2016 - Should We Bother With Real Estate Predictions Anymore?

People don't like to be wrong. And when it comes to real estate predictions, wrong is what most people are. It doesn't matter if you're a crazy troll making comments on how dumb all Canadians are for buying real estate in the past ten years, or if you are from an analyst from a think tank with all the real estate data and economic algorithms at your finger tips to make predictions. It's not  an easy game.

For the 2016 real estate predictions, I think the predictors are becoming aware of how wrong they have been in the past. So, the sky-is-falling predictions seem to be less common this year. I'm seeing a lot more levelled, even non-commital predictions. CMHC, for example, says the housing market in Canada will barely keep up to inflation until 2017. This basically tells us, according to them,  that house prices will not rise by leaps and bounds like it has for the past few years, and it tells us that it won't sink either. Not too extreme one way or the other.

In 2015, no one was right on their predictions, not even the very optimistic real estate brokerages of Canada. Everyone called for less gains than 2014, and for some, there were certainties that some kind of correction would occur. Everyone complained about affordability and the number of condos in the Toronto real estate market. What really happened? A better year for price appreciation in 2015 than 2014, one of the stronger years for condos in a long time, and all of those new condo units still seem to have been absorbed in 2015.

It's not just 2015. It's 2014, 2013, 2012, 2011, 2010 and the list goes on. Each year there are predictions on where the real estate market goes, and each year, it's wrong. It's not to say there there could never be a correction or a temporary price slip. Of course there can be. When or if that will happen in 2016 cannot be guaranteed by anyone.

So, instead of offering my 2016 predictions as a whole,  let's look at what I think are important factors that could effect the real estate market in 2016.

1. House Supply I'm sure some of you are tired of hearing me say this, but I am saying it again because it is an important point: There is a limited supply of houses in Toronto. This will not change. As the city grows, very few houses are built. So, demand goes up. You are still going to see news stories about how dumpy house in an established hood sold for a million dollars this year in my opinion.

2. Condos Are The New Sponge Condos will absorb more people than ever before. I think over the past five years we are seeing more families with kids in condos. This includes families who prefer to live in condos in central neighbourhoods and those who do not like their options for houses in Toronto. We'll also see a lot more boomers selling their houses for the easier-to-maintain condo. Overall, we still see reasonable demand on condos. In turn, we'll see more demand for community centres and places that would benefit kids in condo neighbourhoods. Condos will not be for retirees, those who hate yard work and young folks exclusively. It will be for everyone.

3. Poor Economic News  This may bring some of the air out of the real estate tires as news of a poor Canadian economy over the next year will make Canadians feel less inclined to buy property. It may instill enough fear to disrupt the steam engines of Toronto and Vancouver real estate. Of course, the flip side of this: Ontario and British Columbia will benefit from the low dollar. Alberta, you may be out of luck until oil rebounds.

4. Greater Investment In Toronto Infrastructure This is a good one to look at for investors or for those who would like property with better appreciation. With Trudeau in, we should see a lot more money coming for improvement of our infrastructure. At long last! So, keep an eye out for improved transit lines or even a few new ones.

5. Size Adjustment This is a hard pill to swallow, but Torontonians will have to learn to live with less space. There are a lots of benefits to living in the city. Space is not one of them. The good news is that there will be less to clean. Living in Toronto, like many big cities in the world, will be for the spatially challenged. More so than ever.

6. More Investors Though there are much more foreign investors going to the improving U.S. market, our lower dollar sure makes our higher prices seem lower to others, particularly Americans who will start to see our property as a kind of bargain as the  Canadian dollar slips.

7. Interest Rates  They won't budge. I could be wrong here. There will be inflation, but I suspect the government won't increase interest rates if they feel the GDP won't grow all that much in 2016, and projections are on the lower side.

8. Conversions, Low Rise and Boutique Condos No matter where the market, houses will still be king. Low rise condos, conversion lofts and townhomes will also do well. This year giant condos may do well depending on their location and the fitness of their reserve fund.

I think that covers most of the broad strokes. Now if I dare to generalize a little, even though I said I wouldn't, I don't think we'll see the wild increases we saw in 2015, but that's exactly what I said after a very strong showing for real estate one year ago.  I was wrong then. Maybe I'll be wrong again.

The Trail of Failed Real Estate Predictions

I'm feeling a little nostalgic lately. Maybe it's the Star Wars trailers I've been watching. Maybe its the Back to School blitz I have been seeing everywhere. But it also has to do with the Fall market in real estate. Yes my nostalgia does, not surprisingly, extend into real estate.

So, I did a little journey back in time to see what a few naysayers were claiming to know about Toronto and Canadian real estate from the past ten years. In many cases, the naysayers were claiming to be very certain that the real estate market was going to crash in Toronto and even in Canada. All their indicators are going off like alarm bells. And yes, their arguments seem very convincing.

