Money Still waiting for the Bank of Canada's promised real estate rebound: Don Pittis

18:15  16 may  2018
18:15  16 may  2018 Source:   cbc.ca

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As the Canadian Real Estate Association releases its latest figures on house prices today, showing the average Canadian home was worth just over 0,000 last month, it will be harder than ever for the Follow Don on Twitter @ don _ pittis . Bank of Canada hikes key interest rate for first time since 2010.

Don Pittis · CBC News · Posted: Jan 15, 2018 5:00 AM ET | Last Updated: January 15. Interest rates are going this way according to all market indicators, but Bank of Canada governor Stephen Poloz has room to manoeuvre.

Related video: 5 secrets from real estate insiders [Provided by GoBankingRates] 

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN.ca or Microsoft.

History tells us that with very rare exceptions, no matter how far property values fall, eventually they will come back even stronger.

The  latest housing market data shows  sales are down and prices have dropped an average of 11 per cent across Canada over the past year, so the difficult task facing people thinking of buying or selling is trying to figure out exactly where we are in the property value cycle, and whether they have the ability to hold out through the dip, however long it lasts.

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  Canada home resales fall in April, lowest in over 5 years: CREA Resales of Canadian homes fell 2.9 percent in April from March to the lowest level in more than five years, the Canadian Real Estate Association said on Tuesday. © REUTERS/Mark Blinch/File Photo FILE PHOTO: A woman walks towards a "for sale" sign of a home that has been sold in Toronto The industry group said actual sales, not seasonally adjusted, fell 13.9 percent, while the group's Home Price Index was up 1.5 percent from April 2017.

Latest numbers on Canadian real estate sales and prices come tomorrow. Don Pittis · CBC News · Posted: Apr 12, 2018 4:00 AM ET | Last Updated: April 12. Most analysts expect Stephen Poloz, governor of the Bank of Canada , to leave interest rates unchanged next week.

Here in Canada , markets and real estate have also been hitting new records despite insipid growth. The same company warned that Canadian banks were riskier. Don Pittis was a forest firefighter and a ranger in Canada ' s High Arctic islands.

Only last month, Bank of Canada governor Stephen Poloz and his senior deputy, Carolyn Wilkins, said the decline in sales activity in the first three months of the year (referred to as the first quarter, or Q1) would be temporary.

a sign on the side of a building: History tells us the Canadian housing market will eventually climb to new heights, but if you are interested in selling, how long can you afford to wait for the price you want? © Mark Blinch/Reuters History tells us the Canadian housing market will eventually climb to new heights, but if you are interested in selling, how long can you afford to wait for the price you want?

'We expect it to bounce back'

They said the imposition in January of stress tests  — forcing new buyers and those wanting to change to a different lender  to prove they could handle a hike in interest rates — meant many buyers rushed their purchases to beat the change. 

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Bank of Canada governor Stephen Poloz has warned about the potential impact of uninsured lending. (Chris Wattie/Reuters). Don Pittis was a forest firefighter and a ranger in Canada ' s High Arctic islands.

Sentiment still positive but less than in the summer says Bank of Canada survey. Analysis. Central bank has wiggle room despite a warming Canadian economy: Don Pittis .

That effectively boosted sales in late 2017 at the expense of business in the new year.

"We do expect [the new mortgage rules] to have a dampening effect on housing throughout the year but not to see the continued decline like we saw in Q1," said Wilkins. "We expect it to bounce back."

Even after the most devastating declines, house prices do bounce back.

a close up of a sign: Montreal real estate has been one of the hot spots in Canada, but overall sales and prices in the country are falling. © Graham Hughes/Canadian Press Montreal real estate has been one of the hot spots in Canada, but overall sales and prices in the country are falling.

There have been exceptions, such as Canadian towns supported by a dying resource , or the departure of an entire industry as happened in Detroit , where residential neighbourhoods were turned back into fields. But those exceptions are rare.

I had a reminder last week during a visit to Ireland, which had a disastrous housing crash following the 2007 credit crunch. Construction projects underway were left unfinished and homeowners found themselves deep underwater as valuations fell below what they had paid.

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But the Bank of Canada says a growing economy means people will be able to afford rate increases. Inflation' s rebound . Follow Don on @ don _ pittis . More analysis by Don Pittis .

