Video: When Housing Takes A Hit
The risks, problems, and opportunities in the Canadian real estate market were discussed last night on CBC with the Bottom Line panel:
- Patricia Croft (retired chief economist)
- Jim Stafford (economist with Canadian Auto Workers)
- Amanda Lang (senior business correspondent)
- Preet Banerjee (financial expert)
(You might remember this same panel from an another episode that aired back in May of this year)
Below are just a few highlights, mostly paraphrased with some direct quotes:
“It’s about psychology” and the wealth effect. When house prices go up, we feel great and we spend more. It’s estimated for every dollar the house price goes up, consumers spend another 5-7 cents. But it works in reverse too when prices go down.
Get your emotions under control. It’s the most money you’re going to pay for a single thing in your entire life and yet you buy it on a gut reaction in the first five minutes you walk into a place. Try to take emotions out of the equation, as hard as that is.
Real estate is all about location. If for example you’re living in Calgary or Edmonton – this week the Conference Board said those 2 cities have the best outlook for the next 4 years, so if you’re living in cities like that…then the price may continue to rise and housing could be a great investment. You can’t make generalizations, you have to take it on a case-by-case basis.
“The regulators and the federal government have done a masterful job in really heading this thing off. So I think Canada is going to the be only country to safely deflate some overvaluation in their housing market.”
Don’t rush. Let prices soften. There are a couple quarters lag between drop in sales and drop in prices.
Renting is actually a pretty good deal right now. Rental prices have not gone up as fast the ownership has.
The ratio of owning a house to renting a place is “out of whack” so relatively speaking, renting could be a good deal if it suits your life. The house first and foremost is a real place for you and your family to live as opposed to financial investment.
The housing market in Canada now by most indicators is as overvalued as the US market was before the crash. In fact, by some indicators more overvalued. In terms of the actual level of prices and how much it has come up, it is kind of precarious
(Patricia Croft interjects saying it’s skewed by Toronto and Vancouver. Amanda Lang says our banks are very, very conservative.)
The role of government has been a real stabilizing force in our real estate market.
If you can be 15% irrational on the upside, you can easily be 15% irrational on the downside. So I don’t discount the possibility of a crash, I don’t think it’s likely, but there is a possibility.
Play out some scenarios. Interest rates could go up 6%. That could happen. We could get serious inflation and our central bank could have to hike rates severely.
There could be a big reset to the upside (at the end of your term) Just run the numbers, if you can’t afford it, it might be worth thinking getting out ahead of that while the market still has a selling side.
“If you’re in the house for the long term, and you can afford your mortgage, crash doesn’t matter, it’s just a paper difference in your wealth.”
If you need that money soon (retiring) You still have time to sell…there is a window here..this is a chance to do it. Selling opportunities.
Watch Video: When Housing Takes A Hit