Weekly Market Insight

Where to buy: Top 10 cities

Jesse Kinos-Goodin, Financial Post · Sunday, Aug. 8, 2010

When investing in real estate, sometimes it’s necessary to look beyond your own backyard. The Real Estate Investment Network (REIN), a national organization of investors, has compiled what it says are the top 10 Canadian cities in which to invest. Few are major cities and some are surprising. Don Campbell, president of REIN, as well as one of the researchers on the study, says the results are based on factors such as planned transportation improvements, or if the area’s average income, population growth and job growth are increasing faster than the provincial average.

Oddly enough, nothing east of Ontario shows up on the list, and while Mr. Campbell says cities like Halifax , Saint John and Moncton “still provide decent returns,” the top cities are ones that will outperform the national average between 2010 and 2015.

1. Calgary

Calgary is “poised to outperform the average by a wide margin,” says Mr. Campbell, making it the top-ranked city.

After two years of declining average resale housing prices, the Canada Mortgage and Housing Corp. has predicted they will increase year-over-year in 2010.

The REIN report credits the downturn to a much-needed correction, and that it was “economically impossible for the [ Calgary ] market to continue at the pace at which it was heading.” But now that it is coming out of the recession, along with economies elsewhere, Calgary ’s strengths in producing food, fuel and fertilizer will boost its growth.

“ Calgary is in a unique economic and geographic position to take advantage of the direct and indirect jobs this increase in demand will create,” says Mr. Campbell, who adds that with strong in-migration and renewed affordability, the city provides a good buying window for long-term investors.

2. Kitchener-Waterloo-Cambridge, Ont.

REIN refers to Canada ’s Technology Triangle as the “economic Alberta of Ontario.” That means KWC is not only seen as the economic engine of the new Ontario economy, but also that it “will outperform all other major regions in eastern Canada ,” Mr. Campbell says. For indicators, he points to job growth, student growth and a new light rapid-transit system.

3. Edmonton

Edmonton sits near the top of the report’s list because of its future potential. Calling it a “perennial overachieving market,” REIN says the city is a “growing market, [with] an increasing population, and a forward-looking leadership.”

It will also be the main benefactor of energy development in Western Canada, says Mr. Campbell, resulting in a “very affordable, strong rental market with strong in-migration from across Canada .” Major infrastructure improvements, such as the ring road and LRT expansion, will be key.

4. Surrey , B.C.

British Columbia’s second-largest city is growing so fast it could become even bigger than Vancouver .

“Just a decade ago, it was known as the punch line to many a joke,” Mr. Campbell says. But with two border crossings to the United States , links to five major highways, deep sea docks and four railways, Surrey is a prime location to do business, he says.

Although there may be a strong rental market, it’s a city that requires a closer examination, taking “neighbourhoods and even the street’s characteristics into consideration when deciding where to purchase,” REIN warns.

5. Maple Ridge & Pitt Meadows, B.C.

The Translink and Gateway Project infrastructure improvements have made these B.C. towns the “most accessible regions in [ Vancouver ’s] Lower Mainland,” the report says. They’ve come a long way, Mr. Campbell says. The unofficial motto of Maple Ridge used to be “You can’t get there from here.” As a result of poor infrastructure in the past, property values have been historically low in this area. But with the improvements, it’s predicted an additional 400 business will move into the area, REIN says, improving the demand for both residential and commercial property.

6. Hamilton, Ont.

“The perception no longer matches the reality of Hamilton ,” Mr. Campbell says. “The city’s leadership, as well as local business owners, have transformed what was once a rough-and-tumble steel town to a city with economic vitality, diversification and population growth.” REIN applauds Hamilton ’s leadership as being innovative in revitalizing the city, adding Hamilton

“has beaten its overall building permit value for the second year in a row.”

7. St. Albert , Alta.

“Long thought of as a satellite of Edmonton , St. Albert is poised to be the biggest benefactor of the new Edmonton Ring Road ,” says Mr. Campbell, who adds that as the transportation access improvement is completed, the city will begin to experience “a flood of not only new residents, but also the relocation of companies and jobs into town.” Other attributes of the city include consistently low vacancy rates, high rents and strong property value increases. It also helps that the city has “turned itself into a major retail centre for the northern region while adding to its industrial and commercial job base,” REIN says.

8. Barrie & Orillia , Ont.

These two cities have been shedding the perception of being just cottage country and have become a “hot bed for growth,” Mr. Campbell says. University and college expansion campuses have brought new life to the area, and the addition of Go Train access has made them viable commuter towns for the Greater Toronto Area, REIN says. For investors, this all adds up to healthy property appreciation, a respectable vacancy rate of 4.7% and the youngest residents on average in a given Census Metropolitan Area (CMA).

9. Red Deer , Alta.

In the centre of the Edmonton-Calgary corridor, Red Deer is not close to either. But REIN suggests reviewing city plans, as there will be a lot of hidden opportunities. “The whole central Alberta region has witnessed very strong population and job growth, as well as a real estate market that has continually outperformed most other regions of the country,” Mr. Campbell says. He adds that with a continually expanding industrial and commercial job base, Red Deer is in a good position to “take advantage of the inevitable growth in demand for food, fuel and fertilizer.”

10. Winnipeg

Winnipeg is often left off the real estate investment radar, but Mr. Campbell says it’s a good city for “consistent economic performance — not too high during booms and not too low during downturns.” But people should stick to buying top-quality properties. REIN also notes that housing prices, after dipping last year, are back to double-digit increases, which could “lead to an influx of inventory on the market.” But with one of the lowest vacancy rates in the country, at 1.2%, there is room for movement. Another positive factor for the city is international immigration is expected to increase under the provincial nominee program being undertaken by the government.
Read more: http://www.financialpost.com/news/Where+cities/3369599/story.html#ixzz0w4mDdnyK

Getting real

Garry Marr, Financial Post; With Files From Paul Vieira · Saturday, Aug. 7, 2010

Erica and Jeff Manger never thought the price of their house could drop.

