Edmonton Real Estate Investor: September 2007

Real estate boom swells ranks of the house-poor - "I think what we're finding is people are over-mortgaged with very little room for an increase in the interest," Rob Warren, a University of Manitoba business professor

BUT

"It's good debt. It's secured, you've got an asset and it's growing," said Ruth Berry, a family social sciences professor at the University of Manitoba.

Rising Inflation In Edmonton- "What you've got is an influx of people coming into Edmonton. In the short run, there will be a shortage of housing, which will drive up prices.

In the long run, you would think more land would be developed and more houses would come on the market. It won't skyrocket forever." Karim Jamal business professor University of Alberta

When you are talking about the short run in the Edmonton real estate market we think in terms of 5 to 7 years. The oil sands have 200 years worth of oil in them but it doesn't take that long to make a profit in this market.

Dodge warns of inflated housing market-"One worries about the structure of the mortgage market, that we may be actually aiding, facilitating a rise in the price of houses that is really not warranted.."

Mr. Dodge warned that housing prices outside of the fast-growing cities of Western Canada may be rising too quickly.

Housing prices in Vancouver, Edmonton, Calgary and Regina have soared, but that growth is to be expected from an expanding economy and population. More troubling is the picture elsewhere." Bank of Canada Governor David Dodge

"A government-appointed panel reviewing Alberta's energy royalties called Tuesday for the oil-rich Canadian province to increase its total take from the energy industry by 20 percent a year, or roughly $2 billion Canadian (US $1.97 billion; €1.42 billion)."

How will this affect the Albertan Economy?

1. Albertan will see more more of the Oil Sands revenue in infrastructure and perhaps more rebate cheques.

2. Oil companies worry that rising royalties may slow or hinder production.

With the oil prices rising and Alberta's 175 Billion barrels of oil, second only to Saudi Arabia, many companies will pay the royalties to participate in what may be the biggest economic boom of the century.

READ MORE

This is a really sad article that I came across from CTV.com. A business man and father of three was slain for a mortgage that fell through.

"Two men accused of orchestrating and carrying out the murder of successful Calgary businessman Jack Beauchamp appeared in court on Monday.

Friends and family of Beauchamp, a 49-year-old father of three and former president of commercial mortgage lending company Morbank Financial, crowded the Court of Queen's Bench in Calgary for the start of a trial that is expected to last four weeks.

Beauchamp was found fatally shot in the head and chest on Jan. 16, 2006, surrounded by shell casings in the hallway of the 12th floor offices of the firm he founded.

Robert Deer, 54, and Mohammed Karim, 25, are charged with first degree murder.

Calling it a planned and deliberate crime, Crown prosecutors Sue Kendall and Pamela McCluskey told the court that the accused plotted the murder after a real estate deal went sour.

Kendall told the court that Deer planned to develop houses on Westmount Road in the trendy Calgary neighbourhood of Kensington, and arranged a $1-million mortgage with Beauchamp's company. When the mortgage deal fell through, she said Deer began an angry email exchange with Beauchamp.

Kendall said she intends to prove to the court that Karim pulled the trigger, and that he was acting on Deer's behalf."

READ MORE

YES - housing prices have slipped in Alberta, but is it really the big drop that everyone fears?

"August's (nationwide) decline was due largely to drops in Alberta, where the average price in Calgary fell $13,000 to $423,801 and Edmonton's average slipped $8,100 to $345,809."

NO - what we are seeing is a slight softening of the market. After such a meteoric rise in housing prices over the last 18 months we need a correction.

Don't forget Alberta's economics are undoubtedly the best in Canada.

"With the province expected to post economic growth of 4.3 per cent this year, growth is expected to moderate to between 2.5 and three per cent for 2008-09 due to rising costs for labour, production and infrastructure.""The promise of oil sands projects, combined with assets such as a young, educated population and an excellent business climate, bodes well for the region," TD Bank economists Don Drummond and Derek Burleton

B.C. Housing "Afford ability" Drops - "While Vancouver remains the country's most expensive real estate market, the largest affordability slides over the last couple of years have been suffered by Saskatoon, Edmonton and Calgary.

