Differing Outlooks (MACLEANS Special Report, and the Futures Market) – Updated

Some economists are telling you not to worry.  CMHC, like many banks and investment firms are forecasting a rebound in a short year, with the exception of Merrill Lynch Canada  which was warning of a housing bubble even before the markets crashed late last year.  Meanwhile newspaper headlines are reporting plunging markets & widespread layoffs. 

Quick Recovery.  Prolonged housing decline.  Which is the likely outcome?   Macleans Magazine has a special report out this week, and it’s an eyeopener.   Believe the report or choose to dismiss it – but whatever you decide, at least you’ll be going forward informed.

The headline reads:  “New evidence shows that Canadian prices could go down, and stay down, for a decade”

Media sensationalism or informative reporting?  Depending on who you ask, you’ll invariably get a different response.

Robert Shiller, an economics professor at Yale University and one of the creators of the S&P Case Shiller Home Price Index says that real estate economists/real estate agents predictions are “very biased.  They know that in a declining market, the volume of sales falls dramatically and real estate agents lose their jobs.  So they don’t want to say anything that could be seen as contributing to a falling market.”  

Some have even gone on as far to say that policy makers and forecasters who see a recovery next year (for Canada in general) are probably lying to boost public confidence. (Source)

Another top economist, this one from Canada says, “There’s clearly a lot of spin.”  Poor guy would only speak to Macleans on condition of anonymity.   Sadly, the truth hurts – and it’s a shame that an economist can’t do his job properly without being fearful of backlash.

CMHC promotes home ownership with rosy forecasts (see previous blog post as to how far off they are)  since they depend on home sales to sell mortgage insurance.  What’s worse than having a vested interest in their forecasts is that they have no apparent accountability. 

What type of forecasting does have accountability?  The futures market, the Macleans article explains, because rather than representing the biased opinions of one or two economists (see: CMHC, CREA) it represents the combined best guesses of many investors who are actually putting “their money with their mouth is.”

The futures market helped Robert Shiller predict the crash in the US market.  Shiller says that when the US market peaked in 2006, he saw the exact same situation we’re now seeing in Canada.  During that time in the US, economists were still talking of increases, or a minor correction.   NAR, through their chief economist David Lereah, was saying anything they could to boost the market and get people in.  Will his current Canadian counterpart do the same thing as the market continues to deteriorate?

 You can read the entire Macleans article here

The daily stats, and the statistical reports provided here are one way of getting an insiders look at the market.  The Teranet House Price Index is another great tool.  Speaking of which…

Real Estate Futures Market

Are you interested in real estate futures?  Watch the BNN episode regarding the newly launched (in Canada)  Futures Market – very interesting.   WATCH BNN SEGMENT

BNN – Housing Values Debate

Watch the debate on BNN – will housing values drop?

Listen in as the two hosts present their arguments.  Afterwards,  CREA’s Chief Economist weighs in.

(At one point he says:  “If you have your eye on a house in particular…and if somebody else gets the house first, you’re gonna be kicking yourself.”     I wonder if he wrote the new REMAX commercial.   )

In the debate, which arguments do you think had the most merit, whether for or against house values dropping in Canada?

The views or opinions expressed by me are mine alone and do not reflect the views of other agents or my brokerage. I am not an economist or financial adviser.

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Mike Fotiou, First Place Realty, is a licensed Realtor, Accredited Buyer’s Representative, Certified Condominium Specialist, and Commissioner for Oaths in the Province of Alberta.