What can we make of the Fort McMurray real estate market? What factors are affecting the Fort McMurray real estate sector, and what can we predict for the future of the real estate market in Fort McMurray and the surrounding environs?
Fort McMurray’s real estate market is more heavily tied to oil than Calgary’s real estate market. This is due to the heavy reliance on the oil sands industry in the community. The decline of oil prices causes listings to grow, properties to sit longer on the market, and after several months, prices to decline. Despite the Fort McMurray area’s reliance on the oil industry, the majority of locals don’t work in the oil sands. However, drops in oil prices cause deep drops in consumer confidence, causing those who don’t work in the extraction industry to still postpone a purchase or put a house on the market early for fear that prices will drop even further. Conversely, when oil prices rise, Fort McMurray housing prices rise, though rental rates spike. If oil prices follow a steady trend upward, the housing market heats up in a bubble, as buyers bid up properties to get it before prices go up even higher. The end result is that the Fort McMurray real estate market sees higher highs and lower lows than cities with a broader economic base like Calgary.
Its relatively smaller size compared to larger markets like Calgary also means that a significant drop in the number of sales greatly depresses statistics like existing home prices. Few homes selling at reduced rates makes the market look worse than it is. Likewise, very few homes selling at stratospheric rates at the peak of the Fort McMurray real estate market causes the sale price data to look much higher than it really is. The number of listings is another real estate statistic that is easily misleading. When Calgary has a thousand listings that drop to seven hundred, you read about a 30% drop in MLS listings. When the market has a hundred houses listed and drops to fifty, the fifty percent drop sounds severe, when it is only a few dozen people, in a city of around 62,000 people.
Despite the Why didn’t housing prices crash when oil prices fell by more than two thirds over 2014 and 2015? This is in part due to the transient nature of the oil sands workforce, with many people staying in hotels and dorms when working on shift before returning home on their off period. The regular population in the area, which was around 125,000 in 2015, is slowly growing, and there isn’t expected to be a mass departure from the area due to the oil sands slow down. Fort McMurray’s permanent population is around 73,000, while around 40,000 are transient. Even if all of the transient workers departed when laid off, the local population will be slow to pull up stakes. Local demand will keep the Fort McMurray real market from cratering, since so many who work here do not permanently live here. Fort McMurray follows the Alberta provincial trends of historically slow growth overall in real estate prices. Fort McMurray’s real estate market isn’t overheated due to foreign buyers snapping up condos like they do in Vancouver to meet investment quotas and ensure that they meet residency requirements. Its market is overall still much more stable than the coasts. Overall price stability is another hidden factor in Fort McMurray real estate. Fort McMurray has a mix of mobile homes, townhomes, detached single family homes and relatively few luxury homes. It has enjoyed a high degree of affordability for homes of all sizes. Its average home price is relatively stable over time because the numbers aren’t skewed up by a few premium properties selling or an overheated luxury market causing averages to look good while the average home buyer sits on the sidelines. The greatest volatility in Fort McMurray’s real estate market is commercial, not residential. Demand for hotel rooms, for example, drops as the number of oil field workers falls. Housing rental rates, too, have declined. New home construction declined along with oil prices, but this keeps supply in line with demand. And existing housing stock is approximately in line with local needs. The price declines more recently are more a sign of a disproportionate number of desperate sellers due to personal job losses than systemic market weakness. Real estate isn’t liquid, and twice as many listings in such a small market with people who have to sell right now due to job losses makes the market look worse than it really is.
A Look at the Past
In 2008 and 2009, at the peak of the Great Recession, oil prices fell from $147 a barrel to $32 a barrel. Fort McMurray is actually in better shape now than it was then, because its infrastructure has greatly improved since then. The city has diversified its economy somewhat since then, even as the population has grown 70% since 2000. There were estimates that if oil prices stayed over $100 a barrel, Fort McMurray could see a population of over 200,0000. Fortunately, real estate construction stayed reasonably close to actual demand, not over-built due to meet projected demand, so Fort McMurray won’t see the rapid housing price declines of some United States cities that assumed if you build it, they will come. Fort McMurray will see ripple effects in the construction industry due to the drop in the price of oil in 2014 and 2015. The multi-billion dollar downtown redevelopment effort could be delayed. The planned eight thousand seat arena will likely be delayed. While the delays in this infrastructure spending will mean fewer construction jobs, it ensures that the city has adequate money for essential services like education, safety, health and welfare. People don’t leave a city because it doesn’t have a new stadium, but a municipality that has had to lay off police and close schools like Detroit did will see a massive migration. Fort McMurray’s leadership has learned from the past recession, and it has already taken steps now to ensure the area’s financial stability.
Fort McMurray’s housing market statistics such as percentage increase and decrease in listings can swing wildly due to the market’s small size. The housing market’s prices have always been affordable overall despite greater swings, high and low, than larger metropolitan areas. The area’s high reliance on the oil sands industry contributes to the local housing market’s booms and busts, causing prices to seem to fluctuate wildly beyond what the local labor market’s changes would call for.