The novelty idea that Oil and Gas was the underpinning in driving up real estate prices in the boom years is starting to wear off as the euphoria dissipates. Often, people lose sight of the fact that Alberta has always had oil. Why didn’t the boom happen earlier than 2005? The reality is the local real estate market was more driven by the element of post 9/11 free credit/money. It’s interesting to gauge the psychology of the Albertan consumer during the times when the economy is losing steam. The transition from euphoric irrational exuberance to rational exuberance is often difficult.
The preceding graph shows the recent Alberta Consumer Price Index (CPI). To review, CPI is often used as a measuring stick for inflationary pressures. CPI consists of monitoring price fluctuations of a finite collection of products and services. As you can see in the graph, Alberta’s CPI is at a 16 month low. The full economic update can be read here. So in layman’s terms, products and services are cheaper now as compared to the past year. As a result, a consumer in the “world’s hottest economy,” spending and consumption should be higher.
It’s interesting to note that the exact opposite is happening. Alberta lags behind in retail sales growth.
The disappearance of home buyers is already evident in the marketplace but it appears that alot of consumers are spending less. How is this possible? “We have oil.”
One thing to consider is that alot of frenzied home buyers who were swept up in the hype machine over the last two years are now becoming clearly overextended. Disposable income may no longer be disposable. In Calgary, mortgages for standard two-story homes evaporate 45.5% of household pretax income. In addition, maybe the invisible well of equity has been frequented too many times and is now dry?
Eating ramen off granite countertops does not make it taste better nor improve quality of life. There are definitely some opportunity costs with purchasing a home during the boom.
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Wait until we get our tax notices. Edmonton’s mayor, Steven Mandel [ who is a realtor by avocation ]
is spending money like a drunken sailor. Under the new Capital Region plan he has the ability to force the surrounding counties to pay for Edmonton infrastructure although they have no say in what or how much they can pay.
Sturgeon county has told it’s residents it can expect up to a 100% tax increase.
I don’t know if Calgary has a similar program if it doesn’t you can expect one coming soon. They will pry every last cent out of property owners in the coming years.
Lots of Calgarians have been supplementing with home equity for the last couple of years. Take away the HELOC, the credit cards and leave them to pay the bills using just the paycheques….look out. Tons of people just can’t do that anymore and have moved into credit addiction, figuring on ever-rising values to cover the spending. Game over on that trick. The term house-poor isn’t new, but it will take on a whole new meaning in the next couple of years. Lots and lots will be looking to downsize to just survive. Starter homes could sell much easier than the ‘burb palaces over the next while.