Edmonton Housing Bust

Continuing to catch up on stories I couldn’t cover during the internet dark ages last month… the latest financials from Boardwalk came out, and with them some quarterly stats on the markets they serve. And after a quick look-see, it would seem the theme of the 3rd quarter of two-odd-ten.

On the rents front, not a whole lot changed it seems. Occupied rents were virtually unchanged, while market rents (asking prices) tracked up a tad. Market rents for Boardwalk in Calgary now stand at $1152, while in Edmonton they are $1050. Compared to the rest of Boardwalks portfolio around the country, in B.C. it’s $1049, in Saskatchewan $1028, $970 in Quebec, and $787 in Ontario.

Vacancy wise, Edmonton has stayed pretty consistent at 3%… Calgary is a tad lower, and a bit more volatile and as October sits at 2.6%. So Boardwalk continues to enjoy vacancy rates significantly lower in these markets then other rental outlets. Though that is not surprising, as with a much larger and established collection of properties they are much quicker to notice market conditions and respond accordingly.

About an hour ago Boardwalk released their latest financial statements, and with those some market stats… and as they are the dominant company in Edmonton, and one of the larger ones in Calgary, we like to use those stats for market updates. So, without further ado…

Looks like rents have stabilized, at least for the Boardwalk properties. Market rents (advertised rents for new tenants) are up slightly in Edmonton, but in a BIG way in Calgary. They’ve been enjoying quite low vacancy rates, especially in Calgary (historically, and relative to the rest of the market), and it looks like asking prices are headed up. This makes no mention of incentives being offered though, of which have been being increasingly offered.

The occupied rents (average of rents paid by established tenants) didn’t move nearly as much, but those two were up in Calgary by about $10 to 1,091 per month… whereas in Edmonton the occupied average continued to slide, and is now sitting at $1,034 per month. Generally we can see in the trends that whenever the “market rent” remains below the “occupied rent” generally both are in decline… where as when “market rent” > “occupied rent” both are increasing.

Now the vacancy front. In Edmonton we’ve leveled off this year around 3%. Calgary has seen a lot more fluctuation, they’ve been as low as 1.0%, but has recently rebounded up to 2.32%. These are still low historically for the company, but are also well below the market averages as we’ve explored earlier. So, knowing that vacancies were around 1% in Calgary, it’s not surprising to see their advertised rates take off last quarter. It’ll be interesting to see how they respond now that their vacancy rate has bounced back above 2% (depending on if the rate remains there or goes higher).

I guess for those looking in Calgary, Boardwalk may not be the most willing to give you a deal… but in Edmonton they still seem to be offering a lot of incentives, so they’d probably be more open to negotiation at this point.

Hope everyone is enjoying this spectacular weekend. I’m taking full advantage of it and typing this out on the deck and subjecting the neighbours to my neon white skin which may or may not have seen the light of day in the last calendar year. The girlfiend is sort of implied in a “you’re scaring the children and confusing the babies” way that I should put a shirt on and hit the gym. Everyone’s a critic. In any case, I promised an Alberta wide look at the rental market, and sun burn be damned, we’re gonna do it.

So I took six or the larger communities from the various region and we’ll take a quick look at how each has fared in regards to vacancies and average rents going back to 2003. So without further ado, lets get it on.

We’ll start with Edmonton, but won’t say much as we already covered them earlier this week. We can see here during the boom years that rents started to jump to when the vacancy rate was pushed below 2% (getting as low as 1.0%). From trough-to-peak it was a 44% increase. Since then vacancy rates have risen, and are now quite high by historical means, and rents have started to drop a bit, but now by a whole lot… just by 2% thus far in fact

Now we take a look at Calgary. Actually fairly similar to Edmonton. Vacancies there got a low at 0.5% for a fair bit… so things were really tight. The trough-to-peak increase there was also 44%, but since that time it has fallen a bit faster, now almost 6% lower than it’s peak. As we move outside the cities though, we’re going to find that vacancies are MUCH higher at the moment, also that each community has had very different experiences on the average rent front.

