The cost of a barrel of oil was slashed in half in the fall of 2014 resulting in Alberta's natural resource sector shedding 20,000 jobs and crippling the provincial economy. The dramatic drop in oil prices had a domino effect on many aspects of the economy with the housing and rental market taking a huge hit.
According to local realtor Iris Scherger the housing market hit “rock bottom” in March with the number of houses on the market vastly outnumbering the amount of interested buyers.
“We have a whole lot more sellers in ratio to buyers,” said Scherger, who works for Royal LePage. “The buyers are holding back, they are in fear, they are just so cautious that they aren't doing anything.”
The price of real estate in Bonnyville has dropped about 10 per cent over the last year with the supply outweighing the demand. While the situation here is bleak it isn't as bad as it is in Cold Lake.
“In ratio to what Cold Lake has in inventory to buyers they are a lot worse off,” said Scherger. “If they don't have a pick up in buyers in the next two months, they are going to see a 15 to 18 per cent reduction in price (from last year). If that happens in a one year period that is going to be hard on the economy.”
In order to stop the bleeding prices local banks dropped their interest rates and offered up more incentives to entice would-be buyers into splurging on a home.
“They had to prevent this from going into a downward spiral,” said Scherger. “The incentive of (low) bank rates is actually working and we have had some buyers come out over the last two weeks.”
The price of a barrel of oil was $92.86 on Sept. 6, 2014, by the time the middle of February rolled around it had plummeted to $48.84 and the provincial panic button had been hit.
Oil companies all across the Lakeland cut jobs by the thousands, with contract workers the first to go. Many of those transient workers were renting apartments in the communities of Bonnyville and Cold Lake. The loss in jobs resulted in those workers leaving the region.
“A lots of our (tenants) are from down east and as soon as they lose their job they go back east. We have had a lot of that over the past six months,” said Lee Ducharme, part owner of Duva Rentals Ltd. in Bonnyville.
Stats from the Canada Mortgage and Housing Corporation (CMHC) back up Durcharme's claim, showing that the vacancy rates in the Lakeland region took a huge hit last fall.
In Oct. 2013 the vacancy rate for one-bedroom apartments in Cold Lake was just over one per cent, a year later that number had jumped all the way up to 11 per cent. For apartments with three or more bedrooms the vacancy rate went from 4.3 per cent to 8.3 per cent in that same year-over-year time frame.
“We have quite a number of vacant rooms,” said Ducharme. “All types of rooms, from bachelors to 2-bedroom suites.”
With supply once again outmatching the local demand Ducharme says she was forced into lowering rental rates at the Duva owned properties in town.
“We gave many of our tenants a $100 break on their apartment rental fee,” said Ducharme.
Duva has three options for potential new residents looking to rent in Bonnyville: bachelor suites run from $895 to $995, one-bedroom apartments run from $995 to $1,295 and two-bedroom apartments are between $1,095 and $1,295.
What a difference one year can make as April of 2014 saw Bonnyville sit with a 0 per cent vacancy rate, and a housing and rental market that just couldn't keep up with the demand.
“We had such a heavy, heavy influx of growth coming into Bonnyville in (2013) that our area structure just wasn't able to keep up,” said Scherger, when speaking to the Nouvelle in April 2014. “Rental units were so high in demand.”
In order to solve this issue, new buildings started getting the green light and construction projects began. The biggest project being Eastgate; a multi-million dollar development featuring two 55-unit apartment complexes, an 85-room Comfort Inn, and an 87-room Microtel Inn and Suites. A series of houses are also planned for the 200-acre section of land on the east end of Bonnyville.
Then came the unexpected drop in oil prices, which caught many in the region completely off guard and resulted in another “oil bust” for the Lakeland. Initially a lot of the apartment complexes lost tenants, with the vacancy rates peaking in October. Since then the vacancy rate has slowly lowered back down to normal levels.
“We definitely have had a lot more vacancies, but they have gotten filled up as the landlords are reducing their rates a little bit,” said Scherger. “I've gotten calls once or twice a week from people looking (to rent) and they are still looking because they can't find anything. We are probably at a two or three per cent vacancy.”
The biggest surprise for Scherger throughout this whole market downturn has been the number of landlords who are selling their rental properties and getting out of the market.
“I can't believe how many of the rental properties went on the market; the ones where they have suites or they were accommodating five or six bedrooms for the renters,” said Scherger. “That was a surprise. Landlords are actually selling their rental properties.”
Scherger believes part of the reason for this could be because of the type of “bust” the oil field is going through, with it being completely different from past downturns.
“The last one was a slowdown; a correction where there were a lot of layoffs and contracts ended but there was still core work going on in the background,” said Scherger. “This time it was like a switch went off and it was shut down. It was more drastic in shorter term and blindsided us.”
She feels that Bonnyville has already made its way through the worse of the effects.
“I think we are going to be okay. I think we hit our rock bottom and we are just steady. We are at a plateau,” said Scherger.
Ducharme hopes that is the case as she says the effects are already going to result in them taking a huge financial hit this year.
“We have absolutely felt the effects. We are going to be in a deficit position this year,” said Ducharme.