Alberta is still, however, avoiding British Columbia's stressed affordability conditions..." RBC economist Derek Holt

Although housing affordability in Alberta has dropped over the last year housing is still more affordable than many Canadian cities.

Unwavering demand supports rising Canadian house prices in third quarter - "The oil sector remained a bright spot for Alberta and continued to fuel
buyer demand; however, the rate of price appreciation and the intensity of the
housing market scaled back from where it was 14 months ago."

The market is scaling down, and that is what happens with incredibly hot markets. This softening will last about 6 months. We consider it a great time to pick up good deals that will appreciate.

Housing Highs Still Showing - "Real estate is driven by monthly payments and you can afford more and pay less monthly when your amortization is moved from 25 years to 40 years."

If you can buy more "house" at cheaper monthly payments then the cost of housing isn't such a problem for buyers.

Alberta has good odds to avoid post boom bust - "With the province expected to post economic growth of 4.3 per cent this year, growth is expected to moderate to between 2.5 and three per cent for 2008-09 due to rising costs for labour, production and infrastructure.""The promise of oilsands projects, combined with assets such as a young, educated population and an excellent business climate, bodes well for the region,"

Alberta has a strong economic future.

Turn Alberta Into An Energy Superpower

"I believe we now have an opportunity -- an opportunity unlike any other in our history,...A once-in-several-lifetimes opportunity to transform ourselves forever." Kevin Taft Alberta's Liberal Party Leader More

Your 30's are a crucial make or break time financially

"Your income is rising, but so are your expenses and debts. Most families in this age bracket have children, who, wonderful though they are, tend to boost living costs." Liz Pulliam Weston More

Oil Prices Hit Record High

"Crude oil prices briefly rose to a record $80 a barrel in New York Wednesday before easing back down." More

Two articles today had interesting view points:

"Here at home(Canada), only about 5% of mortgages are of the sub prime variety (I prefer the more explanatory, "sub credit-worthy"). Experts insist the crisis is simply not as great a threat to Canada. But it's still a threat.

Canadian high-ratio mortgages - loans where the purchaser has only made a down- payment of 20% or less of the purchase price - have to be insured for default by the government-backed Canada Mortgage and Housing Corp. or one of the private companies that perform this service. The insurance covers the lenders' losses, not the borrowers', which, to say the least, is an important distinction.

Using that backup, some lenders, even the big banks, approve mortgages with zero down. In addition, an alarming number of folks almost routinely increase the value of those loans in lockstep with the increasing price of their properties. Instead of basing the maximum loan value on a borrowers' ability to repay, there seems to be a tendency toward using the appraised value of the real estate. It's the same tactic haunting U.S. lenders today.

Any correction in house prices can potentially create loans suddenly worth more than the housing stock backing them." Read More

Or

"Many people think that somehow Canada is immune to all of this ... but the likelihood is they're wrong, writes the Tory turned Liberal MP, who appears hellbent on bringing down Prime Minister Stephen Harper.

He warns that Canadians have never had as much of their net worth in real estate "more than 80%, on average," which makes them undiversified and prone to the kind of misery that has hit American homeowners.

Scary stuff, though some critics will argue his crystal ball hasn't always seen eye-to-eye with the future." Read More

If you are Canadian, interested in investing and haven't read Don R.Campbell's books then you really, really should. His Canadian specific content and great down to earth advice are much more relevant to Canadians than American authored Real Estate books.

His Books:

Real Estate Investing In Canada
97 Tips For Canadian Real Estate Investors
51 Success Stories from Canadian Real Estate Investors (12/5/2007 publish)

Here are a few fantastic tips taken from Canada's Real Estate Investing Guru:

Real Estate Investing Tips From Don Campbell

* “Don’t listen to anyone -- including me.” Do your own homework and find a system that forces you to ask the tough questions.

* Target older properties, not brand new units. “With some renovation work, you will add value to the property.”

* Avoid buying pre-build properties. “Pre-builds are not investments, they are speculations. You have no idea what will happen in three years.”

* Analyze the property and make a clear decision based on fundamentals, not emotions.

