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Canada’s Economy to “Weaken”

They had an ’emergency’ panel over at the Economic Club of Toronto this morning before Stats Can releases some reports that may freak people out. That’d be the building permit reports today, and the housing price index and labour force survey on Friday. The five pannelists were  Warren Jestin of Scotiabank, Don Drummond of TD Bank Financial Group, Avery Shenfeld of CIBC World Markets,  Douglas Porter of BMO Capital Markets and Craig Wright of RBC Financial Group.

The lead of the Financial Post article is very telling.

Canada’s economy will post little or no growth over the next year as world growth slows and the U.S. battles recession, a panel of Canadian economists said Monday. – FP

What that’s saying is that the slowing of the economy will be due to external factors, and not due to any flaw or issue with the Canadian economy. It’s due to a slowdown while the US digs itself out, and the rest of the world gets things reset and moving again. When Craig Wright from RBC says “[US] recovery would take a long time”, he’s talking about 2-3 years. I agree, and 2-3 years of slow US growth is ok with me.

Warren Jestin from Bank of Nova Scotia predicted an interest rate cut of a full point in the overnight rate, which would be fine with me, but I am concerned about inflation in the west, primarily as a resident.

As an Alberta real estate investor, Avery Shenfeld from CIBC World Markets made a comment that made me happy.

As the global economy sinks into recession, both federal and provincial governments should not go out of their way to avoid deficits.

Alberta’s been in the black for a while now, and it’ll be important to maintain that.

It’s time to buy in Alberta

Slow growth is fine, and the housing market will remain a buyer’s market. The economy which powers Alberta’s growth is fundamentally strong, and this global slowdown will be like holding a runner back with an elastic band….eventually it’ll let go. The damper will be off and thing will be running full steam again. In the mean time, we’ll be showing flat or small growth when the rest of the world is going backwards.

Don’t get freaked out. Buy smart, make sure it cash-flows, and hold for the long term. In five years things are going to be very, very different, and whatever the economy does, in the long term Alberta real estate is your best bet.

{ 4 comments… add one }
  • Pugnacious Serf October 9, 2008, 8:17 pm

    The easiest way to become a real estate millionaire is to start out as a real estate billionaire.

    It’s time to buy in Alberta, famous last words…

  • Chris October 9, 2008, 10:00 pm

    @Serf, I’m sure it’s no surprise I disagree with you, but I agree that there’s the potential for people to invest foolishly and ‘loose’ great sums of money. However, it’s not very likely with the way I and other REIN members invest.

    Perhaps your comment is based on experience, in which case I’d like to hear more to help my other readers.

  • Pugnacious Serf October 10, 2008, 11:22 am

    I have family in Texas, which was king the last commodities bull in the early 80’s. Job loses were in the 200K range because of the dip in commodities. An economy that was supposed to be close to “unstoppable”, sort of like the current situation in Canada.

    I was looking for Tal quotes(Actually him talking about Dodge being an alarmist on the 40 year mortgage) and came across your site, I think he’s a glass half full guy whom underestimates the “emotion” of the common man. I take little value in his comments and projections as he had an vested interest in selling mortgages and products via CIBC.

    Regardless, your going to lose RE customers because of the lose of credit availability and the result of lack of capital for oil and mining projects, but I will say that in a few years, you will be in the right environment to pick up cheap properties from distressed investors.

    Good luck, in the mean time, prepare for some growing pains. Check out this link that has some info on Texas and the outcome of the commodities bust in the early 80’s, it doesn’t mean that Canada or Alberta in particular will follow suit exactly, but history is the best predictor of the future and USA/Canada has been down this road once a decade since the inception of markets.

    Good luck!

    http://www.dallasfed.org/research/swe/2002/swe0201a.html

    March 1982 to April 1983. The early ’80s recession was sparked by a decline in energy prices and a sharp U.S. recession. This recession started the bursting of the Texas energy bubble. The early ’80s recession led to a loss of 208,000 jobs in Texas, or roughly 3.3 percent of employment.

  • Chris October 10, 2008, 12:30 pm

    Thanks for the link to that article. That’s an interesting review of the Texas bull. I think there’s lots to be learned from their experience, but some important differences as well.

    As for distressed properties, I think we’re already seeing what I call great deals. As far as losing customers, I don’t see that happening. My ‘customers’ are my tenants, and if credit is tight then I’ll have more people renting. And if my family, my partners, and other REIN investors made money back when we had double-digit interest rates, then I’m pretty sure we’ll rock out now. You’re right that the short term is going to suck, but the slightly longer horizon is going to be great. And real estate will suck less that just about any other place you’d put your time and money.

    Also, Ben Tal works for CIBC World Markets, which is independent from their mortgage arm. He has a far more vested interest in being right than in selling mortgages.

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