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First Time Homebuyers Should Buy Before It Is Too Late

By: Wesley Gunderson

Speaking with first time homebuyers I get the sense that rising prices are limiting choices and pushing them out of the market. Sadly this trend will continue as regulation and competition are making homes less affordable.Fortunately Albertan’s enjoy the most affordable housing in the country due to high incomes and low interest rates. Still mandatory new home warranty changes, lumber prices and energy code changes are set to push more first time buyers out of the market. These buyers should buy now while cost and rates are low.

1. Mandatory New Home Warranty

The Alberta Government’s New Home Buyer Protection Act will come into effect this fall. And while increased protection for consumers seems like a good idea it comes at a cost; it will likely triple or quadruple warranty cost for builders, a cost that will ultimately be passed on to buyers.

The average home buyer who does their homework and picks a reputable builder is likely to experience minor, or even no, warranty issues. For this buyer, these are added costs without any added value.

This legislation was driven by the unfortunate situation that arose when the Penhorwood Condos in Ft. McMurray were found to be structurally unsafe and consequently condemned. While I empathize with their situation I am skeptical of government mandated, one size fits all solution, especially for outliers or once in a lifetime events.

Here’s why: Alberta has had roughly 32,000 housing start over the last few years. If this new Act added $1,500 in cost to each of those starts we are talking about $48M more in costs to consumers. Meanwhile the Penhorwood owners need $35M to rebuild, once. The $48M however continues to get charged to consumers (at a 32,000 start level with the assumed increase in cost of $1,500) in perpetuity. The real win

Does it solve the problem, maybe, but not in a cost effective way for consumers. And not when the vast majority of homes have no major warranty issues.ners are the warranty and insurance companies.

2. Lumber, Specifically OSB Prices

A key element of wood frame construction is Oriented Strand Board (OSB), it provides sheathing for the roof, walls and floor. Over the past year a sheet of OSB has gone from $5.99 to $15.99. An over 125% increase. The main driver causing this is a U.S. housing recovery increasing demand. Other lumber prices are also affected, not quite as dramatically as OSB.

What this means is the cost to build a home today versus last year is thousands of dollars higher. Some of this has already been passed on to consumers, but not all of it for fear it would slow sales.

3. Energy Code Changes

Slated for adoption later this year or early 2014 is the National Energy Code for Buildings (NECB). This may make homes cheaper to operate, but increase the upfront costs to buyers. There are 245 changes that will improve efficiency requirements by 26% over the old code. Homes built with the new NECB will be comparable to EnerGuide 80 or BuiltGreen Gold homes.

What this means is the cost to build homes with the NECB changes will be thousands of dollars higher. Admittedly these changes may pay for themselves over time. Operative word is may.

Conclusion

All these changes will continue to push prices and consequently push First Time Homebuyers out of the market or limit their choices. My recommendation is to buy now and capture today’s savings while they last. Especially with interest rates so low
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Posted on April 23, 2013 by matthews in Marketview, News Leave a comment

Improving Outlook for Alberta Oil

By: Wesley Gunderson

It comes as no surprise to Albertans that oil is the driver of our economy. As investment has poured into the province, production of the oil sands is now greater than ever, and this is projected to continue.

With the price of oil elevated and relatively stable last year many have been caught off guard by the Provincial Government’s talks of huge deficits and potential budget cuts or tax increases.

The problem is that Alberta oil, by and large oil sands or bitumen, does not trade at the price of West Texas Crude (WTI) or Brent Crude, but rather a new benchmark called Western Canadian Select (WCS). This benchmark trades at a discount to WTI.

Historically the WCS discount has been $16 per barrel or around 20% off the price of WTI. In 2012 however this spread increased to around $40 per barrel or 40% off the price of WTI at year end.

What the Premier has been calling a “bitumen bubble” is more of a bitumen backup. All this production needs to get to refineries. Pipelines carrying our oil are at capacity, and maintenance issues temporarily reduced capacity last year compounding the problem. Our refineries are at capacity and the U.S. refineries we need to get to are on the other side of full pipelines.

Given all these factors, why do we expect an improved outlook for Alberta oil?

In the short term pipeline maintenance has been largely completed. In the long term we expect increased capacity and utilization improvements. The energy and pipeline industries are working to better utilize the capacity we have by converting and even reversing some existing lines, and through better scheduling and planning. They are also trying very hard bring on new pipelines that benefit both the Canadian and U.S. economies alike that are stubbornly being prevented by politics and lobby groups.
Rail lines have begun transporting more and more Alberta oil as well, easing the backup somewhat.
More refineries are coming online or have been converted to process heavy oil as well, increasing the demand for Alberta oil.

All this leads to a forecasted shrink in the discount to WCS. PIRA Energy Group, a leading energy market analysis firm released its “North American Midcontinent Oil Forecast” recently and they expect the WCS differential to tighten to about $22 per barrel by June, and then $13 per barrel by year end.

As of this writing the discount has pulled back considerably from the lows of around $40 per barrel to $27 per barrel.

This bodes well for the Alberta economy, the provincial coffers and for Albertans.

Posted on March 6, 2013 by matthews in Marketview, News Leave a comment