REMAX`s Outlook for the Canadian Housing Market in 2009

[housingrental]

Which properties? Seems like Waterloo multi-family properties will not keep pace with inflation in the next few years. Residential properties on big lots are the way to go.

QUOTE (MikeMilovick @ Dec 6 2008, 07:40 PM) I am thinking if Remax actually looked at the demographics and economic fundamentals specfic to my area, Kitchener-Waterloo-Cambridge, as opposed to making pretty much a blanket statement regarding the Ontario economy, they would have a different opinion of my market. If you want to enjoy a nice increase in multi-family property valuations, invest in Waterloo in 2009.

Mike Milovick
Sales Representative
Prudential Grand Valley Realty
www.TeamMilovick.com.

 

[housingrental]

Emerging markets - What does this have to do with Ontario`s real estate?

Commodities - Isn`t the history of most commodities that of real price declines?

Markets - Sure - new heights are normal based on increased earnings and compression of PE. For most real estate markets PE`s already gone too low, with material increase costs expected in water/electricity/tax`s (infrastructure needed almost everywhere) your unlikely to see much increase in real property earnings in most locations.

Economy did good - Properties prices didn`t increase in proportion to income - Cap rates also fell - Why in the world would someone buy a property with no ability to add value, in a mature market, that has significant transaction costs, for a 5% return? or even 7% return (ie 7% cap)?

Bigger/better cars/clothes - No, technology has deflated and reduced the relative price of these items. The discounted cash flow of an asset hasn`t suddenly doubled because I can buy a better car for less of the relative dollars of X-XX years ago.

Flipping - The popularity, and speculative demand, has increased with exposure.


QUOTE (RedlineBrett @ Dec 6 2008, 10:47 PM) Not really buying any of that. You are just talking about RE becoming more popular... Much different from a "herd mentality" IMO.

What about the growth of emerging markets (china, india, Russia) fueling demand for commodities and north american brainpower?
What about the equities markets setting new heights year after year?
What about new technologies being developed and brought to market?

The whole economy was doing great for years... it wasn`t as though RE was on some island and immune to other market forces.

The same things that allow people to buy bigger and better cars, clothes, meals etc allow them to consume and spend more for property.

Also, people have been flipping houses, improving on or investing in real estate for years - just that now there are 300 specialty channels available through cable TV and the internet to make it seem more popular than it is... All of which are cheap to make and easy to sell to advertisers given that the understanding of some level of real estate is something everyone has in common.

 

[Jack]

QUOTE Not really buying any of that. You are just talking about RE becoming more popular... Much different from a "herd mentality" IMO.

Not "much different" from a herd at all. Actually, when something becomes much more popular/in-demand, and consumers are rushing out and throwing their money into it without much of a second thought, this is pretty much the definition of a herd mentality. People become price-insensitive as they just want to "get in", values rise, and when the fundamentals start to shift too far out of whack, the inevitable correction occurs, as we`ve now seen on what`s essentially a global front (yes, Canada included).

All things that Adam mentioned are accurate in contributing to a herd mentality. The shows on HGTV, where someone buys a house for $25,000, invests $3,000 into it`s aesthetic appeal, hires a sexy realtor with a nice smile to sell it, and winds up with a $700,000 profit 22 minutes later, make it look pretty easy. This makes people want to get into real estate, and most become speculators. There`s even an example of this here in REIN. "The 10% Solution" used to be one of the first filters preached when doing a property`s analysis, yes? And now it`s been moved down to "The 7-or-8% Solution", yes? Why? Well, we can probably thank the herd of price-insensitive speculators for that one.

And if you consider that in Calgary, you might be able to rent out a 2,000 square foot house in a nice neighbourhood for about $2,500, and that its selling price would probably be in the $600,000 range, that is a low GRM, and it might suggest that there`s been a herd-driven run-up in this city, like San Diego experienced, and that there could be quite a bit more pullback on the horizon.

 

[RedlineBrett]

Emerging markets - What does this have to do with Ontario`s real estate?
I`m by no means an Ontario expert, but the province (and canada) has an abundance of base metals... all of which have seen dramatic price runs (and now decreases with the sagging economy). It`s not that far a stretch to see that the owners and employees of these companies would be making more money as the prices increased.

Commodities - Isn`t the history of most commodities that of real price declines?
I`m also not a historian, but see above. Same applies for NG and crude out west.

