Saturday, January 13, 2007

Is There a Housing Bubble in Alberta?


The following entry at Canadian Dream: alerted me to what is obviously a bubble in the Alberta housing market.

The results of this report showing the New Housing Price Index, identified that prices in Calgary and Edmonton both experienced more 40% growth last year (4X anywhere else in Canada). It stands to reason that housing prices should be very positively correlated with the growth of wages. Did the wages in Alberta grow 40% last year? While they did grow substantially, it was nowhere near 40%.

I would expect that the following reasons have led to the rapid increase in housing prices:

1)Faster wage growth in Alberta than the rest of Canada
2)Population growth-caused by disproportionately high wage growth
3)Speculation in a "hot market"

The reason I think its a bubble is because none of the above reasons are sustainable over the long run since all were driven by the rapid increase in the price of oil. As oil prices stabilize, wages will stabilize along with them. From there the financial incentives of living in Alberta will likely disappear and eliminate the "hot market".


At 12:26 AM, Blogger JPostal said...

I agree with you that property values in parts of Alberta are becoming speculative but I do think that we will see prices in Alberta continue to rise for another couple years. When compared to markets of similar size the prices in Calgary and Edmonton are still relatively low. Here is an the Fraser Valley region of British Columbia (where I live) the median house price is $450,000 (up 18.6% over last year). In Calgary the median price is still only $361,000 (up 34%). I could not find stats, but I would guess that wages in Alberta would be equal to or greater than wages in my area. Taking this into consideration I would suggest that the median house price in the Calgary market will move another 50K this year. Who know what will happen this year, but I would put money on increases of this size for 2007. Maybe I am way off base...I guess only time will tell.


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