Economic Predictions 2010

[wgraham]

Well I know I am not the only economics junkie out there in the REIN world so I thought I would throw this question out there!

In 4 paragraphs or less describe 2010 from your real estate point of view.....name the town(s) you invest in and where you think that they are headed. Let`s not critique the replies too much but instead focus on where you think we are going.....its easy to critique but not so fun sometimes to put your predictions on the table!!

I invest mostly in Calgary and Area and buy single family homes. I think we will see a relatively flat year as most home buyers did their buying this year taking advantage of the low interest rates. This stabilized pricing but may have brought forward many of those who would have purchased next year.

With the Alberta economy in a little bit of a holding pattern I don`t think we will see any sparks fly but it will give investors a little more time to get in before 2011 when things should start to heat up again and inflation really starts to get going. Jobs will return late in the year along with oil prices. Oil will float around $75 for most of the year but shoot up past $85 in the last quarter.

With a lot of infrastructure spending in Calgary we will see great transportation improvements that have been a long time coming. West LRT, SE Ring Road etc.

As interest rates rise later in the year we will have a much stronger rental market once again as it gets more expensive to own than rent.

In a nutshell....flat to moderately warm market.

 

[housingrental]

Sure Wade

Waterloo

I should have a 14 student bedroom place that closes near the start of the year and will hopefully add many more throughout, supply willing.

I think prices are headed down and sales in Waterloo will be, for multi-family properties, one of the worst performing area`s in Ontario next year. I`m hopeful that I`ll be able to take advantage of this somehow... time will tell...

Sales will continual to be low in this segment as Waterloo`s multi-family is dominated by student housing. Financing for these have become more difficult over the last year. Combined this with low returns available on alternate income investment alternatives, and current owners with lower mortgage rates, and stable and increasing rent rolls, has led to decreased listings and few motivated sellers.

 

[Rickson9]

I predict a complete meltdown of the Toronto RE market after Carney jacks up the feds funds rate, bond yields shoot skywards and inflation begins to rear its ugly head. At least, that`s what I dream about anyway.

 

[Thomas Beyer]

QUOTE (wgraham @ Dec 15 2009, 04:01 PM) ... I think we will see a relatively flat year as most home buyers did their buying this year taking advantage of the low interest rates. This stabilized pricing but may have brought forward many of those who would have purchased next year.

With the Alberta economy in a little bit of a holding pattern I don`t think we will see any sparks fly but it will give investors a little more time to get in before 2011 when things should start to heat up again and inflation really starts to get going. Jobs will return late in the year along with oil prices. Oil will float around $75 for most of the year but shoot up past $85 in the last quarter...

In a nutshell....flat to moderately warm market.
I concur with that view. We own mainly in the Edmonton area, Southern SK and on the BC Coast. BC might be a bit weaker than SK and AB ..

I expect 2010 to be much like the 2nd half of 2009 .. much better than 4Q 2008 to 2Q 2009 .. but not WOW .. but with interest rates low .. hey a 6% CAP building in a sub 4% interest rate environment leaves ample room for cash-flow and eventual equity upside in 2-3 years (and far more beyond that ..) .. good time to weed out the garden .. improve what you have .. and selectively buy undermanaged asset or from motivated sellers that do pop up from time to time!

 

[gwasser]

From my earlier post of Oct 10:

I foresee a low interest environment for years to come.In Alberta continued demand for real estate, in particular for affordable rental properties, lifestyle condominium complexes and recreational properties. I also foresee less favourable conditions for large family homes. In the stock market I foresee a time of modest profits and initial winners in the preferred shares sectors. This is likely short term and plain old common shares will pick up the slack; in particular those paying moderate dividends will do best over the long term.

Oil and gas in Alberta will be doing O.K. but no major booms. Most promising is the oil sector, not only heavy oil but also old moderate quality older oil pools with low primary recovery rates. Conventional gas is likely to languish for many years and Southern and Central Alberta is likely not favourably affected by this. Resource play gas companies will survive and when properly managed they will prosper. My favourites are Canadian Natural Resources, Encana and Suncor/PetroCanada. Other good companies are Vermillion, NAL and Crescent Point.

Overall, I suggest reducing exposure to the oil and gas industry to market weighting (i.e. not overweighed) and focus on manufacturers such as Bombardier; epc companies such as SNC Lavelin and Stantec or on financials and real estate stocks.

