Edmonton: Follow The Fundamentals, Not The Crowd.

"Finally, it's here. The buying opportunity we have been waiting for is now upon us." These are comments from Don Campbell regarding the current "breather" in the Edmonton real estate market. The question is: Why the "breather"? Well, looking at mls listings from June 2006, 1,856 homes were for sale. By August 2007 more than 8,000 homes were on the mls system! According to Mr. Campbell, many of the current sellers are hoping to cash-in on the rapid price increases from previous years - these sellers are "market fishing". The result is that mls inventories are at record levels and the supply of homes on the market is out-pacing demand. For sophisticated investors this represents a buying opportunity not seen in the last 12 or more months; and by looking ahead at Edmonton's long-term economic fundamentals, we start to understand Mr. Campbell's excitement for the current tide that has turned in the buyers' favor. The keys to look for in an area include: job creation, in-migration, income increases, and affordability. Let's examine each item as it pertains to Edmonton.

With roughly a dozen upgraders planned or underway in the Edmonton region, thousands of new jobs will be created. The most recent major investment announced this summer has Royal Dutch Shell planning to build the largest oil sands upgrader to date with costs of up to $27 billion. This is on top of a $6 billion expansion of their first upgrader in an area known as "upgrader alley" about 50 km northeast of Edmonton. Shell estimates this new development will use a "small army of construction workers averaging 8,000 from mid-2008 through 2013, and peaking at 13,300 in 2011". Jeff Rubin, chief economist and strategist at CIBC World Markets, says that Alberta's oil sands will put Canada "in the front ranks" of energy producers in just a few years. As global supplies continue to dwindle and prices continue to soar (now around $80 US a barrel), and with rising demand from countries like China and India, Alberta's oil sands is poised to play a big role in the "global energy spotlight".

According to RBC's provincial outlook, Alberta will have the country's lowest unemployment rate in 2008 at 4.4%. This will be driven by Edmonton's own unemployment rate of 4.0% (by comparison, the national average will be 6.3%). Net migration will see an additional 15,500 people arrive to the city; and these people will have jobs that will pay extremely well! Personal disposable income in Alberta is forecast to increase 9.2% in 2008 which is tops in Canada and is a full 2% higher than in B.C. (second highest projected increase nationally). Furthermore, in terms of affordability (which measures the percentage of median pre-tax household income needed to cover the cost of mortgage payments, property taxes and utilties), Edmonton still looks like a bargain.

"Whether the house in question is a condo, a townhouse or a standard two-storey home, Edmonton trails only Ottawa in terms of affordability" (Gary Lamphier, The Edmonton Journal, 09/13/07).

Indeed, Edmonton's economic fundamentals continue to support a healthy market going forward!

The Mexican Fisherman

A cruise ship docked in a tiny Mexican village. While at port, an American tourist complimented a Mexican fisherman on the quality of his fish and asked how loing it took him to catch them.
"Not very long," answer the Mexican.
"But then, why didn't you stay out longer and catch more?" asked the American.
The Mexican explained that his small catch was sufficient to meet his needs and those of this family.
The American asked, "But what do you do with the rest of your time?"
"I sleep late, fish a little, play with my children, and take a siesta with my wife. In the evenings, I go into the village to see my friends, have a few drinks, play the guitar, and sings a few songs... I have a full life."
The American interrupted, "I have an MBA from Harvard and I can help you! You should start by fishing longer every day. You can then sell the extra fish you catch. With the extra revenue, you can buy a bigger boat. With the extra money the larger boat will bring, you can buy a second one and a third one and so on until you have an entire fleet of trawlers. Instead of of selling your fish to a middle man, you can negotiate directly wit the processing plans and maybe even open your own plant. You can leave this little village and move to Mexico City, Los Angeles, or even New York City! From there you direct your huge enterprise."
"How long will that take?" asked the Mexican.
"Twenty, perhaps twenty-five years," replied the American.
"And after that?"
"Afterwards? That's when it gets really intersting," answer the American, laughing. "When your business gets really big, you can start selling stocks and make millions!"
"Millions? Really? And after that?"
"After that you'll be able to retire, live in a tiny village near the coast, sleep late, play with your children, catch a few fish, take a siesta, and spend your evenings drinking and enjoying time with your friends."