The Alberta couple bought a condominium in the Rockies resort town of Canmore three years ago and when they decided to move in 2008 to Sylvan Lake in Alberta , where they could afford a detached home, they kept the condo as an investment.

"It never occurred to us that we wouldn't be able to sell for what we paid," says Ms. Manger. "People were making $100,000 [on paper] a year on their condos."

Now they'd be lucky to get the $315,000 they paid for their condo, even though it may have fetched $345,000 in 2008 when they were thinking about selling it to help pay for their new home. Instead, they're getting $1,100 a month in rent for an investment that costs them $1,800 a month to carry and isn't going up in value.

It gets worse. They have to sell the house in Sylvan Lake because Jeff, who is a helicopter pilot, is looking for a better location for work. They paid $375,000 for the house and fixed it up. Not even counting Jeff's labour, the couple spent another $30,000 on supplies.

"We tried to sell it and put it up for $409,000. We lowered it to $385,000 when we hired a realtor, but that didn't work," says Ms. Manger.

"We lowered it again and now we are down to $374,900," she says about the home that has now been on the market for two months. "We've lost all of our down payment, which was almost $30,000."

Their tale is one not often heard over the past decade, the longest bull run in Canadian housing history. People have been competing wildly for homes and double-digit annual price increases have been the norm. The market corrected slightly in 2008, but the correction was short-lived. Average prices in Canada dropped 10.2% in the first quarter of 2009 from the previous year, but rebounded dramatically. By the fourth quarter of last year, prices had jumped 19.1% from a year earlier.

But the market appears to be slowing again. Last quarter, prices were up just 5.2% from a year ago and July sales dropped as much as 40% from last year in some major markets. Even if there is no U.S.-style collapse, everybody from the consumer to the mortgage broker to the real agent may have to accept a new real estate reality: For the first time in a decade, housing might become boring, with flat sales and price increases just ahead of inflation.

"I was totally unprepared for this. People warned [us] ... but real estate has been considered such a safe investment," says Ms. Manger.

John Andrew, director of the executive seminars on corporate and investment real estate at Queen's University in Kingston , understands why people have been accustomed to a booming market. "It is all they've ever known," he says. "There are a lot of people who, for their whole adult life, there has been the perception that residential real estate does nothing but go up."

Don Lawby, chief executive of Century 21 Canada, who has been in the business since 1974, says no other time beats this past decade for housing. "We've had up and down, but this has been very good."

But like many, he's forecasting a more balanced market and that means people's mind-sets will have to change. They might have to wait a little longer for a sale, or price their homes a little lower.

"In the 1990s, it wasn't abnormal to see a home sit on the market 30, 45, 60 days," says Mr. Lawby. "People have more of an opportunity to look now. Houses that are priced right will get an offer and won't sit. But if you have 25 homes sitting on the market at $400,000, people will look around because they know they are not all going to sell overnight."

Sellers may have to get used to the fact price increases will go back to the historical norm -- a few steps ahead of inflation. "You'll get cost of living and a bit," says Mr. Lawby.

What to expect next from the housing market has become a major guessing game among economists, consumers and those in the real estate community. There is little doubt that the spring market this year got an extra push from the one-time impact of tighter mortgage rules and the new harmonized sales tax in British Columbia and Ontario , which pushed people into buying.

"What is going to be the new norm is the $64,000 question and it's still a very real debate," says Douglas Porter, deputy chief economist with the Bank of Montreal. "Did the market wildly overshoot or was it really just responding to the steep decline in interest rates?"

Mr. Porter doesn't see housing continuing at the same pace. "It's tough to see big further gains on top of what we've already gone through," he says. "I do think people have to get used to a more subdued reality. There is a feast-or-famine reality to the Canadian housing market and it's been mostly feast for the last 10 years."

Traditionally, the real estate industry sold the safety and stability of housing compared with investing in the stock market. But over the past decade, the story has been capital appreciation. Statistics from the Canadian Real Estate Association (CREA) say the average house price has climbed 110% over the past 10 years. During the same period, the S&P/TSX composite index had a total return of about 40%.

Toronto mortgage broker Sandra Epstein has been in the industry since 2003, and sees a much tougher market ahead. "I'm not seeing as many purchasers as I was, and there are fewer deals around," she says. "The competition on the mortgage side has intensified."

During this last cycle the ranks of brokers and agents swelled enormously. There are about 18,000 to 20,000 mortgage brokers in Canada , including agents called sub-brokers in British Columbia and associates in Alberta , says Jim Murphy, chief executive of Canadian Association of Accredited Mortgage Professionals. Although it is hard to compare the numbers with a decade ago, since many provinces did not have the licensing requirements, Mr. Murphy estimates the ranks have more than doubled in 10 years.

The number of real estate agents has also climbed -- CREA says there are now 100,000 realtors in Canada compared with 63,950 a decade ago. But the sector is starting to feel the pinch.

In July, employment fell by 30,000 in finance, insurance, real estate and leasing -- back to July 2009 level. Avery Shenfeld, chief economist at CIBC World Markets, says the drop could be linked to the slowing in the real estate market.

"I would not want to be a broker starting out in the market today," says Ms. Epstein. "When I started in 2003, you had to hustle to get deals. Going forward, you have to be an established broker with a data base. It's going to be more challenging for all of us."

Read more: http://www.nationalpost.com/After+longest+bull+runs+Canada+housing+history+everyone+from+real+estate+agents+mortgage+brokers+consumers+should+reality+check/3371497/story.html#ixzz0w4lRFHjR