I do not think that money market funds, bonds, GICs and Canada Savings Bonds are attractive. I suggest for the sake of diversification to use ETFs such as Claymore 5-year laddered corporate bonds and I-shares Canadian ScotiaMcleod Short Bond ETF (XSB). Money market funds should only be used to park cash waiting to deploy into other investments. BTW I still like selling (writing) covered call options but this strategy only has a minor impact on my overall portfolio.

So overall asset allocation: 50% real estate – 35% shares – 15% preferred shares and short term bonds ETFs. Regarding gold, I currently own gold (IAU-N) and it is doing great, but in light of my long term inflation view I think the easy money has been made.

 

[Rickson9]

I predict that in 2010, predictions will continue to be a coin with two sides.

 

[gwasser]

QUOTE (Rickson9 @ Dec 16 2009, 12:20 AM) I predict that in 2010, predictions will continue to be a coin with two sides.

Rick?

The purpose of making predictions is not to make the right one, strange as that may sound. Predicting the economic future is nearly impossible. The real purpose is to have a range of possible scenarios for the future direction of the economy. You select the one most likely (in your opinion) to make it your main investment theme (for a while), and you use the other scenarios to buy appropriate investments for protection against the less desirable scenarions in case they will occur.

So collecting a number of forecasts to see what you may want to invest in and against what eventuality you should protect yourself is plain good investment practice.

That is why I invest in gold, in spite of my expectation that interest rates and inflation go a lot higher than I expect. I am moderately bullish on oil this will protect me against inflation plus the opportunity to make big profits if a scenario as outlined by Jeff Rubin plays out over the coming years.

I buy financials and industrials not only to profit from the government stimulation programs the world all over, but also because many would benefit from lower commodity prices and interest.

Basically you buy quality investments (in real estate using REIN guidelines) and buy good companies at a reasonable price through the stock market and you buy debt through mortgage investments and other debt obligations to get a diversified portfolio that profits or at least does not lose too much value when the actual future plays out.

Volatility is often considered risk, but that all depends on your time horizon because over the long term, all investment classes fluctate towards their long term average. So diversification, just like positive cashflow, is a means to reduce the damage from short term market volatility - that is what risk management is all about and that is why you need a number of scenarios for likely futures.

 

[jseib]

I am currently investing in and around Hamilton

Currently we are doing "Rent to Own" properties and I expect we will have a relatively flat year once HST kicks in and interest rates start to nudge up. I do not expect the rates to shoot up but rather incrementally move up once the employment picture starts to improve.

I believe house prices will be fairly flat in general though the "good" neighborhoods will probably continue to increase in value by 2% or so.. This is a fairly safe bet since many parts of Hamilton haven`t changed in value since the early to mid 90`s.

 

[Rickson9]

QUOTE (gwasser @ Dec 16 2009, 08:37 PM) Rick?

The purpose of making predictions is not to make the right one, strange as that may sound. Predicting the economic future is nearly impossible. The real purpose is to have a range of possible scenarios for the future direction of the economy. You select the one most likely (in your opinion) to make it your main investment theme (for a while), and you use the other scenarios to buy appropriate investments for protection against the less desirable scenarions in case they will occur.

So collecting a number of forecasts to see what you may want to invest in and against what eventuality you should protect yourself is plain good investment practice.

I understand. I can only speak for myself when I say that I don`t find making economic predictions useful nor do I do it. I can only thank my lucky stars that making economic predictions isn`t necessary for success otherwise I would be a train wreck.

 

[Nir]

QUOTE (gwasser @ Dec 16 2009, 06:37 PM) Rick?

The purpose of making predictions is not to make the right one, strange as that may sound. Predicting the economic future is nearly impossible. The real purpose is to have a range of possible scenarios for the future direction of the economy. You select the one most likely (in your opinion) to make it your main investment theme (for a while), and you use the other scenarios to buy appropriate investments for protection against the less desirable scenarions in case they will occur.

So collecting a number of forecasts to see what you may want to invest in and against what eventuality you should protect yourself is plain good investment practice.

That is why I invest in gold, in spite of my expectation that interest rates and inflation go a lot higher than I expect. I am moderately bullish on oil this will protect me against inflation plus the opportunity to make big profits if a scenario as outlined by Jeff Rubin plays out over the coming years.

