Agriculture the next real estate play

Everyone has been hearing and reading about the rising costs of food around the world. This storey is in part a decline in food production, increased global demand from developing countries like China and India, the US government pushing forward on corn based ethanol production and finally market speculators pushing up the prices. That being said several commodity, real estate and other experts are looking forward on a 10 year boom in commodity prices.

If we look at it from a real estate perspective, farmland is the obvious place to be. Assuming a 10 year boom in the commodity market plays out, real estate values of farmland will skyrocket. I base this primarily on the limited supply of farmland and adding another billion people to the world population by 2020. In addition to this, farmland around the world is decreasing due to development and loss of ground water .

The Spring 2008 Farmland Values Report released by Farm Credit Canada says the following:

"The average value of Canadian farmland increased 7.7 per cent during the last six months of 2007, Canada's highest increase since 2002. This is higher than the 3.6 per cent increase in the first six months of 2007.

Most provinces continue to see growth in farmland values, with British Columbia experiencing a huge 14.5 per cent increase. Overall increases are consistent with an upward trend in land values since January 2000.

With the largest increase in B.C. at 14.5 per cent, Alberta shows the second largest increase at 10.3 per cent. Saskatchewan follows closely behind with an average 7.8 per cent increase and Manitoba is experiencing a similar per cent increase of 7.3 per cent.

Quebec shows an increase of 3.6 per cent, while Ontario's farmland values increased slightly at 1.2 per cent during the last six months of 2007.

Atlantic Canada land values varied, with Nova Scotia showing a 3.1 per cent increase, while Prince Edward Island and New Brunswick indicating decreases of 1.4 per cent and 3.3 per cent, respectively. Newfoundland and Labrador land values remained the same in the second half of 2007. "

Final thought: For all those times you wish you would have jumped into the market early and made your fortune, now is the time to investigate the future follow the money and make your play.

Calgary is leading the real estate decline

This article talks about Calgary leading the pack of the four most active provinces in resale housing activity.

"A report released Tuesday by the Canadian Real Estate Association says MLS sales in the province were down 30.5 per cent compared with the first quarter of 2007, new listings increased by 36.2 per cent, total dollar volume of all transactions dropped by 26.7 per cent but the average sale price increased by 5.4 per cent to $361,544."

REM: The question is, how long will this "balanced market" and "modest price gains" last? My call is that we will pass by the "balanced market" on our destination to a buyers market.

The duration the market will hold a balance I believe is directly linked to the number of people/quasi-investors who have been holding on to hit the top of the market before selling.

There still seems to be a fair number of people I talk to who believe the market will continue on a 5% -10% gain over the next couple of years (at least in Vancouver BC). The problem with timing the top of the market is that you don't see the top until it has already passed by.

I will leave you with this Wall Street truism as a final thought: Bulls Make Money, Bears Make Money, Pigs Get Slaughtered.

Banks Reluctant To Pass On Rate Cuts

There are signs the Bank of Canada and the U.S. Federal Reserve are running out of room to deliver further interest rate relief to their economies.

Commercial banks in Canada are showing an increasing reluctance to pass on the central bank's rate cuts, and further Fed cuts are expected to run into opposition from members who are starting to fear inflation more than recession.

REM: Real estate may be leveling off to a more "balanced market" however the balance of 2008 will tell the real storey. We could even begin to see a shift in some Canadian markets in the next couple months since the spring is typically the most active months of the cycle. There are a few items I think will impact the real estate market in the not so distant future: recession fears, the impact of the banks holding back on mortgage rate cuts, fears of global inflation impacting Canada and highly leveraged first-time buyers .

Looking for a Vacation Home Amigo?

I just got back from a well deserved vacation in Mexico. While I am back to my day-to-day routine my mind is still in Puerto Vallarta. The weather was excellent, the ocean was warm and the locals are great people. Although, just getting away from the rainy cold weather of the west coast would make anyplace with a temperature above 15 degrees seem like paradise.

What interested me most about Puerto Vallarta was the real estate investment possibilities. You can get into this market for as little as $80k US for a 2 bdrm - 2 bath condo however I'm sure "you get what you pay for" applies. There are several options for condos not on the beach but within waking distance priced in the $140 to $200K range. Beach condos will cost you an easy $500,000 to $1,000,000 plus. There are also options for buying a house for those interested.

With vacation rental fees in the $100 to $200 USD per night for a 2 bdrm - 2 bath condo close to amenities but not on the beach, purchasing one with a positive cash flow should be attainable.

The limited market research I did while on vacation indicated that the real estate market in Puerto Vallarta has been experiencing a 5 year boom with some signs of a turn. Such as the number of listings increasing over the previous year and speculation that the US credit problems will somewhat weaken the real estate market in Mexico.

There are a few things we can take from this; first, every boom runs out of steam and is followed by a pullback at some point.

Next, this market is also predominantly driven by US buyers. Now that the consensus amongst most experts is that the US is in a recession, discretionary spending on a vacation home should decline.

In addition, real estate markets in some US states like Florida and California are a buyers market increasing the competition for vacation properties in general.

Finally, the US sub prime impact. I don't think that this alone will have a major impact on the real estate market in Mexico for the following reasons:
* most sub prime loans were made to people whom could not afford their first home.
* others who got caught up by the easy money availability invested locally.
That being said, the current tightening of credit availability will have some impact on the vacation home market the question is just how much.

The vacation home market in general has been strong for the past several years in most areas and some markets will continue to remain strong in the future due to demand from retiring baby boomers with cash to burn. However not all these markets will play out the same.

If you have been considering purchasing a vacation home now is the time to start researching and paying attention to the local real estate market you are interested in.