Its all headwinds for real estate to me:
-interest rates can't get much lower
-consumers have maxed out their borrowing potential
-home ownership rate can't get much higher
-economy is sputtering and in my opinion on to brink of recession
-declining CAD is already hurting investors, further declines expected
-huge supply of condos coming online
-many unsophisticated investors purchased condos over the past several years with insufficient due diligence
Basically, Canadians have repeated the mistakes of Americans in 2008 by becoming way over leveraged and in the process creating a massive asset bubble that long ago disconnected from the fundamentals. It won't end well and the crash will be faster and longer-lasting than most expect. Canada is very vulnerable right now and there are several things that could spur a downward spiral and negative feedback loop.
Migos:
1) interest rates. I would have said the same thing last year too and it can't go too much lower. However, unless oil recovers quickly, look for another interest rate cut in March if not by May almost certainly BOC will drop another 1/4%.
2) Consumers are maxed out but have been for the past 1 and 1/2 years. It will take job losses and the ripple effect of oil dropping to cause a meltdown. It will happen I believe in Alberta. I am not sure it will come to Toronto as per previous posts.
3) I agree with 70% home ownership..this is very high. That said, North America likes its homes and since the immigration is to the cities...especially Toronto...this may maintain demand. I expect it will not outside of the big cities however.
4) The declining C$ does hurt present investors. However, it means we are on sale for those with currencies that are holding up. That would be the U.S. Remember that while the C$ is declining, it has actually stood up reasonably well when compared to the Euro, Yen, and other currencies in the basket of currencies. So yes, against the US we are not doing well with our loonie but if you are a European, Japanese, Chinese etc. our C$ currency has not declined vis a vis your currency though you would have done better to invest in the US for the capital appreciation.
5) Huge supply of condos coming on line....agree...especially the next 2-3 years. However, in 2013 late and through at least the early part of2014 I believe that less product was marketed and projects delayed so if we can get through the next 2-3 years, we may in fact be looking at a decrease in product coming on line in 2018-2019.
6) Agree fully with this statement.
This asset bubble will deflate due to a black swan event....terrorist attack....Grexit with unintended consequences (read Lehman collapse)...other unanticipated event.
My concern is that we see with the exception of the US, every central bank is again on a race to the bottom to devalue their currency. The US will not be raising this year or at most 1/4 of 1% and I doubt that. We will watch the purchasing numbers and non farm payrolls tomorrow but I suspect they will show that the massive appreciation of the USD has hurt hiring and will hurt companies bottom lines. The 10% increase in the currency is the equivalent of a 2% rate increase and I do not believe this was expected when Yellen said rates would go up in Summer "cautiously". With everyone around the US deflating their currency, the US can't afford a double whammy of going up in my view so by the law of "unintended consequences" I believe that interest rates in fact will remain lower for longer....at least to 2016 or even longer and we will not see much of a correction. Not because it should not correct but because central banks and governments are working so hard to prevent the natural market correction which needs to happen.