Markets - Sure - new heights are normal based on increased earnings and compression of PE. For most real estate markets PE`s already gone too low, with material increase costs expected in water/electricity/tax`s (infrastructure needed almost everywhere) your unlikely to see much increase in real property earnings in most locations.
Maybe, maybe not. really depends what locations you`re talking about.

Economy did good - Properties prices didn`t increase in proportion to income - Cap rates also fell - Why in the world would someone buy a property with no ability to add value, in a mature market, that has significant transaction costs, for a 5% return? or even 7% return (ie 7% cap)?
I would love to see the proof that salaries or better yet NET WORTH didn`t increase along with the run in the equities market. Salary is one thing... but stock options, portfolio returns and yes, increases in value of real estate all lead to higher purchasing power!

Bigger/better cars/clothes - No, technology has deflated and reduced the relative price of these items. The discounted cash flow of an asset hasn`t suddenly doubled because I can buy a better car for less of the relative dollars of X-XX years ago.
Not quite sure what you`re after here. My point was that people were consuming more when the `whole economy` was hot... real estate included.

Flipping - The popularity, and speculative demand, has increased with exposure.
Has it? HOw many houses were flipped in 1980? 85? 90? You can`t prove it... all you can say is that there SEEMS to be more popularity because you are exposed to more media.

 

[RedlineBrett]

QUOTE (Jack @ Dec 7 2008, 07:36 PM) Not "much different" from a herd at all. Actually, when something becomes much more popular/in-demand, and consumers are rushing out and throwing their money into it without much of a second thought, this is pretty much the definition of a herd mentality. People become price-insensitive as they just want to "get in", values rise, and when the fundamentals start to shift too far out of whack, the inevitable correction occurs, as we`ve now seen on what`s essentially a global front (yes, Canada included).

The idea that RE values were driven up soley because of the insanity of the masses is asinine. By the same logic would you include the people that filled their tanks at $1.50/l? Everyone was doing it after all.

My point, as posted above, is that the prices of RE went up directly in accordance with how the rest of the market was doing. When the markets are hot people are making more... net worth is increasing.. more projects get the green light which increases demand for labor... It all points to higher disposable income and confidence in the market, so buyers go and buy that bigger house. They don`t do it because the guy next door did or because their best friend did.

 

[Jack]

QUOTE The idea that RE values were driven up soley because of the insanity of the masses is asinine.

I never said "solely", nor did I say "insanity". The "herd" is just a form of market inefficiency, which is everywhere. Speculators have driven the prices up quite a bit, which is why the once 10% solution has been driven down to 7 or 8. Who knows where these speculators came from, although I`d guess that a high percentage came into existence over the past few bull years.

QUOTE They don`t do it because the guy next door did or because their best friend did.

Not sure I`d agree with that. The "Keeping Up With The Joneses" effect is very real - check out the stories of TYCO, Bre-X, Nortel, ENRON, etc. for proof. Do you really think that people decide to upgrade their homes after only a thorough economic analysis of the underlying fundamentals of their region? Raises, growing families, or simply greed/ego would usually be the cause, from my experience, anyway.

 

[Thomas Beyer]

QUOTE (Jack @ Dec 7 2008, 06:36 PM) And if you consider that in Calgary, you might be able to rent out a 2,000 square foot house in a nice neighbourhood for about $2,500, and that its selling price would probably be in the $600,000 range, that is a low GRM, and it might suggest that there`s been a herd-driven run-up in this city, like San Diego experienced, and that there could be quite a bit more pullback on the horizon.

perhaps NOT if wages stay high .. of course with oil prices low wages will come down and thus prices .. however there is an argument to be made that oil price decline is temporary and will be around $80 soon .. so do not expect prices to come down a lot in Alberta .. some perhaps ..

(of course a NDP lead nationalization of the oil business will change Calgary home prices !!) !

prices have to do with affordability + supply and demand .. no one is forced to buy a home for $600,000 .. and only the foolish is actually renting a house to someone else for $2500 .. probably less than 1% of all homes over $500,000 are rented to others !

People who make $150,000 / year plus a likely bonus + a spouse who makes perhaps another $100,000 chose to live in areas where houses costs $600,000 or more because they are nicer homes and areas than houses that cost $350,000 ! It`s a choice .. people chose to afford that kind of home .. just as people chose to buy a BMW for $60,000 as opposed to a Mazda 6 for $35,000 !

