Oil Prices & real Estate

     Global prices for oil have been in decline for some time, and what’s interesting to note is just how closely the Canadian economy, and in turn the Canadian Real Estate market, is connected.

     Here is the trend we have been seeing recently. Since the early Summer of last year, prices have been in decline. Crude Oil prices have fallen from near $110 to half of that, in a matter of months. 

     If we take a look at Canadian bond yields, they have also been in decline. If we look at the rate of decline, it should look very familiar. The average yield we see today, is half of what we saw in September. 

     Furthermore, if we look at the Canadian dollar, we will see the same trend. It’s hard to deny that crude oil prices are strongly correlated to our economy.

     It is clear that the Canadian economy is very closely related to crude oil prices. The drop in oil prices has had a direct and undeniable impact on this country, especially for our neighbour to the East.

     If we look to Alberta there have already been numerous job cuts, and CIBC anticipates the oil-producing province will lose 55,000 jobs in the coming months. This has trickle down effects for British Columbia, and it also has direct effects as most of us here in Vancouver know of at least a few individuals who live here and work in Alberta’s oil fields. 

     These individuals are losing, or at risk of losing, what most would consider very well-paying jobs, and that’s money directly out of our local economy. For those that have not lost their job, it would not be prudent to make a major purchase such as a new home, with their job security in question. 

      Although prior to declining oil prices Alberta was experiencing record years in Real Estate, the trends today are clear. CMHC is predicting as much as 11% fewer housing starts in 2015 compared to 2014, with a continued decline for following years. 

     According to the Calgary Herald, the amount of inventory for sale in Calgary is double what it was one year ago and yet sales are down 33% from the 10-year average. 

     Despite all of this, we have yet to experience any form of decline here in North Vancouver. In fact, the opposite is happening relative to Alberta, with housing prices rising above 10-year average levels of growth, and with the most buyers per inventory since 2011. 

     Interest rates are still at historic lows, and although the Bank of Canada did not reduce the prime rate further as some anticipated happening on March 04, 2015, affordability remains stimulated. Buyers are still able to get into the market despite rising prices, as interest rates being lower has increased affordability by in essence making money cheaper to borrow. An interest rate increase of just 1% could result in monthly payments being as much as 10% higher. 

By Andrew Green, Keller Williams Elite Realty

Born and raised on the North Shore of Vancouver, I am a Real Estate Agent with Keller Williams Elite Realty. Check out more of my blogs and come back daily for new entries. 

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