“just like California, that’s where real estate here is at. Way too expensive. It’s gonna be a bloodbath here in Calgary next year, and I can’t wait ’cause I’m going to buy something cheap”. Based on that comment, I assure you this is NOT the Wealthy Barber I’m talking about. Sure, when prices go up 50% in one year, you have to look closely to see if there’s some “irrational exhuberance” happening .. but I am a firm believer that this isn’t the case in Calgary, and the prices are solid and not going down any time soon. The Calgary market has long been one of the most affordable places to buy a house in all of Canada. As recently as last year, Alberta was the most affordable province in which to own a home. Even though Edmonton is the province’s capital, Calgary has always been the lead city in Alberta simply because (in my belief) it is a more cosmopolitan city, and has the added benefit of being less than an hour from the Rocky Mountains. Unless you’ve been living in a cave, you have probably some (or a lot) about the vast oil reserves located in Alberta, primarily in the “oil sands” which are located on the north and east side of the province. Because so many oil companies are headed in Calgary, this has created a boom unlike the province has ever seen. So, if prices are up 50% year over year, logic says: how could that NOT be a bubble? The answer lies in the concept of affordability, which measures how many cents out of each dollar a homeowner makes that goes to home ownership costs. History tells us that the “healthy” percentage is about 1/3 of income going to home ownership costs. So, an affordability index of 30-35% is considered very healthy and typical. In places like Vancouver, the affordability index is almost 70% — meaning that the average person has to pay 70% of their paycheque just to home ownership costs. In comparison, the most recent RBC Affordability Index Report shows that Calgary is a little over 30% – a very healthy place to be. In other words, even though prices in Calgary have skyrocketed, the ability for the average homeowner to afford higher costs is very high. This is happening because of the incredible labour shortages in Alberta, causing wages to go up significantly. Year over year, the average $/hour rates being paid to some people are going up to 20%, 30% and more. Coffee shop workers are able to make $15.00 per an and more .. and the shop owners STILL can’t get enough to people to work! As I always stress when talking about real estate, it’s all about the numbers, and all about the fundamentals. It’s critical not to look at just one or two numbers and draw (wrong) conclusions about a market — which is how the vast majority of newspaper articles are written. Always look past the headlines to see what’s really going on in a market. That’s how professional investors make money .. by understanding a market better than the ‘herd’, and making decisions based on fact, not emotions. Contrary to a lot of the hype and emotional investors out there, I believe the run in Calgary is not over. We’re in a breathing period right now, but we will start to see the number of listings on the market decline, and I think in 2007 we’ll see price increases in the range of 14-18% year over year. And if you can’t make tons of money with those kind of market fundamentals working for you, there’s something wrong! Unfortunately, the guy in the barber’s chair agreed with the sage advice he was hearing, and said “we’re listing our house right now because we want to get out before the prices drop”. Unfortunately for him, I’ll take any bet someone’s willing to make with me that this time next year, prices will be higher than they are now .. and likely, significantly higher. Time will tell. But my advantage is that I understand how to read the market better than the barber.]]>