Are We About to See An­other Hous­ing Bub­ble Go Pop?

CAIFU - - Con­tents - By Alan Forsythe

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.

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