With attention here in Australia focused upon the Australian Government’s October budget and what the incumbent Liberal party is prepared to do to lift the economy out of recession, news concerning the ongoing global rush into property continues.
Yet you would be excused for reading mixed messages in articles around the world reporting on it. One piece of information is seemingly at odds with another.
This was in a Bloomberg Wealth article on 14th October 2020 (emphasis added):
“Even a once-in-a-century pandemic is not enough to cool the Canadian housing market, with prices nationwide now forecast to end the year higher than where they started.”
The same report noted:
“The resilience of Canada’s housing market is not unique: home prices in many parts of the developed world have been defying the gloom of the Covid-19 recession.”
But wait! How can that be?
Regardless of where you are right now reading this, I will wager that you have been reminded constantly that your country is in the middle of recession.
Then add the once in a hundred-year global pandemic for good measure, and it has probably crossed your mind at least once in the past few months that the economy is going to collapse. And with it the property market.
And yet, Bloomberg is saying that, in this case Canadian, Real Estate prices are going up! How can that be?
Let us examine it, using the lens of our Real Estate Cycle.
The Property Sharemarket Economics (PSE) team study the 18.6-year Real Estate Cycle, 14 years up and 4 down with a mid-cycle recession interrupting the 14 years’ expansion.
The disruptions will mostly involve the world’s stock markets, together with a slowdown in economic activity.
This was our view based on our reading of history, applied to the present day. No one else was saying that. But then we watched and waited to see how things would unfold. And so far, this is exactly what has occurred.
The message portrayed in the above Bloomberg article is playing out not just in Canada but right across the World. Past blog posts sent to you have
shown as much.
Be aware of the emotional words used in reports like the above. I highlighted these in bold.
This was a common occurrence in news reports during previous mid-cycle recessions and the current cycle is no different.
For whatever reason, their inclusion distorts the truth from the reader and muddies the water so that you are left with no clear direction as to how you use this information.
Once we have established that Real Estate is not going to collapse, we are then asked: is there a Real Estate bubble that is about to burst for Toronto residents?
Or is this a prime time to be buying as the Real Estate market looks to once again be trending up?
Let’s have a look.
The article goes on to say (again, with emphasis added):
“In Toronto, which UBS says has one of the greatest housing bubble risks of any major city in the world, the average price reached C$975,980 by the end of September, up 11% from the same period a year before.”
“Still, with elevated consumer debt levels and a sharp slowdown in new immigrants, Canada’s real estate market stands out as vulnerable, with prices far in excess of what many workers can afford.”
That doesn’t sound promising, does it? But then there is the concluding paragraph below.
“In a sign the pandemic may be starting to shift homebuyers’ behaviour, the biggest price gains in Canada were seen not in Toronto but in suburban cities, including Oshawa, Hamilton and Mississauga, and in smaller cities”
“Windsor (a smaller regional area) had the biggest average price appreciation in the country in the last three months at 17%.”
So, Toronto’s Real Estate is one of the greatest housing bubbles on earth, but now surrounding suburbs and regions are recording even higher growth?
Confused yet?
Knowledge of the 18.6-year Real Estate Cycle would allow you to place such news within the phase of the cycle we are in.
More importantly, it would also allow you build a clear and consistent roadmap that is lacking in such articles should you be in a position to purchase, in this instance, property in Toronto.
But the evidence is starting to mount.
The outcome of the COVID19 recession has seen a profound change in behaviour in the Real Estate market, particularly driven by the best credentialed first home buyers.
It is this first home buyer market who have been showered with Government stimulus measures designed to help them enter the property market.
And with a combination of sky-high inner-city land prices and strict social distancing and curfew measures in place, these buyers are bidding against themselves to grab the most desirable locations in cheaper surrounding suburbs.
Naturally, this has led to higher prices.
And this change in buying behaviour is currently happening in Melbourne. It is also occurring in Sydney. And in other cities around the world.
And now, add Toronto to the list.
Here is your takeaway. You simply must understand the context of news articles like the one I have shown here.
And the only context that truly matters is the 18.6 Real Estate Cycle. It is not emotionally driven articles – that provide little truth behind their claims.
It is the historic low interest rates, generous first home buyer incentives for both buyers and construction companies and lavish Government led spending on infrastructure to get their respective economy out of recession.
All according to the cycle, all on time.
Our members learn what to read, hear and watch for as we progress through the mid-cycle recession. One of the tools they can leverage is the 18.6-year Real Estate Cycle property clock.
And the property clock calls for, amongst other indicators, the beginning of land prices rising.
That would indicate a turning of the cycle into 13 o’clock.
Not just Toronto; but the entire developed World. The set up necessary to push economies, land and stock markets into this next phase has already begun.
THAT is what you take away from this article.
The history of the Real Estate Cycle suggests now is the best time for the next decade to grab property, both for investment and owner-occupier. The second speculative half of the cycle is about to begin.
If you want to educate yourself further about the Real Estate cycle, then subscribing to the Boom Bust Bulletin is a great place to start. Click HERE to find out more.
Best wishes
Darren J Wilson
and your Property Sharemarket Economics Team