Fort McMurray Forum

Does anyone think that fort McMurray housing is overevaluated and we are in a housing bubble?

It's hard to say, people do make more money here and until they build out new subdivisions there is a limited supply of housing.
In one of the latest reports by the city, they say that there is a shortage of about 5000 houses which will be reduced by 2015-2016.

I think we already have very high prices in Wood Buffalo, and hopefully the prices will remain stable for the next couple of years

3 Things will drive house prices in FMM

1 - the price of oil....drives growth.
2 . Interest rates....determines if those with $800k mortgage can afford to re-new their 2% varaible at say 6% and pay 3x the mortgage! Will drive an exodus if it happens.
3 . Enviro Politics....self explanatory

We will not be seriously impacted by a national swing either way....we can be in a total national collapse but if oil is $150 prices here will still climb.

If oil will be at 150 during national collapse (highly unlikely) the house prices will go through the roof, since everyone will come here in hopes of work

justsomeguy wrote:3 Things will drive house prices in FMM

1 - the price of oil....drives growth.
2 . Interest rates....determines if those with $800k mortgage can afford to re-new their 2% varaible at say 6% and pay 3x the mortgage! Will drive an exodus if it happens.
3 . Enviro Politics....self explanatory

We will not be seriously impacted by a national swing either way....we can be in a total national collapse but if oil is $150 prices here will still climb.

Don't forget the net debt service ratio as a factor in the cost of housing.

If wages don't support the mortgage then the market will adjust. Example; 2 household incomes one at $175,000 the other at $50,000 with a room rented out for $750 month can easily service over a million dollar home purchase with a service ratio of 35%.

Overpriced? Not yet.

imo

There's lots of land around however the city's doing the right thing by not just releasing it all at once for development causing a drop in the housing prices.

That being said, consider also the northern towns of New Brunswick beginning to empty out: mills closing because pulp paper is too expensive for them to produce cheaply due to labour costs and people coming up here looking for work. Bathurst lost it's mill about six years ago, Mirimichi was closing down its Mills five and with the scrapping of the long gun registry (after the mills the second biggest employer in the Mirimichi) You'll see an influx of people there that's most likely going to settle down here. That doesn't count every other province and territory who's been hit with the bad economy. People want and need places to live. That's only going to drive the price up.

The House prices droped by 4.8% from March 2012 to April 2012 and only increased 1.1% from April 2011 to April 2012. See attached lnk for reference (Goverment analysis). Don't believe in realators analysis and it is fraud. Also you can see lots of houses in the market with high price and it is not selling. Be careful.

http://www.woodbuffalo.net/linksFACTSHome.html

"If wages don't support the mortgage then the market will adjust. Example; 2 household incomes one at $175,000 the other at $50,000 with a room rented out for $750 month can easily service over a million dollar home purchase with a service ratio of 35%. "

If a married couple has to rent out a room to get by I don't call that affordable. The renting out a room solution is not a normal way for people to live. Who grew up with a border in your family home or the basement?

Yes they can and will. The land increase for the new lots will be the cause. Check it out ask any builder what they paid in 2012 verses 2011. The prices differance is over between $100,000.00 to $150,000.00. And that is only if you can get the lots. Most small builder are have a hard to to even get a lot that is not under $385,000.00.
Gene

This is a great debate so far and I agree with much that has been said. I agree with Pablo, especially with justsomeguy and also Dolphin. I am a REALTOR here in Fort McMurray and my educational background is Economics (MS, Oxford). None of what follows is advice. None of it discusses local statistics explicitly.

Assumptions + Model:

I want to look mainly at the demand side. While in reality the cost of labor and availability of land will affect house prices, for simplicity, let's assume in this model, that the cost of land and labor offset each other one-for-one. In this model, if the municipality releases more land, labor goes into shortage and wages are bid up. The cost of supplying lots and houses in this model is flat, regardless of the volume.

In this model therefore, prices are then dependent purely on demand. Let's say, demand is determined by household incomes, preferences and some multiplier (that multiplies more if credit is readily available). Let's also say that incomes depend on the oil price. The results of our model would be that house prices can go up if ANY of these variables goes up (without any other factors changing):

Results:

1) Higher Oil Price/Incomes
2) Looser credit (including mortgage rules, lower interest rates etc)
3) People preferring increasingly to live permanently in Fort McMurray

Analysis:

In reality this model is way too simple but it has interesting results for me. Two of those are very unpredictable IN THE SHORT RUN, which make the investment a risky one (talk to your financial adviser about your risk profile).

The model says: "if you want to know where prices are going, really think about 1), 2) and 3), as well as their determinents". For example shale-oil in the US, the rise of China, enviro-politics, the EU crisis, the prudent Canadian Finance Department and central bank. Is Fort McMurray going to be a nicer place to live in future or less so - ask anyone on twitter if you don't know the answer!

Of course, as with all risky assets, if you take the long-run view, things look less risky (and more rosey??)

Notes:

The price to income ratio for Canada is about 5; that is the median house price is roughly 5 times the median family income. The median family income in Fort McMurray is $189k (2012) and is expected to grow rapidly in the coming years http://www.choosewoodbuffalo.ca/resources/data-centre/income/. If Fort McMurray had the price/income ratio of Canada as a whole, the average house price would be around $945,000 [and I am talking all properties (inc condos), not just single family homes]. The number is significantly lower than this. Perhaps the rest of Canada is over-priced, or maybe there is room for local prices to increase (given incomes); it may be a junk statistic but it is interesting to me. I cannot distribute local statistics publicly, but you can check out some local data here http://www.woodbuffalo.net/linksFACTSHome.html or play around in the MARKET RESEARCH SECTION of my own website here http://wbuff.com/search/market-research.

To be sure to be notified whenever I publish a new blog you can like the facebook page: https://www.facebook.com/TomAlbrechtFM

Hope this helps the debate, and good luck in all your endeavors!