When I googled the old saying “There is a thin line between genius and insanity” I wasn’t able to determine its origin but www.goodreads.com did have a cute line by Oscar Levant, “There’s a fine line between genius and insanity. I have erased this line”.
I guess one could say there is a fine line between investing and gambling and Edmonton is erasing that line. If you read my blog in March about Alberta economic indicators, we are firing on all cylinders. I guess you would have to have been in a cave for the last 10 years to not know Alberta is on fire, but at the moment we are really on fire. Commercial real estate prices, industrial especially, have been rising noticeably. The annual Edmonton Real Estate Forum (#EREF2014 on Twitter), which was held recently on May 8, had (for the umpteenth year in a row) all the speakers talking positively about Edmonton’s economic future. And I would have to agree for numerous significant reasons;
- The rest of the world has been scraping bottom for long enough to (relatively) safely say we are in the trough of a longer economic cycle and the only way out of a trough is up…eventually
- Ft. McMurray has been getting better and better at getting oil out of tar sands for less money than in the past, increasing the sustainability of the process
- They aren’t making any more conventional oil
- Canada is still relatively stable fiscally, especially compared to many western nations
But the question weighing on my mind, and apparently many others, is how long the current hot market can last? I mean industrial land in the Edmonton area has been rising and is now north of $700,000/acre with one knowledgeable agent stating at EREF2014 that it was hitting $800,000.
Well, the interesting thing to me was what was being said “between the lines” at EREF2014. While everyone was talking good signals for Alberta, many if not most of the builders, developers, and buyers were lamenting Edmonton prices. Just recently at a meeting at our office with an active large buyer of real estate, the gentleman stated that he wasn’t interested in a lot of the transactions happening in Edmonton because the numbers “just didn’t make sense”. And therein lies the key. Those three simple words “don’t make sense” are words you usually hear when the price of something becomes unsustainable.
More comments were made about other aspects of real estate valuations in Edmonton and Ft. McMurray, but you get the point.
Okay, so the bottom line. I feel Edmonton (and Alberta) is still in for many good years of economic activity but I suspect the hot market will moderate some. More developable land will come on line and/or more sophisticated buyers will feel that numbers “don’t make sense”.
Remember though, there’s a thin line between predicting the future and insanity. I’m sure I’m blurring the line.