does it make sense to start pouring money into Saskatchewan? Is it too late in Alberta? Have you missed the boat? Alot of investors sure think so, and that’s why real estate agents in Saskatchewan are amazed at the number of people from Alberta who are buying up houses and investment properties there, sight unseen, many cases over the phone. But hold on here. What’s causing this run up, and is it sustainable? All you have to do is look to the fundamentals for the answers to the important questions. As I always say, real estate investing is simple, and if you have a good understanding of fundamentals, you can see why certain things happen in some markets, and also predict what will happen. The single most important driver of real estate prices is population growth. If people continue to move to an area, over time that real estate market will increase, simply because of the supply/demand impact. More demand from new citizens results in higher pressure on the existing supply of houses .. and prices move up as a result. This explains why Alberta’s real estate market has been so strong. We’re continuing to see record in-migration and Calgary’s population alone has grown by over 30,000 people in the last year, a increase of 3%+ of the population base. That may not seem like a lot, but if you understand economics, that’s a MASSIVE increase. And Calgary’s been experiencing it for the last few years. That explains why Calgary’s prices have about doubled in the last 4 years. So, given the amount of growth and price increases in Saskatchewan, population growth must be at all-time highs, eclipsing what Alberta has been seeing. Right? Wrong. In fact, for the last several years, Saskatchewan has been LOSING population EVERY YEAR. It has only been in the last few months where some of the statistics are showing that the loss of citizens has slowed. They’re thinking now it MAY come to break-even, where the province isn’t losing people over time. The problem here is that if the population remains the same, or declines (as it has for many years in Saskatchewan, including the past year), that doesn’t bode well for real estate prices. Yet, prices are up 40% and more in a lot of areas of Saskatchewan! How is that possible? The answer is speculation. What’s driving Saskatchewan’s stunning growth in prices right now isn’t based on fundamentals in my opinion. What you are seeing is a predominantly emotional reaction from investors who feel like they’ve missed the boat in Alberta and B.C., and are trying to find the next boom. I’ve heard stories from investors and real estate agents that report some houses have received 8 or 10 multiple offers from investors, within hours or days of a property going on the market. And in many cases, all of the offers are from Alberta investors who have no intention to live in the property. While it’s true that there are some people taking their equity from Alberta and B.C. to move back home and enjoy a king’s life in Saskatchewan, the media is vastly overblowing this impact. A lot of people think this boom in Sask is driven by all of these former residents moving back after making a bunch of money elsewhere. The fact is, there are some of these people, but there are not enough of them to be causing this current boom. There’s absolutely an opportunity to make a bunch of money in Saskatchewan, just like there is in any volatile market. However, you need to know what you’re doing, and recognize it’s a temporary market. The long-term fundamentals are simply not there across the border. I expect by next year, you’ll see a quick softening of the market, and then possibly a long trough of stagnant prices, and possibly some declines. Investors who are buying properties blind right now and don’t understand fundamentals are going to get caught in the frenzy when they realize the market can’t support what’s happening right now. I’d equate this to some of the speculative markets in the U.S. that were driven by investors, and not by true market fundamentals. A lot of people are suggesting that because Saskatchewan has commodities such as uranium and some of the oil sands, it will experience a similar boom like Alberta. The reality is that Alberta is THE centre of oil sands activity. Even if projects start up in Saskatchewan, most of the infrastructure will be used in Alberta since it’s already there, or is already planned and committed. As well, if you look at some of the maps as to where exactly the oil sands deposits are believed to be in Saskatchewan, they’re way far north — away from the major cities in Saskatchewan. This means that those cities will not experience the kind of population or economic booms that have been seen in cities like Fort McMurray, Edmonton and Calgary. The truth is, because of fundamentals, Alberta has several more years of significant growth and prosperity ahead of it. And that’s not speculation .. that’s fundamentals. So, if you’ve been feeling like you missed out in Alberta, and you’re looking to Saskatchewan for the next run up in prices, be VERY careful. There may be some room to grow yet in this current speculative market, but the lights will go out in the next year or so, and then you’ll find out whether you’re an investor or a gambler.]]>