I buy financials and industrials not only to profit from the government stimulation programs the world all over, but also because many would benefit from lower commodity prices and interest.

Basically you buy quality investments (in real estate using REIN guidelines) and buy good companies at a reasonable price through the stock market and you buy debt through mortgage investments and other debt obligations to get a diversified portfolio that profits or at least does not lose too much value when the actual future plays out.

Volatility is often considered risk, but that all depends on your time horizon because over the long term, all investment classes fluctate towards their long term average. So diversification, just like positive cashflow, is a means to reduce the damage from short term market volatility - that is what risk management is all about and that is why you need a number of scenarios for likely futures.

pls keep in mind Godfried that in statistics some populations really come from random or uniform distributions?
example: when you flip a coin there is really 50/50 chance for heads or tails. so when someone says 50/50 they are not neccesairily saying they do not want to predict or don`t know. They might actually mean that based on the info they have, they estimate it to be uniform or 50/50 (i.e. 50% chance prime will be above 4.5% and 50% less than 4.5%). saying we don`t know (or 50/50) is a valid prediction that in theory can be the result of a thorough analysis. could elaborate but it`s beyong the scope..

 

[wgraham]

QUOTE (investmart @ Dec 16 2009, 10:50 PM) pls keep in mind Godfried that in statistics some populations really come from random or uniform distributions?
example: when you flip a coin there is really 50/50 chance for heads or tails. so when someone says 50/50 they are not neccesairily saying they do not want to predict or don`t know. They might actually mean that based on the info they have, they estimate it to be uniform or 50/50 (i.e. 50% chance prime will be above 4.5% and 50% less than 4.5%). saying we don`t know (or 50/50) is a valid prediction that in theory can be the result of a thorough analysis. could elaborate but it`s beyong the scope..

Let`s get back to the topic at hand.....what are your predictions for 2010?

Let`s keep away from....are predictions valid, why you disagree with so and so`s prediction and the likes......either put your prediction on the table or move to the next topic.

For those that have posted their predictions - Thank you!! These are valuable considerations for the rest of us!

 

[Rickson9]

I predict that Carney, after seeing consistent positive inflation numbers, will double the fed funds rates after the summer of 2010 to 0.5% and then double it again before the close of the year to 1%. This, in addition to the HST, will dampen the demand of VRMs (and properties priced over $400K).

In order to compete with foreign debt, the government will need to raise the yield on the Canada savings bond, which in turn, will cause mortgage rates to rise somewhere between 6% to 7%. If bond yields force mortgages beyond 7% the real estate market will definately meltdown. Nobody who has invested in real estate in the last 10 years knows what an 7% or 8% mortgage feels like.

In order to combat Canada`s rapidly growing deficit, the government will increase taxes and cut spending (ie services).

The rise in short term rates facilited by the BoC will jack the CAD and cause us to shed more manufacturing jobs. Unemployment which currently stands at 8.5%, and under-employment (which is tracked by the U.S. but not by Canada) is most likely in the double digits, will continue to rise resulting in an increase in RE defaults.

No wait, that`s not a prediction, that`s what I want to happen...

 

[JBagorio]

My investments are mostly in Calgary and Edmonton and they are a mixture of single homes and condos. I agree it will be relatively flat and we will see more unemployment. The fist half or the entire year will be much like the last half of 2009. With the interest rate possibly moving upwards at te end of the year, and people done with their buying we will have a better vacancy rate comes 2011 and on.

With the transportation improvements...the ring road and the LRT extensions in the Calgary area I am positioning my self financially to buy more property in 2010.

 

[EdRenkema]

I invest mostly in Hamilton and have single family tnhs condos there plus one in Waterloo now conditionally sold (think $WOW$ !!) will celebrate when its firm.

I see 2010 to be a strong year for resale homes in Hamilton and there has been little respite in 2009. Much of the continued strong (but not frantic) growth in Hamilton can be attributed to the city`s pro-active EDO and their planned execution of infrastructure and commercial developement.
Hamilton still boasts a relatively affordable investment alternative especially when compared to nearby pricey markets such as Toronto and KWC.
Surprisingly enough (or not) the steel industry has made a strong comeback and certain plants are working full out however the unemployment numbers are still on the high side.
The Ontario economy as a whole will remain flat the first half of 2010 and strenthen the second half of the year as hard hit sectors regain lost ground.
Areas that have invested in high tech industries (like KWC and Hamilton) will enjoy continued success due to their forward thinking and planning.

