is maximum confidence for purchasing. The range of numbers over the past 10 years is approximately 50, through approximately 57, with some more extreme but short-lived numbers. Doesn’t that sound Canadian? Middle of the road?! April’s rating was 49.98, May’s rating is 52.23 (just for those of you who love the Stats Can numbers! Ref: tradingeconomics.com).
That all makes sense, given the news these days. We have higher interest rates, high inflation, so logically we should have lower consumer confidence, right? Add to that, when we look at wages, we notice that paycheques are rising much more slowly than inflation—especially in the public service sector.
But here in Alberta, the picture is a little more muddled.
It’s been hard since 2015/2016, depending on the industry. Albertans have grown a tremendous amount of resilience. Some are grateful for jobs! Some are moving into better-paying jobs. Housing prices have at least returned to 2014 numbers in most areas. Recovery, in our “neck of the woods,” is generally a more positive mindset than other cities who feel like they are “losing” value. We have a different perspective than many Canadians.
Compare that with the new Albertans. They love, love, love the lower gas prices. And wait, no provincial sales tax? Suddenly their purchasing power goes much farther. The out-of-province homebuyers can get great properties for less than $500,000. And for some out-of-province renters, they can get an entire house for the price it would cost to rent a 2 bedroom apartment/condo in other provinces/cities. Many new Albertans still see Alberta “as if” it is on sale.
There are definitely other perspectives too. Some Alberta tenants have come to expect minimal rent increases, and a certain price point for the average rental in their neighbourhood. May I simply say, it’s really tough to get an entire house in Calgary and surrounding communities for that old standard of $1800.
However, we also see some of the “lipstick effect.” This is a phenomenon where “people will spend money on small indulgences, even during a recession or with lower income.” If you were on a highway anywhere in Alberta for the May long weekend, there was a lot of traffic! High gas prices, or not, the cars and RV’s were out there travelling again. And many people splurged on playoff tickets, or at least some time at their favourite pub & patio to enjoy the Battle of Alberta with friends.
So with such a mixed bag of emotions and rationale, what are our key takeaways in Calgary and Alberta, for the near future? Despite what the media presents, it appears that positive emotions are outweighing negative, in terms of overall consumer confidence in our area. This is a great time to be renting! There are clearly some people who are renting a little longer and hoping for less uncertainty. There is clear rental demand, and better rental pricing for landlords. As for home sales and prices, we’ll get the stats next week, but it already appears that there is some cooling. We’ve seen such a big bump in prices over the past 6 months, that ‘cooling’ is still a win for home or rental property sellers. And for many real estate investors, it’s an easy decision to keep properties right now as cash flow improves, or as BRRR strategies become possible and easier again.
So, happy renting season! Yup, I snuck in an emotion there too!