And I'm not here as a cheery real estate salesperson to tell you that a market will never correct itself. It might. As I aways say, I'm not a fortune teller. I did not anticipate the rise in prices we have seen in the past year.  I don't know when or if the housing market of Toronto will undergo a correction. Real estate prices are cyclical. Prices rise and then fall or level out temporarily before rising even higher the next time. Not at regular intervals, because that would make things too predictable.

 So, I'm always amazed at how many people are so certain. Usually it's to sell a book.  Almost every publication has had predictions from Toronto Life to the Toronto Star.  From German banks to those guys who comment on the end of any real estate article.  My favourite is Garth Turner. I don't think he's such bad guy, really. He does make some good points, but he has been calling for the fall of Toronto for a long time. Check out this clip back from 2008:  Garth 2008. I think there was a climate of fear here because in 2008, the Great Recession was underway. It would be easy to be fearful in this time. And let's face it. I have the advantage of hindsight. Hindsight is always 20/20, right?

Still, if you did follow Garth's advice here, you may have sold your home and seen the market run ahead of you. It may have seemed wise to sell your place. It may have looked like you were going to be the smart one who avoided losing their shirt buying real estate. What you really would have done, by 2015 standards, is sold your 2008 home and lost a lot of appreciation that would have happened between 2008 and 2015, particularly if you bought a house. You may have also priced yourself out of the market.

My point here is that it's hard to predict a downturn in a market. If it was easy, a lot more of us would be very rich. In the U.S., those who said the U.S. market was going to tank in 2008 took full credit when it did happen. Guys like Nouriel Roubini. Smart guy. He had some very valuable things to say. I wonder though, if his guru-like status was just a bit too much. Personally, I think many of the gurus who predicted the crash in the U.S.  were lucky with their timing or they just said it long enough that finally, they had to be right. The truth is, there are signs of an overheated market now in Canada. There were signs of an overheated market in 2008 for Canada.  But there is no way to know when a market will change. It appeared in 2008 that Toronto was destined for a correction. It didn't look good. Price were slipping. The world was panicking, and people were losing their jobs. But the market didn't crash. It did the opposite. Logic did not apply, though Canada was much better set up with safeguards in the real estate market to protect itself in ways other countries had not. 

With all this said, my advice would be: Don't let fear be your guide. If you are planning of flipping a house in a short period of time, that is always risky. If you want to play it safe, buy a house you can carry financially now and for awhile keeping in mind that interest rates can change.  If the worst thing happens and your house falls in value, you'll still be able to carry it. And if you hold on long enough, prices will recover and start heading back up again. This may sound like a prediction, but really, it is my thoughts based on what has happened over the last one hundred years.

Is 2015 the last year for real estate growth in Toronto?

I've just read it again. The "this is the last year" thing.  This time I read it in the Toronto Star, but it could have come from anywhere, beit a national newspaper or that guy at the water cooler who thinks he's smarter than every one else.  If you are not familiar with this phrase and how it pertains to real estate, then let me explain.  "This is the last year" goes something like this: Home prices will continue to rise for 2015 but will stabilize in 2016. 2015 will be the last year of significant price growth in real estate. Fair enough. That seems reasonable to me. The housing market may very well unfold this way.  It would make sense that after a sustained period of growth, prices would stabilize, or as some may believe, plummet from the sky like a plane with too many birds in its propellers.

The thing about the "last year" thing, it's been something I have been hearing every year for over ten years. When I bought my first place in 2004, I read in the Globe and Mail that that would be the last year of the Toronto's great real estate run. At the time, it made sense. Interest rates were going up. It looked like I bought at the top of the market. I didn't lose any sleep over it, but it worried me. Then, as you know, the next year prices still went up. My sister bought her first place in 2006. I remember my brother-in-law and his father, two great guys who are deeply plugged in to the world of finance telling my sister to hold off on her Toronto home purchase. Homes were at their all time high and interest rates will not go any lower. They could not believe that houses cost $450K. Outrageous! My sister still needed a house. She was about to get married and have a kid. There was no waiting. Again, there was no real estate change the next year, prices went up.

In 2008, this had to be the year of the collapse. The sky looked like it was truly falling, but after short blip of a downturn, the market was going up again. Much of the rest of the world certainly saw prices fall in real estate, but not Canada. Perhaps it was delayed  here. In 2009, 2010, basically every year up to and including 2015, I have heard or read that real estate prices would stabilize or collapse in Toronto in the next year from Maclean's Magazine, Toronto Life, the IMF, German Banks, American think tanks, Garth Turner, and crabby people who comment at the end of real estate articles. But it didn't. I'm not saying in can't, but it didn't happen every time these so called experts declared it would.

Here is my take on this "last year" approach: It's an easy thing to say. In fact, I think I may have said it myself a a few times. It becomes hard to believe that prices will continue to go up year over year because it does not seem sustainable. If you look a year ahead, you would assume it would slow down.