This is not herd mentality .. this is plain economics and freedom of choice .. and once wages come down less BMW`s will be sold and more Mazda`s .. or more homes that are worth $350,000 .. why is this "herd mentality" ?

 

[Jack]

QUOTE This is not herd mentality .. this is plain economics and freedom of choice .. and once wages come down less BMW`s will be sold and more Mazda`s .. or more homes that are worth $350,000 .. why is this "herd mentality" ?

That wasn`t my point by the example I gave - my point was the low GRM. If you look at each house by the amount of rental revenue it can generate, there seems to be a pretty high P/E ratio in Calgary (other cities, too), which might suggest a fairly significant pull-back in prices.

The herd phenomenon is nothing more than an excessive run-up in prices driven by an overheated marketplace moreso than underlying fundamentals.

 

[Mike Milovick]

Adam;

Given that many economists believe that deflation is a strong possibility, what are you suggesting with your comment below?

Mike


QUOTE (housingrental @ Dec 7 2008, 03:50 PM) Which properties? Seems like Waterloo multi-family properties will not keep pace with inflation in the next few years. Residential properties on big lots are the way to go.

 

[housingrental]

Deflation? Inflation? (And I don`t believe it - this isn`t Japan) either way same things - Waterloo multi-family properties (WMF) underperform relative to general price averages over next few years. If a basket is woth 3% less 3 years from now WMF worth < - 3% current value or if a basket of goods is worth 10% more 3 years from now WMF < + 10% Etc..

Also if you believe there`ll be deflation shouldn`t you be advocating selling WMF?

 

[Thomas Beyer]

QUOTE (MikeMilovick @ Dec 8 2008, 10:21 AM) Given that many economists believe that deflation is a strong possibility ...Deflation is what happened the last few months .. I call it "re-calibration back to normal" .. once that is through in a few months or late 2009 at the latest, we will have large inflation again due to excessive bailouts and very large government deficits worldwide ! The easiest way to get rid of all this government debt: print more money.

As long as we live in democracies, especially in now left leaning democracies with large deficits like US, Canada, .. we will have INFLATION ..

In 2050 we will have deflation .. as the world population is expected to peak then .. but not the next 40 years due to growing world population and in-migration and population growth is countries that are desirable to live is such as: US, Canada, UK, Spain, S-America, stable Asian or N-African countries, some European countries .. unlike Japan which has a declining population for well over a decade now (hence: deflation)

 

[housingrental]

Emerging markets - What impact does this have on GTA / where most real estate is in Ontario? Through provincial government financial health so some but muted? Also your idea supports price declines in markets like Sudbury without significant near term price increases of resources

Commodities - Price levels of commodities generally fall over time - This supports lower income and population growth in towns that currently benefit from them. IN THE LONG RUN Its a fools game guess which commodities will be worth relatively more on a real basis.

Economy did good - I`m not going to spend the time to pull up the stats but income levels did NOT increase in tandem to real estate prices over the last 9 years. Same re rents / net income on investment properties - If real estate value increase was based solely on earnings increase CAP RATS WOULD NOT HAVE FALLEN - Yes some increase in investment real estate was based on income growth - but price changes was also based on cap rates falling - ie people were willing to pay more for each dollar of income an asset generated - so even if the asset is generating more income the valuation attributed to that income is currently higher than it was in the recent past.

Bigger/better cars - Exactly - Including increased demand for real estate business - as this moderates cap rates will increase in many markets.

Flipping - I`m not going to spend time looking for stats if there are any. I can tell you 6 years ago there were few flipped properties for sale on mls and over last 3 years there`ve been many. In fact a big portion of houses I`ve looked at that showed poor and were priced to discount and have come up for resale once renovated less than a year later.



QUOTE (RedlineBrett @ Dec 7 2008, 10:26 PM) Emerging markets - What does this have to do with Ontario`s real estate?
I`m by no means an Ontario expert, but the province (and canada) has an abundance of base metals... all of which have seen dramatic price runs (and now decreases with the sagging economy). It`s not that far a stretch to see that the owners and employees of these companies would be making more money as the prices increased.

Commodities - Isn`t the history of most commodities that of real price declines?
I`m also not a historian, but see above. Same applies for NG and crude out west.

Markets - Sure - new heights are normal based on increased earnings and compression of PE. For most real estate markets PE`s already gone too low, with material increase costs expected in water/electricity/tax`s (infrastructure needed almost everywhere) your unlikely to see much increase in real property earnings in most locations.
Maybe, maybe not. really depends what locations you`re talking about.

