Will the bubble burst in Edmonton real estate in 2017?

Just like a helium balloon with an ever-so-tiny leak, investment experts warn that real estate prices in the City of Edmonton may start losing air.

In a CBC radio report last week, Edmonton investment manager Hilliard MacBeth discussed the state of the Alberta economy and said he doesn't believe that the worst is over. He acknowledged that other experts have publicly stated that 2017 could possibly be when the economy in our province hits bottom. He noted that real estate prices could fall further even when economic conditions appear to be improving.

Housing prices in Edmonton have fallen but not as steeply or sharply as unemployment rates. Approximately 120,000 jobs in Alberta have disappeared since oil prices started to sag in 2015. Edmonton has been somewhat insulated from the brunt of the recession and MacBeth believes the impact will soon be felt more keenly in real estate prices this coming year.

According to stats from the Realtors Association of Edmonton, average sale prices for detached homes increased in November and the average condo price really lost some ground. Single-family homes were $440,496, which is a 1.76% bump over November 2015 while condos dropped by 4.75% year-over-year. November was a good month for attached homes which increased in value by 4.23% over November of the previous year. MacBeth says he can see average prices dropping to pre-bubble levels which he argues will be decreased by a dramatic and perhaps horrifying 50%.

Debt will be the unraveling

The amount of debt that Edmonton homeowners are carrying will determine how hard homeowners trying to unload properties in 2017 will be hit. If average house prices drop as sharply as MacBeth predicts, the amount of debt people are carrying will remain the same. There's nothing sadder than owing more on a home mortgage than what the home is worth.

He went on to say in his radio interview that real estate in the future may be less of an investment and more of a game of speculation. He pessimistically offered the view that optimism in the Edmonton real estate market is misplaced and that home buyers should be prepared for the fact that real estate will not always increase in value.

Edmontonians who want to purchase a home because they believe it's a good investment may want to think twice and rent for a while MacBeth urged. On the other hand, those who want to purchase a home because they need a place to live and that they will be consuming the value over their lifetime is a more acceptable outlook.

MacBeth's comments during this CBC interview come after a month when prices rose to the second highest level since this summer. Edmonton's real estate market has been on a bit of a roller coaster ride but the highs and lows have been relatively moderate.

The biggest decline in activity in Edmonton has been in the number of transactions in the resale market with 11% fewer homes changing hands in November over November 2015 and fewer listings hitting the market. The number of average days to sell a home in Edmonton actually fell by three.

The Realtors Association of Edmonton remains optimistic about the future of real estate in the city, the small bump in November not withstanding. That slight increase was a result of the sale of luxury homes in the city. Take those sales numbers out of the equation and the Edmonton real estate market still looks stable even in the face of rising unemployment in our province.

Reason for concern among investors

The vacancy rate in Edmonton could be a concern for investors as that number continues to climb. In November, Canada Mortgage and Housing announced Edmonton's vacancy rate for rental units was at 8.1% which is an alarming statistic next to the 3.7% vacancy rate posted Nationally.

The largest glut of empty units are in apartment buildings and multi-family units. CMHC also says that nearly 36% of rental units in Edmonton had new tenants move in. The National number for turnovers is 20%. The only thing keeping both the vacancy rate and turn over rate from completely going through the roof is the number of new people moving to Edmonton from outside the country.