Friday, August 01, 2014

Canadian Real Estate - A Crack in the Tree

by Tom Bradley, Steadyhand Investment Funds

The Full Article

“It’s like if the tree in the backyard has a crack in it, you worry it’s vulnerable to a storm. But if no storm happens, it goes on and on, and maybe eventually strengthens through growth. If the right storm comes along and knocks it onto your neighbour’s house you’ve got a problem.”

This analogy for the Canadian residential real estate market is from our Bank Governor, Stephen Poloz. It prompted me to pull together a number of observations that were building up in my real estate file. In the attached piece (it’s too long for a blog), I point out that:
  • Being too early is tantamount to being wrong.
  • Real estate is a cyclical asset, cycles have a symmetry to them and therefore, extremely good cycles don’t end with a little pause or modest slowdown.
  • There’s a strong consensus that interest rates will stay low and house prices will stay high.
  • Fundamental measures are on balance negative. The most important ones are extremely negative.
  • Foreign buying, inter-generational transfer and the loonie are wild cards in the analysis.
  • Canadians are focused on the ‘Income Statement’ impact of buying a home (i.e. carrying cost), but are overlooking the ‘balance sheet’ impact.
  • We’ve been in an ideal environment for rising real estate prices. It’s been a ‘virtuous circle’. If a few of the variables turn, a downward spiral is equally possible.
  • A few other items that will make real estate bulls mad.
In true Steadyhand fashion, I’m not suggesting you make a big asset shift by selling your home and moving the family into a rental. But I am suggesting that it’s time for added caution. If possible, you should to be subtracting from this asset class, not adding.

Copyright © Steadyhand Investment Funds

5 comments:

Unknown said...

Made a shift in 2010. Now thinking about moving to Seattle.

adson stone said...


Too many would-be real estate agents obsess over the licensing test, then fail in their first two years because they didn't develop a plan and follow it for success in becoming a real estate agent. They passed the test, but failed to understand the business, to develop a budget and a business plan, or to learn the ropes that aren't taught or covered in the test. These are not just tips, but tools to help you to go into the business with a plan in place to be successful. Learning about the pace of the business, the costs of doing business, and getting to the right prospects is critical.
Ines Flax

Paulita J. Schram said...
This comment has been removed by the author.
Paulita J. Schram said...

Real estate business is not a simple ladder to climb. People find it hard to hang-on, during a low time. For some, it might be a slow start, use that time to grow your knowledge than just lie down and wait something to show up. Keep track of the market, mortgage and insurance ups and lows. This is a key thing, because this brings a lot of changes in the business. Understand it.
This year, I believe is going to be of great profits. The mortgage rates are at really low and that too came at a critical time of the year. This is the time when the business is having a great time. In a discussion with my agent, Safebridge Financial Group, ON, the rates will be low for another year or so. Considering all this, it will be a good time to launch yourselves in.

Joseph Russo said...

I am an attorney and before starting my real estate career, I had my own law practice; and before that, I had my own computer consulting company-both successful ventures. Oak Forest houses for sale I approached real estate from a businessperson's perspective and this book definitely speaks to the serious businessperson.