January 7, 2015

A Reversal From The Days Of The Boom

Bloomberg reports on Canada. “Canadians who last year brushed off predictions of a real estate slowdown and kept buying houses are increasingly joining the doubters. The nation’s households are the least optimistic since May 2013 that home prices will keep rising, according to weekly polling data compiled by Nanos Research for Bloomberg. The share of survey respondents predicting higher prices fell to 31.1 percent last week, from as high as 47 percent in July. The survey results suggest policy-maker warnings about overvalued home prices are starting to sink in, amplified by plunging prices for crude oil, the nation’s biggest export.”

“The Bank of Canada estimates that house prices are 10 percent to 30 percent overvalued. That didn’t stop sales and prices from rising through most of 2014. ‘Any negative changes in real estate values coupled with low oil prices could be a one-two punch for Canadian consumer sentiment,’ said Nik Nanos, Ottawa-based chairman of Nanos Research Group.”

The Globe & Mail. “Collapsing oil prices could force Suncor Energy Inc. and its partners to defer spending at the $13.5-billion Fort Hills oil sands development, a project that has already been delayed for years due to fears over high costs. Today’s crude prices under $50 a barrel (U.S.) are well below the break-even level required for the northern Alberta project, where production is still two years off but spending is slated to be at its peak this year and next, analysts say.”

“The profitability of Fort Hills was questionable when the companies gave the project a green light, says Samir Kayande, analyst at ITG Investment Research in Calgary. Last year, Mr. Kayande calculated that the project breaks even with West Texas intermediate crude at $90 a barrel. Suncor had said it expected a 13-per-cent after-tax rate of return assuming West Texas intermediate oil prices of $95. ‘Given that the original decision to proceed was not economic, I don’t know what would make you stop,’ he said. ‘Now it’s really uneconomic so maybe it’s worth stopping.’”

From Global News. “Cutbacks in the oil patch have been the first shoe to drop from a collapse in oil prices. Alberta’s real estate market now appears to be the second, with new sales data pointing toward a chilly spring in Calgary and elsewhere in the province. ‘Fissures are starting to show in Calgary’s housing market,’ Sal Guatieri, a senior economist at Bank of Montreal said a day after the biggest city in the oil-rich province released monthly sales data for December.”

“Sales are down 7.5 per cent versus a year ago, while new listings have ‘gushed’ 42 per cent higher – a sign homeowners are racing to sell before market conditions deteriorate. Prices still rose a strong 8.8 per cent in Calgary last month, but the gains ‘looks to slow sharply, if not turn negative this year,’ Guatieri said.”

“In Edmonton, the picture isn’t all that much different: Prices are still rising but under the surface lies a drop off in sales activity coupled with a surge in new listings. The number of sales that took place last month in the province’s second biggest centre was flat compared to December of 2013, the city’s real estate board said. The number of homes hitting the market shot up 20 per cent.”

“The share of survey respondents from the province who said they expect home prices to continue to rise shrunk to under a third last week. In July, about half said home prices would continue to climb. ‘[Confidence among] households in the Prairies, whose expectations earlier in the year were the most optimistic, have plummeted and are now lower than in the Atlantic provinces,’ Robert Lawrie, an economist at Bloomberg, said.”

From the CBC. “Tracey Penney has never worked in the oil industry in Western Canada, but knows about 50 people who do, and are worried about their futures. ‘They’re really scared,’ said Penney, a resident of Charlottetown, a small community nestled inside Terra Nova National Park in eastern Newfoundland. Of the roughly 200 people who live in Charlottetown, about a dozen travel regularly to keep high-paying jobs in Alberta and other oil-rich western provinces. Penney also has deep connections to Robert’s Arm, a community of 800 in Green Bay, where many of her friends are now having difficulty finding work in the oil patch. ‘Nobody is hiring,’ said Penney.”

“There are also signs of a downturn in Fort McMurray, where media reports indicate rents are going down, and more and more For Sale signs are going up. It’s a reversal from the days of the oil boom, when companies were scouring the globe for workers and exorbitant housing prices were the norm.”

“Penney said some of her friends who relocated to Alberta over the years have also fallen on hard times. ‘They’ve bought houses and they don’t know what to be doing. They can’t sell them and they can’t come home because there’s nothing here for them to do,’ she said.”

Bits Bucket for January 7, 2015

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