After a bull market like the one we experienced prior to 2022, it can be tempting to stick to the same investment strategies that have been working. But the underlying economic factors are set to be materially different in the coming years, which means the market is likely to look very different from what we’ve seen in the past 10-plus years.
The days of Alberta bleeding residents to other provinces are gone, at least for now. In the second quarter alone, the province saw a net gain of about 10,000 people thanks to moves from other parts of the country, especially from Ontario.
But people aren’t just moving themselves and their families to Alberta — a high number are moving their money.
In recent years, Calgary has seen a spike in out-of-province homebuyers scooping up investment properties they can rent out, with the primary motivator being comparatively cheap real estate.
“Prices in Toronto and those other cities are completely out of reach, not just for end users but for investors as well,” said Kyle Dovigi, a Toronto-based real estate broker who markets himself as the “Condo Millionaire” and who deals primarily in investment properties.
“So people look outside of their markets [and] Calgary is a very, very appealing market.”
And depending on whether you’re an investor, a renter or a buyer, the phenomenon may mean different things for your bottom line.
On the one hand, out-of-province real estate speculation has the potential to drive up prices for would-be homebuyers who actually live in Calgary.
On the other, the trend could be viewed as a vote of confidence in the Alberta economy — and a source of much-needed rental properties in an increasingly tight market.
What’s driving it
The influx of out-of-province investment began just before the pandemic, right as the Calgary economy began to recover from the 2014 oil crash and rents started to rise.
“Just before COVID, [in] 2019, I [was] first starting to see the trickling of investors, and then that slowly started to speed up,” said Natasha Phipps, an investment specialist Realtor with CIR Realty in Calgary.
“[By the] spring of 2022, I felt like we were having, like, planefuls of people coming from Ontario to invest in Alberta,” said Phipps, who said about three quarters of her sales in the last year have been from out-of-province buyers — and she was fielding a call from a Toronto area code during an interview with CBC News.
Even as home prices in Calgary have risen, it’s remained more affordable to buy a Calgary condo than in other major cities, she said. And it’s also more likely that investors can cover their expenses through rent without having to fork out a chunk of cash every month from their own pockets.
“In many other Canadian markets that’s just not possible anymore,” she said.
In Calgary, the average condo sale price is about $297,000, whereas it’s just over $720,000 in the Toronto region and $769,000 in the Metro Vancouver area, according to the regions’ local real estate boards.
Still, the lure is about more than cheap condos. Buyers in Alberta don’t face land or property transfer taxes as in Ontario or B.C., where they run between one and three per cent of the final sale price on properties that cost more than $55,000. There’s also no cap on rent increases and housing legislation can be seen as beneficial to property investors.
“The tenancy laws really favour landlords to a much greater extent than elsewhere in Canada,” said John Andrew, a real estate consultant and retired professor at Queen’s University in Kingston, Ont.
“There’s a very strong economic outlook right now for Calgary, wages are relatively high, so it’s pretty favourable at the moment for people in other parts of Canada — especially in Toronto — to be investing in Calgary real estate.”
Developer Cole Haggins said about 70 per cent of his sales lately have been from Ontario buyers, the majority of them investors.
“[It’s] extremely unprecedented,” said Haggins, president of the multi-family home builder Cedarglen Living, who said the trend kicked off about a year and a half ago. “We have seen investors in the past, but they’re usually Calgary-based investors and not nearly at the same level.”
Paul Battistella, a managing partner at Battistella Developments, has noticed a similar trend. The developer is building a condo complex near Calgary’s downtown and said about half the buyers have been from Ontario.
“We’re becoming a rental building, but it’s not one owner that’s holding it — it’s, you know, 100 owners that are having these individual [units] for rent,” he said.
There’s been a huge spike in the number of Ontario real estate agents applying to become licensed in Alberta. The Real Estate Council of Alberta typically gets about 100 “labour mobility” applications per licensing year, but in the 2021-2022 year it had almost 600, the vast majority of them from Ontario, with B.C. coming in second.
The trend has also meant more demand at the Calgary property management firm Hope Street Management Corp.
President and CEO Shamon Kureshi described the company’s typical client as a “jet-setter” — for example, a Calgarian who has recently taken a new job in Texas or Silicon Valley and wants to rent out their home — but these days, he’s fielding more calls from clients in Toronto and Vancouver.
“The ratio of those jet-setter-type clients that we’re used to is going down, and the ratio of investor type clients is going up,” said Kureshi, who added that a silver lining to the trend is a rise in the pool of available rental stock in the city.
As winter sets in, there are signs the trend has started to cool and there is debate about whether it’s a temporary slowdown that will pick up again in the spring.
At the outset of 2022, Calgary mortgage broker Josh Higgelke was getting “a ton of calls” from investors in Ontario and B.C. Nowadays, he said, that’s changed — he still gets plenty of out-of-province inquiries, but most of them are from people who are actually planning to set up new lives in Alberta.
“With the increase in interest rates that we’ve seen, the market has somewhat softened for the investor,” said Higgelke.