We’ll start with the much discussed Fort McMurray. Despite it’s remote location and relatively small population, they’re obviously the epicenter of our resource based economy. Those conditions also makes it more leaves it very susceptible to boom/bust cycles though, and we can see that whatever we’ve seen in the cities, was a mere fraction of what Fort Mac witnessed.

They had about five years on end with a vacancy rate of 0.3% or lower, practically nil. With more and more people pouring up there during that time, finding accommodations would have been near impossible and rents were extreme, those stories of people renting closets or couches for $700 a month was probably a lot more common than we thought.

Over that time rents more than doubled, and they weren’t low to begin with… in fact their starting value in Oct ’03 was higher than anywhere else in the province reached even at their recent peaks. Since then rents have fallen off by over 10%, and with vacancy rates over 13%, they will likely continue to fall.

Now we’ll take a peak at our North-West outpost in Grande Prairie. They currently have the highest vacancy rate in the province at 14%, that’s actually down from 15.5% in the fall, though I’m not sure that’s much solace for landlords there. They’ve had a rate of over 8% going all the way back to April 2008.

During the boom they had a serious run up in rents of 52%, second only to Fort Mac (though a distant second). With the prolonged period of high vacancies since rents have since fallen off by over 22% (more than double anyone else), and if the current trends continue they could actually fall back to 2003 levels within a couple years… they’re already back to where they were in early ’06.

Now lets head down Highway #2 to Red Deer. They’ve just entered the danger zone on the vacancy front in the last year, going from 3.9% a year ago, to 9.2% in the fall, and now at 8.7%. Rents are starting to fall off as a result down 3.8% from peak, but faired well compared with the northern communities. They didn’t have as bad a run up though, in fact it was even less pronounced than in the major cities, going up 36% from ’03-to-’08.

Finally we’ll head down to the South-East, and visit Medicine Hat. Other than the dipping in vacancy rate, you’d actually be hard pressed to think Medicine Hat had any kind of boom look at this graph. Rent increases were very gradual and consistent over the period… and only started to reverse when vacancy rates shot up.

Rents only went up 26% between ’03 and ’09… and only retracted 1% in light of the recent spike in vacancies. So while high vacancies (currently 10.7%) put downward pressure on rents, the downside risk would appear to be very limited, at least compared to communities like Fort McMurray and Grande Prairie which saw rapid run ups and are thus more susceptible to declines.

So, in conclusion, everyone seems to be going through the same things… but to wildly different degrees. Vacancies are quite high and rents are dropping as a result, but the each community is somewhat unique in their run-ups, and thus are destined for different experiences on their descents. In any case, for the immediate future it’s looking like these current trend will continue as the economic fortunes of all involved don’t appear likely to make any sudden shifts. And until we start seeing intra-provincial migration go back into the positives (and in a big way), these vacancy rates are likely to persist.

Seems updated bankruptcy data is not available, but no fear… the CMHC put out their latest spring report on the rental market for Alberta today… and lets just say it’s probably not a bad time to try to negotiate yourself a better lease. Rents continued to drop, and vacancies continued to climb here in Edmonton (I’ll try to do something for the rest of the province this weekend when I get time… but just as a spoiler for Calgarians, it was much the same but even more pronounced).

Lets just dive in, and start with vacancies shall we. As of April we’re now sitting at 5.2%… just a tick off the decade high of 5.3% hit back in ’04. This is up 0.5% from a year ago, and 0.7% from six months ago (not entirely sure who seasonality effects the comparison with spring and fall numbers, for what it’s worth). Obviously this is very high historically, the average over the last decade is just a tad below 3%.

As per vacancy by size of unit, it seems the bigger the unit, the higher the vacancy rate. Bachelors are sitting at 4.1%, 1-bdrms at 4.6%, 2-bdrms at 6.0, and 3+-bdrms are at 5.3%. Bearing in mind though, that 1- and 2- bedroom apartments make up almost 90% of the market… bachelor and 3+ units only make up about 6% each.

