The Oil Crisis – What it means for Home Values
With the value of oil tumbling 46% since June 2014, Canadians are beginning to show a loss of confidence in markets, and more particularly, real estate. There have been about 40 oil and gas rigs taken out of operations recently because of unprofitability. Analysts believe this is just the beginning. With one of the highest costs for operations in Canada, more oil rigs are likely to close as the profit margin shrinks.
As RFS has explored earlier, the battle of whether we are in the midst of a bubble or not has been a conversation for many years now, as the market shows gains each year. Although many say Canada is different from what transpired in the US in 2008 because of its stronger mortgage market, a bigger reason could be the strength of the commodities market. However, now with the commodities market in the midst of a dip, could there be the much feared correction/pop?
The Bloomberg Nanos Canadian Confidence Index fell to 56.2, which is the lowest since February 2014. As expected, the confidence dropped most in Alberta, due to the oil price crash.
The latest Bloomberg Nanos survey showed growing pessimism over home values. The percentage who said prices in their neighborhoods will be higher in six months fell to 34.7 percent, the most dismal reading this year, and those who said prices will be lower rose to 13.9 percent, the most since March.
A few reasons for a potential pop:
1) Canadian debt levels at all-time highs
2) Canada Mortgage Levels Near US Pre-crash
3) Renovation Expenditures – the amount spent has staggered over the last 3 years