Edmonton housing prices will eventually collapse, expert says

Real estate prices will eventually collapse in Edmonton and prospective homeowners should consider renting for a few years, says an Alberta investment manager.

"There's lots and lots of issues with the Alberta economy, being a boom-and-bust economy. We're not through the worst part of it yet," said Hilliard MacBeth, an Edmonton-based portfolio manager.

"A lot of people are saying that 2017 could be the bottom for the economy, and it certainly could, but that doesn't preclude the likelihood that housing prices will drop more before they finally bottom out."

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The housing market correction has been remarkablymild in Edmonton, given the economic tumult seen in the last year, said MacBeth. Alberta has lost 120,000 jobs since 2015 as a drop in oil prices sent the province into its first full-blown recession since 2009.

Though Edmonton has so far escaped the brunt of the downturn,MacBethsays homeowners will eventually feel the impact. He has no doubt housing prices will decline in the coming year.

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The latest numbers from the Realtors Association of Edmontonindicatethe selling prices for single-family dwellings picked up modestly in November, while condo prices fell more substantially.

The average selling price for single-family dwellings was $440,496, up 1.76 per cent from November 2015. Condo average selling prices fell 4.75 per cent year-over-year to $241,569. Duplex/row house average selling prices increased 4.23 per cent to $353,818.

MacBeth argues that the market has to return to where it was before the bubble began, and prices will decline by up to 50 per cent.

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He expects some homeowners will be hit harder than others. For example, high-end properties on the outskirts of Calgary have already experienced a sudden drop. But an average house in Edmonton has seen very little change.

"Home bubbles and bubbles bursting and the explosion in the level of debt in Canadian society are totally tied together," MacBeth said in an interview with CBC Radio's Edmonton AM.

"Most people have quite a bit of debt attached to their real estate, and that's the dangerous thing, because the debt stays the same even when the house price drops."

'A speculator's game'

Because the market has been strong for decades, many Edmontonians believe the sector is recession-proof. MacBeth says this optimism is misplaced.

"One of the big surprises to me ishow widespread the belief is that owning a home is a really good thing to do," he said."It goes through all levels of society, all kinds of people.

"The idea that prices always go up, it's a very false belief, but it's a very widespread belief."

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MacBeth believes this optimism in the resiliency of the marketis temporarily skewing housing prices.

"It's a very strongly held belief,so I suspect that's what it is," he said."The people that normallywould sell, if they don't get their price, they just pull it off the market rather than drop the price."

He advises prospective homeowners should instead rent a home for a few years.

Renting is currently a bargain in Edmonton, MacBeth said.

"If people think of a house as an investment, then everybody should sell their house and live in a rental place or move to a trailer," MacBeth said. "But if you think of it as a place to live, and accept that you will be consuming the value of that home over your lifetime, then it's OK.

"It's a speculator's game, not an investor's game."