It’s interesting to note, that these increases in vacancies continue to occur despite a continued shrinking of supply… losing over 1,000 units since last spring (though only 70 from last fall). So the total number of rental units in the city continues to set new generational lows, now sitting at 58,970… having lost over 7,000 since the supply peaked in 2003 at 66,331.

So knowing that vacancy rates are nearing generational highs at the same time supply are at corresponding lows, and all in the face of rather large population over the period means that the renting population is dwindling severely… and likely a sign that a significant amount of demand has been brought forward and bought into the market. Which leaves a big void going forward in an increasingly soft housing market. So, for those looking to sell in the near future… good luck, you’re gonna need it.

And here for those that don’t care to do the math, a look at the number of vacant apartments in the city is now sitting at just over 3,000. This is again very high historically (average for the decade is around 2,000). This is up about 250 from last year, and 400 from the fall. So yeah, for those looking for ammunition for a discussion with your landlord, this would be a good item.

And finally, the stat you’ve all been waiting for… average rent. The market average is now $911/month… down from $928 a year ago, and $916 in the fall. When comparing sizes, it seems the bigger ones have been seeing bigger drops (no doubt in light of the bigger vacancy rate). The average 1-bdrm is going for $838, down from $841 in the fall, and $852 a year ago…. 2-bdrm are going for $994, down from $1015 in the fall, and $1059 a year ago.

Boardwalk released their first quarter financials tonight, and with that includes some information on the various markets they serve. I’ve been following these stats as these guys are probably the biggest players in the Edmonton rental market, and one of the larger ones in Calgary, so it’s relevant to our interests… and since the CMHC reports only come out twice a year they provide us with something to hold us over till they come out (btw, their spring report should come out next month).

Of course the number everyone wants to know is average rent… and it continues to fall. Average market rent in Edmonton now sits at $1,028/month, down almost $250 from the peak, $57 from a year ago, and $11 from last quarter. Calgary sits at $1,049/month, down $311 from the peak, $132 from a year ago and $44 from last quarter.

Edmonton is now back to their late ’06 level of rent, though as we can deduce from the Alberta plot and knowing Edmonton makes up the majority of their portfolio that they had already made very significant jump by that point. It will be interesting to see how these figures translate to the CMHC figures due out in June.

They also included vacancy figures, and while it seems to have stabilized in Edmonton, in Calgary the company is enjoying actually record low levels. As they are not as major a player in Calgary this may be a signal they have just been very aggressive in luring tenants… as we know from the first graph rents have been quickly dropping there, and the difference between rents in Edmonton and Calgary have narrowed greatly in the last year.

Again it will be interesting to see what the CMHC numbers look like. You have to wonder when rents are still dropping that much while the vacancy rate is so low… so I’d suspect the vacancy rate for Calgary as a whole isn’t nearly as low as Boardwalks portfolio is enjoying.

Seeing as Boardwalk announce their quarterly financials later this morning, I figured it’s a good time to do an update on the rental market. Fortunately they make a habit of posting their numbers online the night before, so for you early birds you can read the good stuff here before it’s even officially announced. You guys may recall I did a post using their numbers back in November, this one won’t be nearly as elaborate. We’ll just touch on the sexy numbers, rents and vacancies.

First up average rents. As we can see, rents are still trending down, but only slightly. But if you read through their full quarterly report you will note that incentives continue to increase significantly (page 20), which is hiding some of declines, particularly in regards to market averages. And from last time around, we also know that increased incentives are the last step before rent decreases really take hold. So, we’ll watch these numbers going forward.

Vacancy rates aren’t looking too bad. Their increased incentives in the last six months seem to have had their desired effect, and gotten them back in the a stronger range. These numbers don’t necessarily always reflect in the entire market numbers produced by the CMHC, which are a more complete look at the market… but Boardwalk is by far the biggest player in Edmonton, and a major one in Calgary. So these are a decent indicator in their own right.

