INVESTING IN REAL ESTATE IS LIKE A PUZZLE
Puzzles can’t be solved with a simple road map or checklist. Each puzzle is just a little different. Real estate investing is a lot like solving a puzzle. The end result is a masterpiece, sometimes even a work of art—but it sure can take time and energy to solve the mystery. There is no easy button, but there can be some efficiencies and “easier” techniques.
Today we’re looking at the economic fundamentals for the real estate market in Calgary, and Alberta in a broader sense. Think of these “pieces” as forming the border around our puzzle—making the inner pieces fall into place a little easier.
We’ll start with GDP. First quarter growth in Canada came in at 3.1% (annualized). Now in any other year, we’d be thrilled to see a strong, thriving, and resilient economy. This would be a good number. The main reason economists are worried about good GDP right now is because we’d all love to see inflation decrease. But as a corner piece, it is important to remember that economic growth is still a positive, dare we even say healthy, thing for this country and for real estate investing.
Job numbers were just released today. This is our next corner piece. Employed people buy houses, rent spaces, and hopefully even have some leftover spending money after all of the other life essentials. Canada’s unemployment rate edged up from 5.0% in April to 5.2% in May. Edmonton and Lethbridge also saw minor unemployment rate increases: Edmonton from 5.7% to 6.0% and Lethbridge from 4.9% to 5.3%. On the other hand, Alberta’s unemployment decreased from 5.9% in April to 5.7% in May, and Calgary’s unemployment went from 6.4% down to 6.3%. Overall Alberta added 3,900 jobs in May, while Canada (unexpectedly) lost 17,000 jobs for May. Another important indicator was Canada’s overall wage growth, which was up 5.1% in the recent stats – this is not surprising considering it appears to be “strike season” in the labour market, but that wage growth will not help inflation either.
What are we seeing in the rental market? Alberta saw average asking rents increase by 14.8% (annualized). When we dig a little deeper, Calgary’s rents are up 4.1% just month to month! Relative to last year, that same 2 bedroom rental rate has increased 20.6%! Rental demand is expected to remain strong with ongoing immigration and in-migration, as well as tougher mortgage qualification due to interest rate increases (the most recent happening this week).
And how does this translate into the housing market piece of the puzzle? Drumroll please … May 2023 was the highest selling May of all time in Calgary! Yes, really, up 2% from last year’s record high. It is important to note that the biggest demand is being seen in the apartment property type. But it is also important to note prices are rising across property types and regions of the city. Average Days on Market are just 24 days. What does this mean to real estate investors? Nothing is skyrocketing – there is no get-rich-quick plan for real estate in Calgary. However, slow and steady momentum continues to rise.
What about those weirdly-shaped puzzle pieces? The ones that can influence a bunch of puzzle pieces around them? In real estate investor lingo, these influencers include inflation, interest rates, and politics. Economists are starting to talk about “sticky inflation.” We think that’s a hilarious expression, but the experts say it with a straight face, so we should respect their expertise, right? The bottom line is that there doesn’t appear to be a quick way out of these higher prices—we’re all shocked (maybe not). Similarly, the full effects of interest rates are still weaving their way through lines of credit and variable rate mortgages and mortgage renewal. What does that mean? It’s too soon to see maximum impact from the ongoing higher interest rates. And politics? Love ‘em or Hate ‘em, having the Alberta election decided means stability, and maybe even a little predictability—businesses and investors love to imagine that we think we know what might happen next.
We’re just touching on a few of the countless puzzle pieces that all come together when investing in real estate. Whether it’s single or multi-family properties, flips or long-term buy and holds, having a puzzle strategy makes the investor journey just a little bit easier. We follow the fundamentals monthly, as outlined in the “Long term real estate success formula” from REIN (the Real Estate Investment Network in Canada). For sources for our numbers today, we share articles and relevant information @MtnEdgeDevelops. Follow us here or https://mountainsedgedevelopments.com/ to connect about real estate investing partnerships or lending opportunities.
Cheers to solving your financial freedom puzzle!