Economy did good - Properties prices didn`t increase in proportion to income - Cap rates also fell - Why in the world would someone buy a property with no ability to add value, in a mature market, that has significant transaction costs, for a 5% return? or even 7% return (ie 7% cap)?
I would love to see the proof that salaries or better yet NET WORTH didn`t increase along with the run in the equities market. Salary is one thing... but stock options, portfolio returns and yes, increases in value of real estate all lead to higher purchasing power!

Bigger/better cars/clothes - No, technology has deflated and reduced the relative price of these items. The discounted cash flow of an asset hasn`t suddenly doubled because I can buy a better car for less of the relative dollars of X-XX years ago.
Not quite sure what you`re after here. My point was that people were consuming more when the `whole economy` was hot... real estate included.

Flipping - The popularity, and speculative demand, has increased with exposure.
Has it? HOw many houses were flipped in 1980? 85? 90? You can`t prove it... all you can say is that there SEEMS to be more popularity because you are exposed to more media.

 

[joe123]

comparing home for home, similiar area to similiar area, not average to average since Sask has more dump areas bringing the average down. Sask is not more affardable, unless you are comparing a dump to something descent. Like I said the home I live in is worth 420 to 440k in Edmonton (SW), 520 to 560k in Saskatoon (stonebridge), how is that more affordable if they pay less? I have had friends sell thier descent Edmonton homes, go out to Sask thinking it was so darn cheap and affordable, then get burned trying to find something similiar and end up settling for a lesser home for the same amount and making less, but most are too embarassed to come back, but some are coming back... Maybe this will catch on?
Yeah a cheap dump rental property is cheaper in Sask, but what will happen once the buyers stop buying the good properties? or good homes become available for rent?

 

[housingrental]

Brett - Mike - Any response?

 

[nubiwan]

QUOTE (joe123 @ Dec 4 2008, 06:12 AM) Remax says... Regina up 9% for 2009, Saskatoon up 2%, Edmonton and Calgary 0%.... argh... Why did I ever invest in Alberta.... My residense in Edmonton plummited 25% to 460k Terwilligar), I can`t even replace it in Saskatoon for less than 560k(stonebridge), nor Regina for 500k... And it would never be beside a 90mil rec centre or lrt etc. etc.. What the hell? Is Saskatchewan ever going to correct? Now forecasted to go up even further? I feel like I`m taking crazy pills!, or I am just not getting it. I know Sask pays less, has a strong future yes, but compared to Alberta, no?, and on paper they should cost less, at least to me, right? Or the Alberta Paranoia and panic should trickle over there a bit no? at least a 15% correction? Am I misssing something? A big tropical ocean beside Regina? No taxes in Saskatoon? Am I crazy? What is going on? Everybody says prices went up too fast here, so they had to come down, yet sask and regina went up even more, and are going up even higher??? Nutana more expensive than Glenora, come on.... I got brutally raped in Edmonton investing. 25% off our properties in a year...ouch... Yet if I did the exact same thing in Regina, I`d be laughing... What is going on? why was rein not pushing Sask? I can`t find a city in Canada that can build the same house I live in for less... Yet Edmontonians still say it is too expensive. Oh course they compare a 1918 built ghetto in newfoundland, sask or ontairo to a brand new highend Edmonton home... but really... I am so close to giving up on Deadmonton forever and investing in the stupidist place I can think of, maybe even Regina or Saskatoon.... Why is Alberta so dead and falling yet Saskatchewan is just humming along? Fort mac is humming along? People oblivious out there as to what is going on in the world? maybe they don`t panic over headlines like Albertans? The builders didn`t create that huge of inventory here, a lot of panic did as well. Why does this panic only happen in Alberta and certain places in BC? Anybody else feeling confused like me? any answers? I`m about to lose it!!!! I`m going to go hide in the bush and yell at squirrels... I`d rip out my hair if I had any too...

One word OIL. New oil markets in Newfoundland "Ghetto" have driven our prices up, and kept them rising. A great place to invest in real estate in the past 5 years. Much of our typically unemployed but hardworking workforce have found it lucrative to work in the Alberta OIL fields and earn ridiculous sums of maney, which none of them seem to want to invest in Alberta, but prefer to bring home and get better bang for their buck with a new home built here. All of this has made teh local market quite aggressive and (in my opinion) quite inflated. But there appears to be no end in sight with new offshore OIL prospects and deals in the making.