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I think you missed the point of the article. Benjamin Tal was pointing out that for Canada as a whole the market won't be as closely linked to the baby boomers as had been touted in the 80's, in fact values will be increasing rather than plummeting as forecast in many of the doom and gloom reports.

Victoria is in a unique circumstance due to the amount of seniors located there, but the report is based Canada wide. California is an entirely different beast. The US market has been inflated with all kinds of exotic interest only or adjustable rate mortgages that allowed people to over buy down there. With the changes in rates the US is seeing now this is upsetting their apple cart and causing plummeting values in many areas without strong economic conditions.

As for 2% inflation rates, isn't this what the Bank of Canada has targeted as the inflation rate they are looking at, so they can make adjustments to monetary policy to help keep this stability. We aren't dealing with rampant inflation like the 80's as well, so this number is much more realistic. 

Real Estate is actually an incredible investment if you look at the right areas, we typically see 35-50% returns on Real Estate in Alberta with our investments. This won't go on forever, but we have a good window for several more years.

Since you are banking on Real Estate being a crappy investment, maybe you should move to Alberta and you can rent one of my places. Someone may as well benefit if you aren't going to.

Bill

....disagree, but if you look at any investment, buying at the top is not a good idea.

If you look at the numbers Benjamin Tal is using, they are highly suspect heading out 20 years. A couple examples.

Who says the Bank of Canada can maintain a 2% rate of inflation for the next 20 years? Did they manage that in the last 20 years? The answer is no.

Making 3.5% over the next 20 years in a world of 2% inflation, if such a thing was possible, is only 1.5% return on your investment, before all the maintenance, taxes and other costs are taken into account.

You can do better by investing the money at 3.5% over the same timeframe.

The point is, if CIBC is calling for a double in the next 20 years, they are basically calling for an end to double digit housing growth for the next 20 years. I am not attacking the validity of their conclusions, as much as pointing out that, as is, the conclusions aren't that exciting. If some of their assumptions are wrong, they could be worse than that.

Saying California is something different is like saying there was never a housing crash before in Canada - which of course is false. The fact it is happening there now doesn't mean the repercussions won't be felt here in Canada, sooner rather than later.

As far as real estate being a crappy investment, my point here is that real estate is not a lottery ticket, it is not a game of bingo, and it is not a particularly good investment at this point in time.

As to your last comment, you are missing the point. I am in the position to buy a house now - but I choose not to. I will buy a house in some future year, when real estate has stopped being treated like some unusual investment, and values return to normal. The last thing I want to do is watch large amounts of equity disappear. This blog is merely a record of me waiting for that to occur, and hopefully, a source of some amusement and education for others.

For anyone with the cash on the table - now is not the time to buy.*

^{*Not investment advice, of course}

That being said, if you disagree with my point of view, fine, fire away - someone will be wrong, maybe it will be me.

Thanks for your comments. I removed the email address you left to save it from spam-bot harvesting, if you have a web-site, feel free to include that link next time you post.

Hey Greg,

 Sorry for the delay in replying.

I agree the 2% inflation number is hard for them to maintain, but they have the ability to manipulate interest rates and control it to a degree. Inflation can be a very confusing issue and affects individuals differently.

An example is the 6% inflation in Alberta, some of it is oil and gas prices, most of it is from the huge increases in house values. This affects non-home owners and makes minimal difference to someone who owns and will continue to won the same property for extended periods. So for the home owner the real inflation affect to them may only be 2-2.5%.

If they are getting 3.5% return on their money on paper they lose, in reality they may still be nominally up, but as you pointed out after taxes and everything else, they could be behind.

The doubling of home values in the report might just be a wake up call to many people, and depending on the area of the country this number will vary significantly. They really aren't that exciting when you look at some areas of Canada and the appreciation they have seen recently.

I may have to revise the California comment, it is really the whole US market that is so different from the Canadian markets. There access to such creative financing options made the country as a whole ripe for issues with small interest rate changes. This is what has caused much of the problems for people down there and why the foreclosure rates are increasing so rapidly. If you buy for the sake of buying without understanding why the values are rising you are apt to get burned.

