Last year, the prospects of Canadian cities in Alberta rose to dizzying heights along side oil prices that almost hit the $150 a barrel mark. Money flowed in. Workers from all over the country moved to Alberta to join in the oil rush. It seemed the good times could never end.
Real estate prices in Fort McMurray shot up so much so that C$400,000 mobile homes became common place. Dumpy three-bedroom apartments rented for almost C$3,000 a month. In the face of plentiful jobs and huge investments, buyers and tenants alike snapped up properties without batting an eye. True to the spirit of the oil rush, somewhere along the way Fort McMurray earned the nickname Fort McMoney.
Fort McMurray at a glance
Fort McMurray is located 270 miles northeast of Edmonton, the capital city of Alberta. Even before it became the heart of Canadian oil production, the indigenous people from the area's Cree tribe used the surface deposit from the oil sands to seal their boats. Oil sands are a mixture of sand, water, and extremely thick petroleum. Canada has one of the largest deposits in the world.
Until recently, oil sands were not even counted towards world oil reserve figures. While there has been oil exploration in the region since early 20th century, it didn't become big business until recently. The first successful oil extraction occurred in the 1930s but production levels remained low due to the massive expenses and technological difficulties involved. Now, however, higher oil prices and technological advancements have made extraction of oil from the sands profitable. This has put an economic spotlight on Alberta, Canada's oil sand rich province and its cities such as Fort McMurray.
The population of Fort McMurray was a mere 2000 in 1966 but by 2006 that number grew over 32 times to 64,441 people. Between 1999 and 2006, the number of people in the city expanded by 8.5 percent. The regional municipality predicts that the population will grow to over 100,000 by 2012. While a small city by all measures, Fort McMurray boasts some of the most expensive real estate in Canada.
Fort McMurray's economy is highly dependent on petroleum, making it sensitive to oil price fluctuations. With oil prices hovering at a third of what they were a year ago, companies in the industry have been forced to postpone projects worth some $40 billion, according to the Wall Street Journal.
The nationwide impact of such huge investment cutbacks cannot be underestimated but they are most especially felt in places like Fort McMurray. Still, some see a silver lining in the looming clouds. "This slowdown in development will enable the city and provincial governments to complete some much needed infrastructure projects for less money," said Patrick Dardis a licensed property agent with Royal LePage True North Realty. Falling construction material costs make it a good time to finish projects, according to Dardis. "Suncor [the oil company] built its last big expansion in 1999 -2001 when the price of oil was [much] lower than it is today," he said.
Real estate in Fort McMurray, Alberta
There have been rumors of large oil company layoffs in the Fort McMurray area but they have yet to materialize at the levels feared. That said, the city is still suffering from the effects of lower oil prices. The real estate sector is showing signs of excess supply and low uptake, according to the Wall Street Journal. "The market is down [according to] year to month statistics, in February 2008 we had 63 single family home sales compared to 31 this year," said Dardis.
The past several years have been an incredible boom time for Fort McMurray's real estate sector. The average price for a single-family home in 2006 was C$459,140, according to the cost of living section in the Fort McMurray, Alberta Labor Market Information website. Average prices for the same type of dwellings jumped to C$588,633 in 2007, over a C$100,000 increase. A similar jump was seen in 2008, bringing the average price up to a C$682,149.
At the end of 2008 and so far in 2009, prices have been falling bit by bit but there haven't been big drops akin to the jumps seen during the previous years. Considering the deepening recession, prices are actually holding up more or less steady. "Our price [for single-family dwellings] has remained constant since October of last year at about C$659,348," according to Dardis.
Still, homes for sale are staying on the market longer than over the past years, according to the Wall Street Journal. "The slow down in the expansion of oil sands projects has made people more cautious," said Dardis. "With over 486 single family homes currently listed current buyers have lots of choices — something that has not happened in this town in many years." Another issue workers moving to Fort McMurray face is selling their homes in previous locations under recession conditions. "Suncor and Syncrudes are still hiring workers from across the country," said Dardis. "A major problem for these new employees is that they are moving here from other parts of the country and have to sell their homes there before the can purchase here. I am currently working with six couples in this situation."
Looking ahead
Suncor estimates that out of the 35,000 temporary oil sands jobs around Fort McMurray, about 25,000 will be cut by the end of the year, according to the Wall Street Journal. Already, some people who were lured by oil jobs are leaving as the opportunities begin to shrink. If oil prices continue to fall, then Canada's economy and particularly Alberta's is bound to suffer an additional blow.
The environmental issues surrounding the process of oil extraction from the sands is also likely to complicate the situation further. The current method consumes a lot of energy and water and emits greenhouse gases three times the amount of traditional oil drilling, according to the Wall Street Journal. Still, those in the oil industry are optimistic and hope prices will rebound by the end of 2009.
As for the real estate market, "In 2009 I am seeing a more normal market," Dardis explained, "[More along the lines of what is normal] for the rest of the country not what has been normal in the past few years in Fort McMurray." The real estate sector will pick up steam again in the first quarter of 2010, according to him. Before that, the market may see some recovery "as people start to take advantage of the low interest rates and the moderate decreases in some price ranges."
