Over the past few months I’ve had more requests from friends and acquaintances that are looking for places to rent in Central Alberta than over the past few years, and if they were lucky to find a place they would be paying a lot more than they had only a year ago. This has to do with a few factors: tightening of mortgage rules, migration to Alberta and our bustling economy.
At the end of June, Finance Minister Jim Flaherty moved forward to shorten mortgage amortizations, lower refinancing and home equity line of credits’ loan to values, and put a bullet in cash back mortgages (a form of zero down mortgage).
The most disheartening to those trying to get in to the housing market are the amortizations and the cash back mortgages. Though only a small percentage of Canadians took advantage of the cash back mortgage, it’s still going to affect enough people that could have bought that will remain renters as they save up for their 5% down payment. With amortizations lowered to the old standard of 25 years, many that are buying will either have to do without a couple of major options as they will qualify for less or simply stay renting until they can qualify for the place they truly want, meaning they are going to rent for longer. Thus creating a larger rental pool, and with rental supplies dwindling, rents are going to go up.
Migration to Alberta, both interprovincial and international are key factors for economists to ‘forecast’ how our local and provincial economy will perform. Simply put the more people that move to a certain province, the better its housing market should perform.
People move to new provinces typically for the opportunity it provides and as of late Alberta’s been performing very strongly. We continue to be a destination of choice as just in the second quarter of this year, according to Alberta Treasury Board and Finance 23,090 new migrants moved to Alberta. Alberta’s population is estimated at 3.9 million, up 2.5% from the second quarter of 2011 and represents the highest growth rate among all the provinces and more than doubles the national average.
With all these people moving to Alberta, where are they going to work?
Alberta produces a lot of jobs, many to the oilfield sector, whether it is direct or indirect. If the price of oil is high, then the oil and gas producers are going to get it to the market, if it’s low then the product stays in the ground or gets stored.
Alberta is a very cyclical province and every year we go through the same steps. A heavy drilling season once the ground freezes, then a softening effect once it thaws in the spring, Albertans know this as ‘break up’. The crews generally return once the roads are safe to drive on and can handle the heavy loads it takes to transport the rigs to new locations.
This year is no different, except that the price of oil dipped to below $80/bbl in June based on weaker demand from around the world based on the weakening of some Eurozone countries which actually slowed the drilling.
Surprisingly, drilling activity is down for the year and we are still attracting new migrants and they don’t just come here because of Albertans’ sparkling personalities.
Lower drilling activity and higher than anticipated migration means one of two things, oil producers are hiring based on future prospects as oil has gone back up to over $92/bbl or our economy is diversifying from its title as oil and gas producer extraordinaire.
All of these factors are going to put strain on renters as landlords rent out their properties to the highest bidders. So if you are in the market to rent, expect two things, higher rents and longer period to find a new place which should motivate you to save your money to buy a place of your own. On the flip side, if you are a revenue property owner and have the ability to purchase other properties, then now’s a great time to purchase additional properties as interest rates are basically still on clear-out pricing!
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for additional information and appointments at 403-343-1125 or emailed to email@example.com.