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As long as borrowing rates are kept artificially low, the normal cycle is disrupted.

What I'm wondering is this: When interest rates start to go back up, what affect will that have on the cycle itself? Will it just continue as if it was never interrupted (and back to a normal seven year range) or will the long period of low rates have another negative consequence (foreseen or, as of yet, unforeseen)?

If I had to hazard a guess, and it is only a guess....when interest rates finally start back up the cycle will be a down cycle for a few years on real estate and probably after the down a prolonged flat period. I suspect the flat period will be longer than a "normal 7 year cycle".

Remember this will not be limited to real estate but to many investments. The stock market with rising rates will see a prolonged down. The bond market (existing bonds) will lose value. People and governments will have less money to spend. So unless there is a huge uptick in the growth of the economy to offset this, I think we will be in an asset decline mode for many years. The artificial boost of all the QE around the world will result I suspect in many years of no asset growth going forward or little in very niche areas and a general decline in most people's net worth.

In other words, I suspect that those who made a lot in net worth since 2008 decline will have trouble holding onto it as all / most asset classes decline. I suspect all the asset classes will have a prolonged cycle.

This is just my opinion. I readily admit I cannot provide factual data to support it...other than perhaps to draw from the Japanese experience over the past 20 years.
 
Condo prices in GTA likely to fall about 8% over next 2 years
I think this bears highlighting too:

Meanwhile, the market for single-detached homes remains drum tight, keeping average resale home price growth in the GTA near 9 per cent year-over-year in February, further igniting fears of a bubble. One market is facing too much supply, while another appears to be heating up.”

In other words, I suspect that those who made a lot in net worth since 2008 decline will have trouble holding onto it as all / most asset classes decline. I suspect all the asset classes will have a prolonged cycle.
I started selling off some of my equities in the last few months... and consequently missed some of the gains. It's always tough to time the market. I'm not surprised though, as my predictions often take a year or sometimes much, much longer to come true.
 
I started selling off some of my equities in the last few months... and consequently missed some of the gains. It's always tough to time the market. I'm not surprised though, as my predictions often take a year or sometimes much, much longer to come true.

I too last year did not buy any equity but rather sold partial positions in 2 holdings (I sold approximately 6% of my total stock holdings.) Both residual holdings are up since then but I remember what I have learned from the past: No one ever went wrong taking a profit.

Unfortunately, one will only know the exact time to sell in hind sight when it is too late. Also, since equities have rallied they now form more of one's portfolio as a percentage and therefore if one has set targets for investment classes the time to sell is when the overall portfolio segment is up: in other words, one should be rebalancing one's portfolio into hopefully some other sectors which have lagged. Personally, I am not overly keen on equities but hold a position of mainly conservative and with about 75% in dividend paying stock.
 
Here’s a detailed analysis debunking the myth that Canadian house prices are overvalued:

http://www.wdunning.com/docs/Bubble-report-2014-03-12.pdf

The research is also mentioned in this article:

http://business.financialpost.com/2014/03/12/ottawas-dangerous-housing-market-meddling-threatens-jobs-economy-economist/

Ottawa’s ‘dangerous’ housing market meddling threatens jobs, economy: economist

Economist Will Dunning says he’s taken a close look at the Canadian housing market and just can’t see the bubble.
But what’s most disconcerting to him about the concern about the housing market expressed by economists, media and government officials is it has led to action from the federal government to change mortgage rules on four separate occasions — something he says the market didn’t need.

The meddling has created a “dangerous” situation that might ultimately derail the housing market which will impact jobs and at the end of the day gross domestic product, says Mr. Dunning, in a paper to be released Wednesday.

“The deliberate reduction of housing demand, which is now clearly visible in the new and existing arenas [for housing] creates a risk that prices could fall, unnecessarily. Once prices start to fall, the outcome is unpredictable,” said Mr. Dunning, who also serves as chief economist for the Canadian Association of Accredited Mortgage Professionals.

Mr. Dunning argues neither Toronto nor Vancouver probably needed the latest rule changes which included the reduction of the maximum amortization length from 30 years to 25 years — something that increased monthly payments and lowered how much debt consumers could get.

“I think the fourth change is where the government overshot the market,” says Mr. Dunning.

On a national basis, he says the ratio of rental rates to home prices has a large enough gap that house prices could rise 20% to 25% in the next two years and still make home ownership the viable option.

The economist says affordability statistics are skewed because data is based on posted rates that are much lower than what consumers are able to negotiate on their loans. “Canadian housing prices leave a substantial amount of room to tolerate higher interest rates,” says Mr. Dunning.

Not everyone agrees with him. Marc Pinsonneault, an economist with National Bank of Canada, said tighter mortgage rules have had an impact on every market and feels that’s as it should be.

“You can’t blame the over-construction in Quebec on the federal measures,” says Mr. Pinsonneault, adding Ottawa probably still has concerns about high levels of unsold inventory in Toronto’s condominium sector.

He says any worries about a policy that might impact some parts of the country more than others competes with a feeling that construction has become too important to GDP.

“The industry might be overweight in its current proportion and will return to its normal proportion. Returning to equilibrium is not something that is bad to me,” says Mr. Pinsonneault. “You don’t want a sudden loss of value and such a scenario is not in the cards.”

