To Find the Hottest Canadian Real Estate Markets: Go West
Real estate prices in most industrialized countries have peaked in 2007.
The United States and Western Europe are largely suffering from declining property values after years of rapidly escalating prices. Even once red-hot markets like London are softening this year. And European REITs used to be a one-way ticket to the bank. But these former cash cows have witnessed a major compression since February as values have declined 5%. Even U.S. REITs are down 2.2% this year, making 2007 their first calendar year loss this decade.
Over the last 12 months, Canada's residential real estate market has expanded by an average 8.9%. This compares very favorably to the United States where housing prices have declined over the last year.
And the Canadian western provinces are still in the midst of a full-scale boom since 2002.
Housing is on fire in Alberta. This province is a prime recipient of the country's commodity boom this decade. Alberta is Canada's largest producer of oil (including tar sands) and natural gas. Calgary and Edmonton have enjoyed an unprecedented economic boom, since the bull market for energy began in 2002.
In fact, in Calgary the economy is so strong that office vacancy rates stand at just 0.2% while there's a shortage of housing because of a deficit in raw materials and labor. Year-over-year, housing prices in Calgary have surged 27.4%. Meanwhile in Edmonton, a smaller metropolis, prices have zoomed ahead by a blistering 40.5% since May 2006.
But the commodity boom in Canada isn't just about oil and gas.
In Saskatoon, Saskatchewan, the prairie province has seen housing prices rally 24.9% over the last 12 months. The local economy is thriving from the new bull market in the grains complex. In nearby Regina, prices have gained 17.3%.
But if you look closer at Canada's housing boom, the divergence in performance becomes very apparent as you head further east.
Canada's non-energy exports have been suffering from a soaring Canadian dollar since 2003. Since March alone, the loonie has mustered a huge 10% gain versus the U.S. dollar and now sits just 6% away from par value against its southern neighbor. It's no wonder Canada's manufacturing belt is taking a beating this decade. And with a soaring loonie since March, I expect Ontario and Quebec to log even worse output data this quarter. Canada's non-energy exports simply can't compete with a US$0.94 cent loonie.
In this context, it comes as no surprise that housing in Montreal grew just 3.9% over the last 12 months. While in Toronto, Canada's financial capital and the heart of the country's manufacturing output, housing expanded by an unimpressive 2.3% year-over-year.
This anomaly in real estate performance is not uncommon. In the United States, real estate values in Texas and the Plains have been rising while prices have softened considerably along the U.S. coastline.
One thing is for sure: If I was looking for a home in Alberta, I think I'd rent.