2008 Crash Again?
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When I bring up the Alberta market, some people reply:
What would happen to your real estate if the market crash again like 2008?
My reply?
First of all, anything is possible. Is another crash a possibility?
Sure. Is it likely?
Most likely not for a long while as we have a long way to go.
Some people challenge the confidence I have on the current Alberta market. They may think I'm drinking the kool-aid.
I get it, the last crash was all over the news and while Alberta was slowly working itself out of the excess inventory on the market, the rest of Canada's real estate markets soared.
It's easy to base future decisions on that and question the strength of the Alberta market.
Why do I have the confidence to go ALL IN on Alberta?
Look at this screenshot and tell me if this isn't insane.
A starter home selling for $9,800,000 in Vancouver.
This is nuts!
Source: Realtor.ca
To qualify for that house, one would need:
- $2M+ cash for down payment
- $44,902 for monthly payment
- $1.6M in annual income
I don't know about you, but I don't see too many people running around with $2M in cash and making $1.6M in income.
Before you jump in and say: Well, that house will get bought up and developed.
Sure, but if anyone wants to have a backyard for their kids, unless they are related to Kevin O'Leary, they aren't going to be living in this house.
During the 2009 crash in Alberta, the average house value in Vancouver was ~$800k compared to now at well over $2M.
Source: Real Estate Board of Greater Vancouver
Compare this to:
~$350k to now $450k in Edmonton
~$400k to now $650k in Calgary
Source: The Canadian Real Estate Association
Source: The Canadian Real Estate Association
Even condos in Vancouver are now over $800k!
THIS is the reason why the Alberta market has a long way to go. Even if the Alberta market doubles from today, it is still considered "cheap" compared to Vancouver.
That is hard to fathom.
For anyone who is concerned about the Alberta market crashing, they may need to worry more about Vancouver and Toronto first.
As long as the Alberta market is significantly lower than those 2 previous high flying markets, we'll see inter provincial migration continue to happen.
It's just basic math at this point.
Getting lots of comments from last week’s newsletter - Trudeau’s magic tricks
Have a comment or question? Want to share your thoughts on the Alberta Real Estate market? Reply to this email to let us know.
“Congrats on starting a blog!!” - Reader Catherine K.
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“Love the email Eric.
Your data is top-notch. But writing concise emails that follow the basic rules of copywriting?!? Awesome.
I'm going to be looking forward to more of these.“ - Reader Donny W.
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“I love this format you are writing in, it's a quick and simple read :)
I have a colleague who sold her rental duplex last year so she's mentioned a few times about how the gov't is increasing capital gains significantly so she's glad she got out when she did. Fortunately for us we are just entering the game, but I'd love to hear what you have to say about that in your summarized and simplified fashion like this message. :) “ - Reader Michelle B.
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“I want my money back for this magic show! No thanks!" - Reader Frances W.
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“I agree that this is not a solution to the housing crisis it’s a fake solution so politicians can say they are “making Canada more affordable for the middle class”.
This policy change will just create more profits for banks and the interest middle class family’s pay on their mortgages more.” - Reader Krystal K.
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“It seems like every trick that Trudeau did was intended to be magic.
Only that the magic disappeared a long time ago, if it ever was there.” - Reader Leo C.
Eric’s Comment: Michelle B., there’s a lot of misinformation being shared about the upcoming changes to the capital gain tax. I’ll write something on that in a future newsletter.
Personally, I think it will create unintended consequences like most government policies. Smart and wealthy investors I know will find a way around this.
I feel for your colleague on “leaving the game”. With inflation staying high, unless she reinvested her capital into assets that keep up with inflation, she would only be losing her new found cash to the inflation tax over time.
Welcome to the game, Michelle. As some smart guy once said to me at a bar: The real estate game has been around ever since humans are here on earth. As long as humans exist, the game will keep going.
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Thanks Catherine & Donny. Appreciate it.
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Eric Chang
Lethbridge, AB
June 18, 2024
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