Don’t really feel like running a bunch of numbers today, so I thought I’d mix it up and write something of a guide to comparing rentals. Not because I’m an expert by any means, but I have made some errors and learned some lessons over the years… and thus, probably would have found this at least a little helpful. Obvious much of picking a place to live boils down to individual taste/preference, but we’re going to focus on the more quantitative elements… and that you often need to look deeper than just the monthly rent.

When comparing rentals from a monetary perspective once you know the monthly charge, the first thing you need to look at are utilities (power, water and gas/heat). Some units will include all three in your rent… others will include none… and yet others, any combination in between. So this can make a big difference beyond just looking at the sticker price.

These can be difficult to account for if you’ve never had to cover them before. I know in my case while in university both the apartments I had included water and gas, so when I was looking for my last place I really didn’t know how much to budget those for as it included none. But over the last couple years I have tracked my payments, and while they obviously fluctuate to varying degrees depending on the season, I found that a good rule of thumb for an average apartment is about $50 a month each.

So if you were comparing two otherwise equal apartments, one including all utilities for $1,000 a month, against one not including any utilities buy renting for $900… you’d probably end up about $50 a month better off renting the $1,000/month unit, as after utilities you’d be paying about $1,050/month on the other unit.

This is as stated talking about apartments, mine being about 1,000 sqft it’s a fairly average two-bedroom size. If one was renting a house though, gas would certainly be more expensive, and increasingly so the larger the place is. Power would also cost you a bit more, and water is really more dependent on how many are living there so it wouldn’t really change. If you’re renting an entire house though, I doubt there would be many the did include utilities anyway.

I’ve never rented a basement suite, but looking at the ads online it seems many of them offer a deal where utilities are split along some lines with those living upstairs. As service charges make up a significant portion of monthly utilities, these should save you some money over paying them yourself. Like I said, I don’t know from experience, but as a guesstimation I’d say your monthly costs will be about $25-30 per utility.

Some buildings also include items like cable/satellite television and internet access with rents. These you know of have to factor for yourself, as if you don’t watch much tv, that obviously wouldn’t be worth anything to you. For someone like me though who would take advantage of both tv and internet, that could represent a value added of $100 or so. In some cases you’d have to make sure the packages were to your liking though… just in my case I have a Shaw PVR, which when not connected to Shaw doesn’t do a damn thing. And as anyone who has used a PVR can attest, once you start watching tv that way, you cannot go back to the old way. So, you need to find out those things and budget in cost of new equipment, and even that you’re losing a degree of control over those elements.

Then of course there are the other tangibles like location, parking, laundry facilities. Those a little harder to quantify, and higher dependent on personal valuations… but they are considerations you should try to account for when making your decision. In my case, when I was younger I lived in a couple places with common laundry rooms, and while they served their purpose I much prefer to have it in-suite.

And finally, with the market being pretty soft we’re starting to see significant incentives offered. Just in my complex they’ve offered all sorts of things, Oilers tickets, televisions, first month free, and now they’re just flat out offering $200 off per month (if you don’t know why they don’t just drop the price, go take a marketing class).

I don’t know if I’d call it a strategy, but I can’t think of anything better to call it, so here it is. First, figure out what you want in way of size, location and amenities, and find your target properties that share those. Then you compare costs, and remember base cost is only part of the story. You need to know what’s included, what’s not, and what incentives are offered for each, and allocate costs accordingly.

Once you’ve done that, you should have a very good idea of what costs come with each property and can make a sound decision based on total cost, rather than just the sticker price.

No surprises coming from the fall Rental Market Report from CMHC, rents are down from a year ago and vacancies are up in a big bad way. So, I guess we’ll start with vacancies and work our way to rents.

Here we see a big jump, especially in apartment vacancies over the last 12 months. Apartment vacancies stand at 4.5% (up 2.1% YoY), Row stand at 4.0% (up 0.9% YoY), which results in a market average of 4.4% (up 1.9% YoY).