 The Victoria market I haven't watched that closely, the Alberta market though has a very promising outlook for at least the next five years and probably the next seven to ten. So from that regard and dependant on our markets we are both right, your might flatten and ours is going to continue to go up. Is that fair?

Bill, you make some interesting points, as even Calgary and Edmonton have not appreciated as much as Vancouver and Victoria so far, maybe there are still some legs to carry your boom in Alberta further.

I take a more bearish view here in BC, particularly with interest rates. In Victoria, inventory has been rising steadily now for more than 2 years; I guess if that starts to happen in Calgary and Edmonton, that might signal a top for your markets - but as you say, that may be a few years away from happening.

Over here on the left coast, since prices are already quite a bit higher, and not just in the big cities, but all over the province, I think you will start to see an impact on prices from rising interest rates fairly soon.

Thanks for dropping by. Please take any comments on "rich Albertans" with a grain of salt - it's just the latest marketing phenomenom being floated here by the local real estate industry. Rich foreigners driving the market is a well-worn cliche. A few years ago, it was the rich Americans. When the local realtors come up with a new group of rich buyers, I'll add them to my list when writing about why.... real estate can't go down...

Hi Greg,

Obviously Alberta's biggest boon for the next decade is our natural resources and the huge influx of money we are seeing here. There is over $130 billion on the books for Oil related projects up in Northern Alberta. Typically big companies don't throw that kind of cash around without some real research into what is going on.

This has caught many people unaware of how cost effective the housing was a couple years ago and these big price increases we have experienced are simply catch up to where it should be. Even now prices are low when you look at some of the fundamental numbers.

Calgary alone is adding about 71 new people a day to the city, this type of in migration puts huge pressure on housing as people need a place to live. In addition Alberta has the highest average wage for families in any of the Canadian provinces, lowest provincial tax rate, highest averag yearly increases in wages, lowest unemployment, etc, etc, etc. This is what will fuel  the continued increase in values for not only Calgary, but most of Alberta.

We originally talked about inflation which has been running rampant in Alberta, but this can also be misleading when you look at the local numbers. Inflation in Calgary is down to 5.5% for the last quarter, but most of this is based on increases in housing values. Since this doesn't affect current home owners (it only affects people buying), the actual inflation number is much lower, although still hiher than the 2% target rate.

 The BC values have always been a much higher price point than Alberta due to the fantastic climate and the lifestyle. This has been putting pressure on the markets there for years as the real indicators of increased value tend to be in migration, jobs and wage increases. BC has had in migration, but until recently the wage increases and jobs weren't there. Many of the jobs in BC are probably going to disappear in the next few years as well.

Most notably once the pre-Olympic construction starts to wind down and the workers move to the next job site (probably Alberta!) and as more of the forestry jobs shut down.

The forestry industry in both Alberta and BC are going to see some huge issues as the Pine Beetle continues its unrelenting surge forward. Some of the reports I have seen show an area three times the size of Vancouver Island is dea and it is increasing at a 25% clip. One report even ventured to say 80% of the Pine Forests in BC will be dead by 2010 which isn't very far away.

With only a two year window to harvest the wood after it is infected and record low prices for paper this puts incredibel pressure on the forest industry to try and get as much wood harvested as possible. This glut will just lead to lower priced wood and lay offs as the work becomes unprofitable. As mills shut down we will see more people leaving the small towns and of course they will have to go where the jobs are (have I mentioned Alberta?). All of this also putting pressure on the BC Real Estate market.

Much of the rich Albertans furor you are hearing is also true though. There is such a glut of cash here that many Albertans are buying recreational properties all over the place, especially BC. It will be interesting in three to five years to see how big an affect the Pine Beetle will have in the interior.

Of course the real irony of the rich Albertans is that we continue to bitch and complain about things when we cannot see how well off we really are!!! I hope my reply doesn't sound to rantish, we have done a significant amount of homework and are very excited about the growth of our rental properties here in Alberta over the next five plus years.

I think we are also back to the point where we are still both correct about the Real Estate markets, the country is so big that various areas or provinces can have very different outcomes over the next several years.

Oh and if you are still thinking about investing your money and getting 3.5% rather than buying Real Estate we need to tal about Joint Venturing on some property in Alberta 8']