Shake-up in real estate rules could change the Canadian market in unexpected ways. Don Pittis · CBC News · Posted: Apr 24, 2017 5:00 AM While a free market in rents since 1991 did not create the promised boom of rental construction, the market may still have worked if we had waited long enough.

Irish boom revisited

But ten years later that has all blown away. Last week, Ireland's Poloz equivalent, Philip Lane, issued a strong warning about Irish property prices being too high, a warning reiterated this week by the International Monetary Fund.

The net wealth of the average Irish person — in other words their assets minus what they owe — is now higher than it was before the crash , largely due to the rebound in house prices.

There are some lessons for Canadians from the Irish experience as they contemplate the future of house prices here.

People pass a sign reading 'Sold Out' in front of a condo building under construction in Toronto. © Chris Helgren/Reuters People pass a sign reading 'Sold Out' in front of a condo building under construction in Toronto.

One is that the Irish price rebound didn't help everyone. Many people who overextended themselves in Ireland's Celtic Tiger boom and were forced to sell during the ensuing property collapse are likely still suffering from the personal finance debacle.

The other lesson is that sitting tight during a property crash can pay off — that is, if you can afford to wait long enough.

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Don Pittis · CBC News · Posted: Mar 22, 2018 4:00 AM ET | Last Updated: March 22. It's been a long winter as NAFTA gloom and rising interest rates created uncertainty for Canada ' s economy, which depends so heavily on trade and real estate .

But wait . As the Bank of Canada puts it: "The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins." Follow Don on Twitter @ don _ pittis . More analysis by Don Pittis .

Small consolation

Of course, if the price declines that we've seen in the past two sets of Canadian Real Estate Association data continue, even the very likely prospect of an eventual rebound in house prices will be small consolation to those anxious to sell now or soon.

Most people planning to stay in a new or current property for the medium or long term should be fine. 

But a job loss, a forced move or the arrival of a brace of children could change that calculus. The group that might not be able to wait could also include older people hoping to cash out and new buyers in over their heads as interest rates rise.

a sign on the side of a snow covered street: Even if prices continue to slide, odds are they will bounce back to new highs, but no one knows when that will happen. © Mark Blinch/Reuters Even if prices continue to slide, odds are they will bounce back to new highs, but no one knows when that will happen.

That rise in mortgage costs seems even more likely to continue after yesterday's spike in Canadian bond rates to a seven-year high.

While some people in the real estate industry complain government interference is hurting their business, the entire purpose of stress tests is to prevent that last group — the over-borrowed — from being forced to sell during a dip in prices, something that could accentuate a serious property crash, should one occur.

Canadians care about the value of their houses and there is some evidence that falling house prices can rein in consumer spending because homeowners feel poorer, the so-called  inverse wealth effect.

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'Cautious' Bank of Canada keeps interest rate unchanged. That's significant in an economy where borrowing has become an unusually important part of retail and real estate sales. Don Pittis was a forest firefighter and a ranger in Canada ' s High Arctic islands.

Still , Bolt is four times the price of a gas-burning subcompact. ( Don Pittis /CBC). According to the Bank of Canada ' s inflation calculator that's more than ,000 in today's money. Early adopters were thrilled. The rest of us weren't.

What comes next?

But for those hoping to move into or out of the property market, knowing what prices will do in the medium term — how far they will fall and how soon they might recover — is of crucial importance to their planning.

Unfortunately, while each of us can try to predict the future based on various considerations, all those things are uncertain.

Yesterday's CREA numbers for April seem to show that the optimism of Poloz and Wilkins following the first quarter dip has not yet played out. 

TD Bank says the Canadian housing market will recover at the end of this year and strengthen in 2019 on the back of rising employment and a growing population. Of course, they are in the business of selling mortgages, and predictions of housing market doom by Canadian bank economists are notable due to their rarity.

Others have been more gloomy. Over the years, international banks and organizations such as the IMF have predicted Canadian house price declines of anywhere from 30 per cent to more than 60 per cent.

But barring a catastrophe that would hurt a lot more than house prices, odds are that whatever the decline, real estate prices will recover. The only question is how long you will have to wait and whether you can afford to.

Follow Don on Twitter @don_pittis     

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