Exit Alberta Real Estate?

Written by Jeff Gunther

On July 15, 2020
2006 and 2007 were frothy years in Alberta real estate, followed by a not-unexpected collapse in 2008. We waited for things to settle down before beginning to acquire property at significant discounts to those earlier insane prices.
When I first spoke with partners of investing in Edmonton, I said our expected hold-period would be “five, eight, ten years, maybe more”. (Secretly, I had some insight into real estate cycles, and only threw in the “ten years, maybe more” part to cover my butt in case I was wrong. I was wrong.)
As it turns out, Edmonton has technically been in a steady “Buyers’ Market” since 2015. Translation: This is not a good time to sell. However…
The highly-unpopular-with-commission-hungry-real-estate-professionals CEO of CMHC, Evan Siddall, has suggested that prices could drop by 9-18% within the coming months. You can find the CMHC Outlook at www.myrealmnetwork.com/crash. This Canadian Crash video on YouTube has proven a rather popular response.
So, I guess values and rents will go down, expenses will go up, and this is the last chance we’ll have to sell. Or…
I did a little more digging into real estate cycles, and discovered credible research spanning hundreds of years tracking financial and real estate markets. I provided an overview of the 18-year cycle on a webinar (fast-forward to 25:52). Here’s a summary diagram:

This is from December 2019. The yellow highlighted circle is where Phillip Anderson plotted the US market (Canada typically follows) at that time. He did not know about COVID-19, but is unphased by its occurrence; there’s always something to cause a mid-cycle slowdown.
This suggests we can expect another 7 years of expansion: this is a good time to hold. Well…
Yes, I realize this is all kind of mystical and I’ve just told you:
  • I don’t know;
  • we should sell;
  • we should hold.
In situations like this the best response is usually status-quoWe have stable tenants, well-maintained properties, adequate cash-flow and reserves, and we’re paying down mortgage principal.

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