Some maintain the long-term outlook for the Calgary market is solid. The oil and gas sector, always a core part of the economy, is raking in cash these days, but the local tech industry is also growing.
And as long as people are moving to Alberta, whether it’s for work or in search of a different lifestyle, they’ll need places to live.
“It’s probably a pretty good bet that there will be growing demand for these income properties,” said Andrew of Queen’s University.
Predictions for the housing market, lower internet costs and stable stocks: Must-read business and investing stories – The Globe and Mail
Getting caught up on a week that got away? Here’s your weekly digest of The Globe and Mail’s most essential business and investing stories, with insights and analysis from the pros, stock tips, portfolio strategies and more.
High interest rates will continue putting pressure on Canada’s housing market
The Bank of Canada this week increased interest rates for the eighth consecutive time but said that it expects to hold off on further hikes to “assess whether monetary policy is sufficiently restrictive to bring inflation back to the 2-per-cent target.” As Mark Rendell reports, the central bank raised its benchmark rate by a quarter of a percentage point, bringing the policy rate to 4.5 per cent, the highest level since 2007. With borrowing costs and mortgage rates at their highest level in years, many potential homebuyers have been shut out of the real estate market, writes Rachelle Younglai. The typical home price across the country is already down 13 per cent from its peak last February amid the bank’s attempts to rein in runaway inflation by reducing access to cheap loans. As such, the bank is predicting home prices will decline further before sales pick up later in the year.
These stocks offer portfolio stability amid rising prices
Rising interest rates were the main contributor to the woes of the stock markets in 2022. Interest-sensitive securities such as REITs, utilities, telecoms and bonds all tumbled as rates steadily increased. Combined with the collapse of tech stocks as the economy that benefited from pandemic lockdowns dissipated, we ended up with all the major stock markets in the red, and the Canadian bond market experiencing its worst loss in four decades. But there were some inflation-beaters. Gordon Pape looks at a number of inflation-beating securities that thrived in a rising price environment and are still doing well, although momentum is slowing.
The clearest sign that inflation is declining
When assessing inflation, central bankers and economists will often exclude food and energy costs, but in a recent report, Karyne Charbonneau, executive director of economics at CIBC Capital Markets, said the Bank of Canada should consider the rapid climb in mortgage interest costs “when judging the underlying inflationary trend.” As Matt Lundy writes, while the bank is raising interest rates to cool demand and tamp down inflation, its efforts are having the opposite effect on mortgage payments, which have jumped 18 per cent in the past year. Although mortgages carry only 3-per-cent weight in how the Consumer Price Index is calculated, the increase is substantial enough that mortgages are now the largest contributor to annual inflation.
Could lower cellphone and internet costs be coming?
Lowering cellphone and internet bills is a top priority for Vicky Eatrides, the new chair of Canada’s broadcast and telecommunications regulator, Irene Galea reports. Unfortunately, Ms. Eatrides is inheriting a commission that is widely seen as slow to make decisions. The continuing legal proceedings of Rogers Communications Inc.’s takeover of Shaw Communications Inc. are attracting unprecedented attention to the inner workings of the telecom industry and the future of cellular service competition in Canada. Meanwhile, two CTRC policies, concerning industry rates for broadband and wireless networks, finalized during the previous chair’s term, are still being debated among industry players. Ms. Eatrides would not reveal specifics related to her plan to lower cellphone and internet costs, but added she hopes to speed up the commission’s decision-making process.
The real savings of owning an electric vehicle
With gas prices yo-yoing this past year, are the savings associated with the lower operating costs of purchasing an electric vehicle ultimately worth it? David Berman, a Hyundai Ioniq 5 owner, compares charging costs for EVs to gas-powered vehicle costs over the same travelling distance. “I’ve driven almost 10,000 kilometres – did I mention that I don’t drive much?” he writes. “I’ve saved about $780 over the past year. Over 10 years, these savings would rise, theoretically, to a total of $7,800.” Additionally, he got a $5,000 federal EV rebate when purchasing the car in Ontario in early 2022, whittling down the nearly $50,000 list price for his vehicle to about $37,200 compared with a hypothetical gas-burning version of itself.
Record-low rental vacancy rate
There are fewer apartments available to rent in Canada than at any time since 2001, according to Canada Mortgage and Housing Corp’s annual rental report released this week. As Rachelle Younglai reports, the country’s apartment vacancy rate dropped to 1.9 per cent in 2022 – down from 3.1 the year before and the lowest level in more than two decades – owing to higher net migration, the return of postsecondary students to the campus and the spike in borrowing costs. The country’s largest rental markets were under particular stress, with Toronto’s apartment vacancy rate dropping to 1.7 per cent last year from 4.4 per cent in 2021, Montreal to 2.3 per cent from 3.7 per cent and Vancouver to 0.9 per cent from 1.2 per cent. The national average monthly rental price for a two-bedroom rose 5.6 per cent to $1,258 last year, with Vancouver and Toronto commanding the highest rents at an average of $2,002 and $1,765 monthly.
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Now that you’re all caught up, prepare for the week ahead with the Globe’s investing calendar.
