Residential Real Estate Investing: 2016 Outlook

The team at Braden Equities would just like take this opportunity to recap our thoughts on 2015 as they relate to credit markets and commercial real estate activity in Alberta and western Canada. There is no doubt that it has been a year filled with ups and downs. From falling oil prices to high liquidity, there has truly never been a dull moment.

For those of you who may have missed something, here’s a quick run-down of the highlights:

  • At this time last year, we saw bond yields about 50 basis points higher than what we are experiencing today
  • Oil prices continued to slide throughout 2015
  • It is estimated over 60,000 job layoffs have occurred in the energy sector
  • Real estate prices managed to stabilize in 2015
  • Softening has occurred in the apartment rental, condominium and industrial markets, in the form of lower rents and higher vacancies
  • Alberta’s office market continues to be hit hard with soft oil prices and cutbacks in spending by oil and gas producers

As far as real estate finance is concerned, 2015 was awash with an abundance of capital.

This made it a great time for borrowers to lock in at historically low interest rates. Now would also be a great time to consider reinvesting in your business.

With 2016 around the corner, we believe the following are some considerations, which we hope will be informative:

  • Interest rates/bond yields should stay low and possibly trend downwards
  • Should oil prices remain at sub $50 levels, we expect softening in all real estate asset classes
  • It is possible that 2016 may produce some opportunities for buyers, as some existing developments/projects may run into trouble
  • It is likely that most lenders will take a more cautious view on mortgage financing terms, possibly in the form of lower leverage, stricter covenant requirements and tightened amortization periods.
  • We expect liquidity to remain high in 2016 with an abundance of lender options for borrowers.

This year, it would be prudent to consider reading up on how to diversify your portfoliothrough property investment.

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