* When choosing a neighbourhood, look for three things: an older area that is in transition; an area that has easy access to transportation; and preferably an area that has an undeserving bad reputation based on local stigma.

Decrease rapidly in a value.

Looking over my Google alerts the last few days Edmonton's prices have fallen anywhere from $115 to $10,000 to $14,000. Which goes to show that if you depend on day-to-day news reports you may find yourself on "hysteria lane".

I understand that Edmonton's market is bigger and stronger than a 6 month buyer's market because the economics are strong and the city has international appeal. So much so that the city was awarded Best Place For Business Investment In The West These awards aren't given to cities on the verge of a bust cycle.

"With Alberta's economy still red hot, oil prices remaining high, and $150 billion worth of oilsands projects, upgraders and related work in the pipeline, no one is forecasting anything like an '80s-style housing crash, of course.In fact, quite the opposite."Read More

Carolyn Pratt president of Edmonton Real Estate Board said "buyers have more choice" due to the increase in listing on the MLS.ca also that "it all has to do with inventory, and it will take time to get that inventory down."

If anything, this is a time to buy were you can have time to negotiate your "price or terms" as you like - nothing like the frenzy we saw 6 months ago.

One investor bonus is that in trying to attract buyers some sellers are making their properties assumable. The great thing about assumable mortgages is that they often require less than the 20~25% the bank asks for new mortgages; which means you can buy more "house" for less bucks.

Even with this "slashing" an "plummeting" of prices, property values in Edmonton have risen 27% this year already. Not quite my definition of plummet.

Another feather in the city's cap...

Edmonton was given the title of Number 1 metro area in Western Canada for business investment, this is based on the number of capital projects and expansions taking place in the region says Edmonton Economic Development Corp (EEDC).

Alberta comes in first as the most competitive province in Canada.

“A hot economy, cost-competitiveness and support for research and innovation combine to make Edmonton an attractive location for businesses and careers to thrive,” said Ron Gilbertson, president and CEO of Edmonton Economic Development Corp."

To Read The Rest Of The Article From Alberta Index Click Here

"Alberta's minimum wage rose from $7 to $8 this Labour Day long weekend. The raise brings Alberta in line with the provinces of British Columbia, Ontario, Quebec and Manitoba, which all have $8 minimums.

The Northwest Territories, Yukon and Nunavut all have slightly higher minimum wages.

Minimum wage is lowest in the Maritimes, where it ranges from $7 to $7.50 an hour." Read More

I don't think this will have much of an impact as less than 1.7% of wage earners in Alberta are earning minimum wage. I hear countless stories of fast food restaurants trawling the teenage customers offering incredible salaries because there just isn't anybody to do the work.

Excerpts from Bo Bennett’s article ‘Year To Success’ 7/07

Success is dealing with change, both positive and negative. The Donald Trump story is one of the most amazing stories of financial roller coaster rides there is. He went from real estate billionaire, to being close to $900 million dollars in debt, back to billionaire in a relatively short period of time.

Success is making your own mark, regardless of your upbringing. Donald was raised in a well-to-do family and had many opportunities and advantages in his youth. Despite his privileged upbringing, he did not inherit anything and went on to fame and fortune through his own business accomplishments.

Success is making the right connections. When Donald first moved to Manhattan, he was practically broke. Regardless, he squandered what money he did have to join one of the city's most exclusive clubs and met some very influential people.
Success is having an attractive personality. Donald Trump is funny, smart and honest. He is a very likeable person who knows the value of honest admiration.

Success is handling pressure. In 1991 when Trump was about $900 million in debt, it was his ability to deal with pressure that allowed him to stay in the game and eventually pull off one of the largest financial comebacks in history.

Success is self-promotion. Donald Trump is a very public figure who uses his popularity to fuel his success. He has appeared in dozens of movies, commercials and TV shows and currently stars in a reality-based TV series. It is reported that 98% of Americans surveyed know who Donald Trump is.

Success is doing great things for others. There is a story about an unemployed mechanic who once helped Donald Trump get his limo working again after it stalled on the highway. The mechanic did not accept anything for his services besides a "thank you". Trump was so impressed with the mechanic's generosity that the next day he sent flowers to the man's wife, and a letter certifying that the man's mortgage had been paid off in full.

