We all need a shelter to live. It can be rented, purchased, parental or provided by the company. The first requirement is the shelter. Then we name it differently – some call it a home, for some it is a second home. Then we look at it from different perspective – to me it is a place where our nest is. End of each day where we all return and feel happy, relaxed and content. May be you feel the same way. Investors will look at it from a pure investment perspective – to them it is a number and plus or minus in their balance sheet.
I need a home for us. Our home is not a number, neither about profit or loss nor will we worry about value of it going up or down. A lot of us think and feel that way. Media and bank analysts keep crunching numbers and continue predicting slumps and dumps which is least of my worry. Can you really take any action based on what they say in their analyses? Probably not – if you read the fine prints.
We live in the world of news and social media. Every moment we are being targeted by news we may not bother with otherwise. So, even though I don’t want to look at my home as an investment – peer pressure has creeped in. The idea of a falling house price is somewhat disturbing for a homeowner. That is because I had this dream of taking equity out from the home to run a business or may be something else in the future.
Therefore it is important to find out the facts. Is it really going to go down or not!
It is a difficult call. How would I know what to watch out for? Which one would tell me that a downturn is coming? The charts from the real-estate agencies are not useful as they come out at the last moment which rather can be looked as the score of a game.
First of all I shall look at the institutes which are exposed to the real estate market. Banks and other mortgage lenders, mortgage default insurers have direct relationship with this industry. Big banks may be able to cover real-estate risks by their presence in other financial areas but for smaller lenders and insurers (default) there is not such cover. We should be able to see if they are being sorted in the stock market. At this time they are still healthy
The second place to look for is the economic condition of the country. For years, banks have been predicting raising interest rate – which appears like a wild goose. All those rate raise predictions failed to be correct yet. We may become another example like Japan where a prolonged period of deflation causing a lot of trouble. If Canada is heading the same path then interest rate is not moving anywhere. The current predictions of housing disaster is solely based on a interest rate hike – such a narrow focused analysis seldom is useful.
The third place I tend to look at – is the bond yield curves. Long term yields are still low and till Europe and US gains solid ground – yields will remain stuck as investors have to feel comfortable before investing in high risk markets for higher yields. I do not think that they will come out the hole quickly anytime soon. It took them years to reach this stage and it will take years before they can come out of this mess.
Fourth: What happens when World economy comes back on track and Canadian engine start to pull full steam? Well, Inflation will raise and prices will go up. Labour market participation will increase and they will all look for a shelter to head back at the end of each day. Interest rate will go up, so will the wages and other income. Demand will remain strong.
In the end:
I am not a fortune teller but it is not very likely that our housing market will go down anytime soon or in distant future. The houses which are being sold at millions may find it hard to find a willing buyers but the house which are meant to be home not an investment will always find an admirer.