The biggest jumps have came in 1-bedroom (4.5% vacancy) and 2-bedroom (4.7% vacancy) apartment units, up 2.3% and 2.2% respectively year-over-year. This is notable as combined those two divisions make up over 75% of all rental units in the city.

As we can see the total number of rental units available has continued to drop, down 700 units from last year and over 8,000 from just four years ago. So not only has the number of occupied units shrunk in the last twelve months, but the supply itself has contracted.

Finally we’ve arrive at rents, and here is a graph for the two most common unit types. Recently the CMHC has started offering a partial spring update (only covers apartments), so I’ve included those and we can see that the increased vacancy rate has finally started to soften rents.

Back in the spring we noted that even though vacancies were up in a big way from last fall, rents were actually still trending up. Now it seems the effects of high vacancies are starting to show up in rents as they are now starting to noticeably decline, particularly two-bedroom apartments and townhouses.

We explored the counter-intuitive phenomena of rents rising despite recent increases in vacancy rate last month, and explained it as a lagging effect due to the nature of the business. What was also interesting from that post though was the cycle diagram. Which showed that when vacancies start rising that before starting to offer reduced rents, first outfits will start by offering incentives.

I’ve been watching the offerings fora few buildings online over the couple years, and it it has been interesting to watching them evolve. A year and a half ago there were no incentives to be had, and advertised rents for new move-ins were at a significant premium over the market average…. then about a year ago as vacancy rates started to rise, we saw that premium disappear and move-in’s were only asked to pay what established occupants were paying. But there were still no real incentives, and hadn’t been for years as vacancy rates were super low.

Then as the year progressed the advertised prices stayed about the same, but we started to see incentives being offered. First things like halving the security deposit, then first month/partial month free… items that really don’t cost them anything since the units are sitting empty anyway.

Then come summer they started adding things like televisions, move-in allowances, tickets to sporting events, etc. Now I checked back this morning and their current offering is no rent for December, no security deposit, $500 move in allowance, and/or $100 off per month in rent.

So, they’re effectively cutting the rent but trying to avoid lowering their advertised rate. There is several reasons for that, including but not limited to not overtly pissing off established occupants who would find out they’re paying more then new ones.. and also when leases come up for renewal they can hope the occupant just rolls over and keeps renting the place sans the incentives at the advertised rate.

For the renters out there you have to be aware your landlord does play these games and you can get yourself a lot better deal if you play them too… especially in high vacancy environments like we have currently. If you’re established as a good occupant, they don’t want to lose you.

So, you should be able to march down and negotiate yourself a good 15-25% reduction from whatever they’re advertising (including incentives) if you haven’t already. If they’re willing to give any schmuck off the street a deal, you should be able to score yourself a real good one right about now… assuming you’re not a point in the ass, in which case you’ll probably find yourself shit outta luck.

Yesterday the topic of rent vs. buy calculations came up in a thread, and it reminded me I had done something of one on a spreadsheet a few months ago with the intention of sharing it but forgot all about. So, figured, what the heck, lets throw it out there.

I tried to balance keeping it as easy and intuitive as possible, while still making it highly functional… most others I’ve seen only as a little too overly simplified. So, you need to have some understanding of personal finance like opportunity cost, but it takes care of much of the messy and confusing stuff like insurance and annuities.

There were a couple practical allowances for opportunity cost and rental income figures, because both of those represent taxable benefits, but as there are an infinite number of rates those could be taxed at, I leave that for you to ignore or calculate for your situation.

For the comparison here I did a quick search and found two comparables, one for rent, and one up for sale. Both two bed, two baths, in the same building and about the same size. Used todays 5-year fixed rate, and filled in some of the other variables, but you can play with those at your own leisure and you can see for yourself how the results change.

Everything after “Calculations” is generated automatically, you just have to fill in the three input sections. I corrected some formula errors that were pointed out, so hopefully it’s right now, but please pipe up if you find more, or have any other comments, questions, concerns or suggestions on how to make it better.