Good for you to post this question, means you are doing your homework!
Sure all investors, especially ones who have only seen a direct up cycle get a little concerned during these inevitable turmoil times.
That is why the system is designed the way it is. During skyrocketing price times, people skip steps in the REIN cash flow system and just run after equity - thinking that they are smarter than the market. Sadly these are the people who enter panic more quickly than those on the buy-rent-cashflow program. I don`t think you are of that group because you are asking this question on the forum.
The timing of the August Western Canada conference is perfect, market turmoil requires hard answers to hard questions and because we don`t sell real estate we can clearly be brutally honest about any city in any region (and I WILL be incredibly brutal on some regions at the Conference).
The Brand New Top 10 Alberta Investment town research has been under way for the last 3.5 months and the results will be released for all Members. It is a massive look at the economics across the province and what the long-term and short term markets are poised to do. (make sure you enter the Top Alberta Towns One-Year Free REIN Membership contest at this link: Guess the Top 10 Towns Contest)
As a preview, here are some of the preliminary findings on your city of Calgary (this is just a small piece of over 10 pages devoted to Calgary`s current and future property markets and economic):
Calgary a Top Alberta Investment City - Despite Today`s market Turmoil.
Calgary has just experienced one of its best economic and real estate periods in Canadian history. With average property value increases, number of property sales, in-migration of people and increase in average wages all hitting record numbers, we are deeming these the "Tiger Woods" years of Alberta real estate. In 2008, the market is making a predictable (albeit soft) correction resulting in slightly more affordable housing compared to recent years passed. It was economically impossible for the market to continue at the pace at which it was heading and now finds itself adjusting to market realities. This adjustment period, as the market searches for its new foundation from which to build, should continue into 2009 when the provincial economy is poised for another growth spurt.
Despite the `posted` vacancy rates, for quality rental properties, vacancy rates are, in essence, at zero for both residential and commercial office space arenas. In fact, Calgary was recently touted as having one of the lowest commercial and office vacancy rates in the world. It is now more expensive to rent a 2-bedroom apartment in Calgary than it is in downtown Vancouver.
Even with the 2006-2007 Calgary`s skyrocketing property values still left the city as one of the most affordable in the country based on average incomes. In 2008, appreciable income gains of 5% year-over-year (in the final quarter of 2007), combined with a market correction in house prices, led to overall affordability improvements (RBC, 2008). This is great news for investors: rents have not decreased (and have actually increased in many regions), but the price of property purchase has decreased resulting in a higher return on investment.
Bottom line: If you have been a Calgary resident for five or more years, you may be thinking that prices are incredibly expensive and you`re asking "How much higher can it get?" Alternately, if you are looking at Calgary from the outside, you will be seeing strong economic fundamentals supporting continued increases in property demand and subsequent value increases, albeit not at the pace of growth we witnessed during these last three "Tiger Woods" years.
Major international and U.S. investors and developers are now moving into Alberta with a fervor and Calgary has become their entry point. They see what the future holds, compared to the other economic regions in the world. A focus on the reality of the economics behind the market is critical at this juncture; it will be important for investors and home-owners alike to pay close attention to the true economic fundamentals that are supporting the market while not getting caught up in headlines and the multitude of `opinions` that inevitably circulate during market adjustment periods. If there were no strong economic fundamentals supporting the market, it would be a good thing to be afraid… however, when you study the long-term strength you will be able to relax an d not let those from out side the country take up all of the good deal and look like geniuses 5 years from now.
Trust this helps. You still have to make your own decisions on what to do with your portfolio, however if you are concerned about the Calgary market with all of the positive economics supporting it... you should be MUCH more concerned with investing in the US with little or no economic support behind it combined with dramatic increases in future foreclosures and walk-aways, tax issues etc. Remember it is not good just because it is cheap... it is all about economics.
See you at the Real Estate Investment Network`s
Western Conference on August 23rd in Calgary.