I also predict that at some point in 2010 Wade Graham will respond to one of my emails.

 

[Thomas Beyer]

QUOTE (Rickson9 @ Dec 17 2009, 10:13 AM) ..will cause mortgage rates to rise somewhere between 6% to 7%. If bond yields force mortgages beyond 7% the real estate market will definately meltdown. Nobody who has invested in real estate in the last 10 years knows what an 7% or 8% mortgage feels like.
...

today`s rates are low 4% .. this would be a 50% increase .. elaborate why do you think this will happen as 5 and 10 year bonds TODAY are barely 1% higher than 1 or 2 year money ..

I think too that rates will be somewhat higher .. MAYBE 1% a year from now .. but not 2-3% ..

QUOTE (Rickson9 @ Dec 17 2009, 10:13 AM) ..In order to combat Canada`s rapidly growing deficit, the government will increase taxes and cut spending (ie services).

...
.. or they will keep interest rates low to stimulate growth ..

What I think will happen is that the FEDERAL government will cut transfer payments to provinces . thus causing higher provincial deficits and EVEN MORE PEOPLE TO MOVE WEST to stronger provinces like SK, MB, AB, BC !!

Thus: invest in the west !

 

[housingrental]

So Wade what is your thoughts / critique of my predication?

QUOTE (wgraham @ Dec 17 2009, 10:43 AM) Let`s get back to the topic at hand.....what are your predictions for 2010?

Let`s keep away from....are predictions valid, why you disagree with so and so`s prediction and the likes......either put your prediction on the table or move to the next topic.

For those that have posted their predictions - Thank you!! These are valuable considerations for the rest of us!

 

[Nir]

QUOTE (EdRenkema @ Dec 17 2009, 10:26 PM) I also predict that at some point in 2010 Wade Graham will respond to one of my emails.

ha ha, nice one.

 

[Thomas Beyer]

related forecast and CMHC view:



http://myreinspace.com/public_forums/General_Discussion/61-14677-CMHC_Rental_Reports_2010.html

 

[gwasser]

Gentlemen this is becoming boring!

Witht he exception of Jim (Rickson9), we all seem to think more or less the same! How unlikely!
Are we thinking so similar because we are all great minds or are we sheep?

I guess I have to make a more outrageous forecast:

Refining my earlier forecast, I will state that after a modest first half of 2010, the American consumer will regain its former confidence because the world is obviously not coming to an end. They will, as always in the past, forget the hard lessons of 2008 quickly and start spending as if there is no day after tomorrow (cute he?). Even Europeans will become cocky and join the party. Everybody is sick of the pessimism and the party is on.

The stockmarket will start moving up more decisively and money from the sidelines will start pooring in. Stockmarket return for 2010 will be 15%.

Not only will the stock market improve but after a cold winter and a dramatic increase of consumer spending in the 2nd half of 2010 on top of growth in the BRIC countries, oil and gas prices will explode. Inflation will start to rear its - yet not so ugly head - and there is a hint on interest rate increases to come. Consumers, afraid of missing out on cheap mortgage rates will jump into the real estate market with a vengence and average sales prices year over year will jump to 10%. Housing is becoming now less affordable and rental vacancy, especially in Alberta will evaporate and rents increase by 7%

My recommendation: Buy now before the crowds wake up. Halleluiah!

 

[rforgiel]

QUOTE (gwasser @ Dec 20 2009, 12:26 PM) Gentlemen this is becoming boring!

My recommendation: Buy now before the crowds wake up. Halleluiah!

I will agree with you in the short term. The consumer may wake up and get things rolling again driving prices and interest rates higher. However our fundamental problems of debt and corrupt corporations and financial institutions still exist which will keep pulling us back down. I see a lot of volatility out there in the future. Our office has seen a lot of requests for restructuring investment portfolios as the real estate market is still precarious. I was quiet last year but now is a good time to start picking up properties again because there are some interesting deals out there but if things start taking off do not go chasing deals, I will wait for the good deals to start coming back to me.