Donald Trump (1946 -) is a real estate billionaire, best-selling author and executive producer of The Apprentice TV show.

I was on a battered old excuse for a barge sputtering along noisily between the many islands of Indonesia. I had just nearly escaped being eaten by a Komodo dragon and was fighting for a place to stretch-out on above the slosh of saltwater, sweat and other unfortunate body fluids (or remnants of lunch) while en route to Sumbawa.

I’d been traveling in Indonesia for nearly 5 months, learning the culture and geography of the land.

Indonesian people are always friendly. They kindly greet every traveler with a loud “Hello Mister!” regardless of gender. But one strange consistency I experienced was that some Indonesians don’t travel well. Buses, ferries and trains were always packed full of travel sick locals. In Indonesia it’s easy to gorge oneself on the sweet and greasy foods offered at odd hours of the night and then get sick on whatever mode of transport you’re on and whomever you’re near.

On this occasion the seas where a bit choppier than usual and the boat quaked and swayed like a one-legged flamenco dancer. I quietly watched one passenger, who earlier was the envy of us all for he had a hammock, get battered from ceiling to floor as his hammock upturned and released him to the pull of gravity. Then those fragile souls who had no control of their stomachs began to empty them in mass exodus.

One man, a man named Nolan, came forth and offered sage advice “Ride the Wave” he said, ”Don’t panic”.

See, travel sickness has some sort of mass psychology – one person starts and everyone follows, caught up in a flood of nausea they submit.

That reminds me a little bit of the stock market the past couple of weeks– maybe not as extreme but at least similar. Granted, the stock market gave reason to turn your gut (I know a few bargain hunters that are smiling though).

Panicking to list your house for sale is also type of half-hearted hysteria. Nolan’s comment of “Don’t panic, ride the wave” is good advice.

It may be time to remind ourselves that markets rise and fall. And within that ebb lays opportunity. Stock markets are more knee-jerking than Real Estate but if you have a plan to hedge against a sudden stock downturn you’ll not only cover yourself, you’ll make a tidy profit.

As predicted, Edmonton’s entering into a brief buyer’s market where the economic fundamentals remain strong, giving us the chance to cherry pick the best properties.

Join me to take advantage of this lull before we begin the next wave of ascent.

Although the price of Edmonton Real Estate has increased by almost 77% over the last 18 months, young families are still able to afford housing IF they buy in older areas.

Alberta Ave know for being, tough, crime ridden and cheap is where young families are forced to buy when they $170,000 doesn't fit into the new $417,000 price tag that most housing in Edmonton sports.

Eric Feddes and Krista Polley of Edmonton decided that extreme renovations in the rough neighborhood was the way to go.

"A realtor took them to a rickety two-storey house with boarded-up windows, no bathroom and the lingering smell of human waste. Needles were scattered all over the basement floor and there were remnants of a grow-op.

The place had one big advantage, though - they could afford it.

"We knew we could fix it up, but we didn't think it would be easy," says Feddes.

They got to work - new furnace, plumbing, wiring, windows, doors, bathrooms, walls and paint. As they walked nearby streets, they saw the scene repeated as other young couples settled in."

They work and an incredible market worked in increasing the value of their property by over $100,000.

It goes to show that when you can think outside of the box, don't mind using elbow grease and are willing to invest in the hottest market in North America you can get big payoffs.

Read The Full Article Here

Calgary's high end sales lead to a blockbuster year with the capital city selling 326 properties at a value of over $18Billion by July in 2007.

"Residential real estate sales in Alberta so far this year have ballooned to nearly $18 billion in total dollar volume, a jump of almost 36 per cent compared to a year ago, according to the latest data by the Canadian Real Estate Association"Read More

The Alberta market is incredibly active and constantly breaking records. The sale of high end properties of over $1 million reached 326 by the end of July. The prices of houses in the Calgary area rose from $398,870 in December 2006 to $505,920 buy July'07.

As it is often said Edmonton's market closely follows Calgary's and it isn't hard to believe that we will be seeing prices like this in Edmonton next year.