3 reasons dividend stocks can lead the next bull market
Dividends may make up a larger portion of the total return
Over the past decade, dividends have contributed less than 25 per cent of the S&P 500’s total return, as years of low interest rates helped inflate asset valuations. Historically, though, dividends have made up a larger portion of the market’s total return. Dividends have accounted for an average of 40 per cent of the S&P 500’s total return since the 1930s, according to data from Fidelity Investments.
If inflation remains high, it will be very difficult for the market to grow via multiple expansion as it has during the past 10 years. This opens the door to dividends regressing to the long-term mean and making up a larger percentage of the total return than it has recently.
Valuations are attractive for dividend stocks
Dividend-paying stocks are currently undervalued relative to the broader market judging by the price-to-earnings (P/E) ratio. The P/E for dividend-paying stocks in the S&P 500 Dividend Aristocrats was lower than the P/E for the S&P 500 as of Dec. 30, 2022. This suggests dividend-paying stocks may offer better value for investors compared to non-dividend-paying stocks.
This is common during a bear market like the one we experienced last year. The good is thrown out with the bad, as companies with consistent earnings are sold off with the same urgency as less profitable companies. This creates an opportunity that can be identified by using the P/E ratio.
Great companies with robust business models and long histories of profitability rarely go on sale, so this can be a great opportunity to add quality names to a portfolio.
Better track record
Dividend-paying stocks have outperformed non-dividend-paying stocks over long periods of time. A study of the S&P/TSX composite index from 1986 to 2021 by RBC Global Asset Management found that stocks growing their dividend had an average annual return of 11.2 per cent compared to 6.5 per cent for the overall index and an abysmal 1.4 per cent for non-dividend-paying stocks.
This trend has even held up during economic recessions, as dividend-paying stocks have shown to be more stable and less volatile than non-dividend-paying stocks. For example, the same RBC study found that dividend-paying stocks in the composite index had a standard deviation (a measure of volatility) of 13.9 per cent, compared to 23.3 per cent for non-dividend paying stocks. This indicates dividend-paying stocks have been less volatile over the long term.
Remember that investing in the stock market carries risks and a professional investment adviser can help assess your investment goals and risk tolerance and develop a personalized investment strategy tailored to your specific needs and circumstances.
Taylor Burns is an investment adviser at Manulife Securities Inc. and Balanced Financial Wealth Management. The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Inc.
Weaker Orders, Investment Underscore Ailing US Manufacturing
(Bloomberg) — US manufacturing showed more signs this week of succumbing to the Federal Reserve’s aggressive interest-rate hikes that are taking a bigger bite out of demand and risk upending the economic expansion.
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The government’s first estimate of gross domestic product for the fourth quarter and a report on December factory orders for durable goods pointed to sizable downshifts in both spending on business equipment and bookings for core capital goods.
The durable goods report Thursday showed orders for nondefense capital goods excluding aircraft — a proxy for business investment — dropped 0.2% in December after no change a month earlier. Over the fourth quarter, bookings for these core capital goods posted the weakest annualized gain since 2020. Shipments, an input for GDP, decreased for the third time in four months.
“Taken in tandem with the output data where industrial production has declined in six of the past eight months, it is increasingly evident that the manufacturing recession is well underway,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note to clients.
Also on Thursday, the GDP report showed outlays for business equipment dropped an annualized 3.7%, the largest slide since the immediate aftermath of the pandemic. That decline was part of a broader demand slowdown, which included a smaller-than-forecast advance in personal spending.
While GDP growth beat expectations, details of the report that offer a clearer picture of domestic demand were decidedly weak. Inflation-adjusted final sales to private domestic purchasers, which strip out inventories and net exports while excluding government spending, rose at a paltry 0.2% rate — also the weakest since the second quarter of 2020.
Last month’s retreat in core capital goods orders indicates manufacturing output, which already registered sharp declines in the final two months of 2022, may struggle to gain traction this quarter.
Read more: Weak US Retail Sales, Factory Data Heighten Recession Concerns
The slump in housing is also spilling over into producers of non-durable goods. Shares of Sherwin-Williams Co. tumbled this week after the paintmaker pointed to pressures stemming from a weak residential real estate market and inflation.
“We currently see a very challenging demand environment in 2023 and visibility beyond our first half is limited,” Chief Executive Officer John Morikis said on a Jan. 26 earnings call. “The Fed has also been quite clear about its intention to slow down demand in its effort to tame inflation.”
An accumulation of inventories only adds to the headwinds. Inventory building accounted for about half of the 2.9% annualized increase in fourth-quarter GDP. For the year as a whole, inventories grew $123.3 billion, the most since 2015.
With demand moderating, there’s less incentive to ramp up orders or production as companies make greater efforts to sell from existing stock.
In addition to the aforementioned data, the latest surveys of manufacturers show sustained weakness. Measures of orders at factories in four regional Fed surveys have all indicated multiple months of contraction.
All surveys released so far for this month are consistent with an overall contraction in activity that extends back through most of the second half of 2022.
Next week, the Institute for Supply Management will issue its January manufacturing survey and economists project a third-straight month of shrinking activity.
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