Finn Poschmann, vice-president, research at the C.D. Howe Institute, said it’s “not the job of mortgage insurance to encourage or discourage whatever is the underlying trend in house prices — the job is to manage financial risk exposure.” Most of the government restrictions relate to loans with mortgage default insurance which is mandatory with less than a 20% downpayment.

“They did tighten mortgage policy, and it was because housing credit was growing fast and there were concerns over exposure. That’s across the board, not a regional issue. The sandbox rules are national — and they are not tuned to local markets any more than are, say, bank capital ratios or Bank of Canada interest rate policy. They are blunt tools, and not meant for market fine-tuning,” said Mr. Poschmann.
 
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Interesting. I do feel like the government has been a little too much middling with the housing market. I guess we'll see what happens.
 
Remember Will Dunning is the chief economist for the Canadian Association of Accredited Mortgage Professionals.
This is the group most impacted by the rules returning to where they were prior to the liberalization...
I can't state for sure but I would bet the mortgage professionals were lobbying the government to ease the rules.
I would hardly expect the Chief economist to say housing is in for a downfall and decrease purchases resulting in the mortgage professionals losing business.

I am not saying Mr. Dunning is correct or incorrect, just that he/his group have a vested interest to ensure that housing does not drop significantly.
 
I am not saying Mr. Dunning is correct or incorrect, just that he/his group have a vested interest to ensure that housing does not drop significantly.


Quite true. People with major conflicts-of-interest shouldn't be held up as unbiased sources of information. CAAMP, in particular, has been very aggressive in promoting a rosy housing market going forward despite fundamental indicators pointing in the opposite direction.
 
The ironic thing is that, when it comes to real estate, we all have conflicts-of-interest and our own biases to contend with. because we own, invest, want to own, want to invest, love our homes, want our homes to be better investments, are afraid of the market crashing... etc.

We can look at the stats month-to-month, year-to-year, for all of Canada, for Ontario, for the GTA. But when it comes down to it, anyone writing an article, or speaking their opinions is purposefully putting their own twist and bias into their words, choosing the figures that support them the best. In the end you can only look at what relates to you and your investments (or home).

Real Estate is a long term game. The value of your land will go up (especially in GTA with all the intensification mandates and conservation acts in place in the surrounding areas), if your $530k home is worth almost $2million in 20 odd years then you're not going to worry too much about that period where prices went down a bit for a few years.

http://www.torontorealestateboard.c...storic_stats/pdf/TREB_historic_statistics.pdf
 

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Fundamental indicators such as?

Essentially stagnant wage growth for the past three decades.

Record levels of household debt.

Artificially low interest rates (that have no where to go but up).

Canadian economy that was buoyed by natural resource boom (which is slowing).

Job growth disproportionally part-time & low-wage from historic norms.
 
The cheif economist is the CAAMP hasn't had a good look at the Canadian housing market.

So not only is he a shill, but a lazy shill.
 
This market is officially on fire! Detached is leading the way with bidding wars in many parts of the GTA. Looks like majority is end user demand.
 
Everyone is acknowledging the market is hot right now. I suspect it will continue for the next few months.
People have been waiting a year or 2 now and there is pent up demand of people who just want to move.

In my experience, the market will suddenly stop...it will be rapid thing which occurs almost overnight.

I do remember as I posted a few years ago the stop of the market locally in Feb 1989...I am dating myself. We suddenly went from a hot to a cold market. That lasted a long time. The interesting phenomenon for me was how fast the sentiment changed. Almost overnight. I rather suspect we will see the same this time though with interest rates remaining low, we need some major outside jolt for it to occur.
 
Everyone is acknowledging the market is hot right now. I suspect it will continue for the next few months.
People have been waiting a year or 2 now and there is pent up demand of people who just want to move.

In my experience, the market will suddenly stop...it will be rapid thing which occurs almost overnight.

I do remember as I posted a few years ago the stop of the market locally in Feb 1989...I am dating myself. We suddenly went from a hot to a cold market. That lasted a long time. The interesting phenomenon for me was how fast the sentiment changed. Almost overnight. I rather suspect we will see the same this time though with interest rates remaining low, we need some major outside jolt for it to occur.

It's called the Quebec election. If PQ wins, CAD dollar may fall as investors will get spooked about a potential referendum. This will trigger higher yields on bonds as prices drop, mortgage rates for fixed go up...
 
It's called the Quebec election. If PQ wins, CAD dollar may fall as investors will get spooked about a potential referendum. This will trigger higher yields on bonds as prices drop, mortgage rates for fixed go up...

Good observation.
However, even if the PQ wins, I think it will depend on the result.
If a minority government, no effect or at least no change.
If a majority, yes we will see 1-2% possible drop in the C$ and maybe some minimal increase in interest rates until such time as an actual referendum is approached. Then it will depend on the result. If positive, interest rates will spike rapidly. If the polls suggest a WIN for the seperation side, that will also drop the dollar and drive up rates quite a bit more...how much, I just don't know but certainly from the record lows we are at, a small jump is a large percentage...by that I mean: from 3% a jump of 3% is a doubling. Previously interest rates were much higher and the same 3% jump would not have been as significant.

In fact, one might see a mass exodus of Anglophones and Allophones out of Quebec and I would suggest a lot of them will come to Toronto....at least those leaving Montreal will consider Toronto. That may actually increase demand locally though I suspect those coming will see real estate they hold in Montreal plummet leaving them hard pressed to buy in Toronto. But, it will still increase the demand in Toronto over what existed...even if a 1 x blip.
 

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