Are We About to See Another Housing Bubble Go Pop?
It’s been eight years since the sub- prime mortgage housing bubble burst, are we due for another correction in the real estate market? Housing prices in many U. S. cities may be overpriced by over 20 percent according to analysis by the Fitch credit rating agency. Yet U.S housing prices continue to rise, nationally at about six percent by the end of 2016 (the Pacific region outperformed the rest of country with average housing prices rising by about 9 percent).
This could be due to strong rental income returns for property investors, indicating this housing market is based on stronger fundamentals than the 2002-2008 market.
Other analysts are not quite as convinced on the stability of the current housing market. Saying many of the problems that led to the 08/09 recession have not been adequately addressed, and that German banks are still holding a great deal of CDOS on their books, and furthermore that the U.S.
U.shousingprices continuetorise,nationally ataboutsixpercentby theendof2016.
Housing starts did contract by 9 percent over the summer, but that was a needed reduction in housing inventory.
housing market is, like the equity markets, being driven by the Fed’s extremely loose monetary policy, which arguably cannot go on forever.
Others warn that wages are not keeping pace with housing prices, and if interest rates climb to 5-6 percent there will be a contraction in the market, if not the economy as a whole.
It’s not all doom and gloom however, new homeowners are not nearly as leveraged as buyers generally were in the run up to the 2008 housing crash. The market could stay strong through 2018/19. Housing starts did contract by 9 percent over the summer, but that was a needed reduction in housing inventory.
If the U.S housing market is peaking, then the Canadian housing market has burst through the roof. Many have been predicting a big price correction within the next year, if not sooner for major Canadian cities, namely Vancouver and Toronto. Vancouver being especially precarious, having seen the greatest price increases, and
having just introduced two taxes directed at foreign buyers and owners. Although Canadian Finance Minister, Bill Morneau has said he intends to look at foreign buyers’ effect on the real estate market in Canada. Does that mean a national tax on foreign buyers? No word yet.
In the meantime, Vancouver is in fact the most expensive real estate market in North America ( based on value for dollar) but prices appear to be cooling there in recent months. Toronto is still experiencing gains, along with Canada’s other major cities, Montreal and Calgary, the latter having already been hit hard by depressed oil prices, leaving it, realistically, nowhere to go but up.
The Canadian Real Estate Association ( CREA) which is an umbrella organization for realtors in Canada, say they do expect prices across Canada to plateau in 2017.
They are of course optimistic in the sense they aren’t predicting a market crash. This is opposed to the CHMC ( Canadian Housing and Mortgage Company) which officially issued a red flag over Canada’s housing market last Oct.
Their CEO Evan Siddell wrote that he was concerned about high levels of household debt and rising home prices. The CHMC flag 15 Canadian markets as having “overheated prices,” and nine markets (including Vancouver, Toronto and Montreal) as being in a real estate bubble.
Although RBC ( Royal Bank of Canada) capital markets head, Matt Barasch doesn’t agree with that assessment. Telling Business News Network this past summer that it is premature to declare something’s a bubble simply because a chart looks a certain way. He did voice some concerns though, that the federal government may act too abruptly in curbing foreign home buyers.
Moody’s also is predicting a soft landing for Canadian real estate in 2017.
Back to the U. S market, Moody’s also predicts continued price increases in major metropolitan centres, especially in the southwest, pacific northwest and northeast, as inventories remain low.
The Trump effect on the real estate market:
Generally the election of Donald Trump to the Presidency of the United States is seen as a positive for business. For real estate it’s a mixed bag, incentives for builders to build new homes, which will increase inventories and diminish price pressure, and rent increases. Depending on which side of the equation you’re on that could be good or bad.
On the wider commercial market Trump has a great deal of invested interest in keeping the market healthy. Can he remain objective as President? It’s safe to say many have their doubts; again, depending on where you stand, that could be good or bad.
Generally the election of Donald Trump to the Presidency of the United States is seen as a positive for business. For real estate it’s a mixed bag.