The truth is that no one really knows when the real estate market will slow down. It's not a science. There is also the possibility that there has been a fundamental shift in Toronto with how we spend our money on real estate. It's true that low interest rates have made prices much higher, but there is a change in Toronto. We see much more foreign investment who prefer to buy in a "stable" real estate market. This sends prices up. We see a growing city that does not build any more houses making houses a very desirable commodity. We see that people desire to live in a city centre and not the suburbs any more. The opposite was true 20-30 years ago. Now, the city is more and more appealing, but there's no room to expand.

I don't believe Toronto home prices can continue their huge climb as they have been for the past several years, particularly houses, because condos are more reasonably priced and have seen smaller increases.  Still, I do think there's has been a shift in how we live in this city. People pay more for less space. This is why the parks are now overflowing with people.

Will 2015 be the last year of growth for Toronto properties? Maybe, maybe not. But I guarantee if it isn't, the all the real estate predictors will be telling us that 2016 will be the very last year for growth until 2017 comes along.

Your Future Awaits! Sorting Out The Real Estate Predictions of 2015

By nature, predictions are whimsical. That's why many of them are wrong. The real estate predictions of 2015 that I have come across are often a mix of doomsday scenarios and rosy outlooks, like every year for the past decade. So, let me filter these predictions, analyze them for you and offer a few thoughts of my own for Toronto real estate in 2015.

Let me start by saying what is a little different in the predictions for this year. Generally, they are fewer of them that are alarmist than in the past. Yes, we are hearing that prices can fall by 15% according to RBC, and yes we have someone named Hilliard MacBeth, an Albertan based porfilio manager who wrote a book entitled When the Bubble Bursts: Surviving the Canadian Real Estate Crash, calling for a nasty downturn in Canadian real estate. She predicts that house prices will fall 50%. Ouch. This may sound scary, but keep in mind that a book like this comes out almost every year. Why? Because these books sell! Think of Garth Turner in 2008 who wrote The Greater Fool: The Troubled Future of Real Estate calling for a 30% drop in Canadian real estate that year and more to follow in the subsequent years.

Even though we have some negative predictions this year, there are  fewer doomsday predictions than in previous years. I have a feeling that the public may be suffering from what I call "CLF" or Chicken Little Fatigue after years of hearing the sky is falling in real estate.  I suppose at some point, someone will be right. Some Canadian cities will have a slip in real estate prices, but not this year in Toronto.

All in all, I find all predictions a little more cautious for 2015. There will be smaller gains, but gains nonetheless. That seems to be the general consensus. Price appreciation but not as much as 2014.

The focus of the 2015 predictions has been largely around interest rates. As the American economy improves, many believe the Americans will start raising their interest rates, and in turn, Canada will raise their rates as well. Most predictions I have read point to the forth quarter for such things to happen. Some worry that the rise in interest rates will effect the housing market. I agree, it will slow it down. Others, however, think the interest rate hike will be the straw that broke the camel's back for the indebted Canadian, leading to a downturn in the real estate market. I don't believe it will cause the real estate market to crash, but it may put the breaks on some very big price increases that have happened over the past few years. I imagine if the rising interest rates start to effect the housing market too negatively, the government will put the breaks on the increases or even reverse them. Housing has become too big of an industry to just let slip.

From a more localized,  more Toronto-centric perspective, some of the trends that have been happening the past few years will become more pronounced in 2015. The low supply of houses and townhomes will remain in great demand since very few of them are built any longer, and the demand continues to increase as the city and region grows. Houses will increase in value at a much faster pace than condos.  Small boutique style condos in improving or established areas will generally perform better than giant condos. The dream of owning a house will still be affordable for some first-time buyers in the right emerging neighbourhood, though condos will increasingly be the terrain of first time buyers were the prices are more reasonable and the supply of new condos keep growing as the city grows.

For those who want a house with a smaller price tag, house hunters will turn to second tier cities like Hamilton where detached houses with a yard are comparable to the price of a one bedroom and even a bachelor condo in Toronto. Access from Hamilton to Toronto will continue to improve. Hamilton will be a good choice for many who love the urban lifestyle. It is still a city of 500, 000 people. Unlike Mississauga or Brampton or Oshawa or any other Toronto suburb, Hamilton does not suffer from suburban sprawl or a dominant suburban culture. Its downtown is coming back after decades of decline. This phenomenon is not exclusive to Toronto. Such migration to second tier cities is happening all over North American. In San Francisco, many house hunters head toward Oakland. Expensive cities like New York or Chicago have triggered some middle class folk who want more space to head to Austin, Denver, Nashville or Charlotte. The thing about Hamilton is that it is close to Toronto and the new GO station will link up quite nicely. So, you can have your Toronto job or social life, and live in Hamilton. Commuting time is required though.

In terms of Toronto neighbourhoods, we will continue to see some of the advanced emerging neighbourhoods steal some of the sparkle from the more estalblished neighbourhoods. The general shift of wealth from duller north Toronto to the more vibrant south destinations will continue. The cool quarters will continue to attract more demand. Roncesvalles, the Junction, Leslieville, West Queen West and Brockton will continue their quick ascent. Danforth Village will continue to draw in many first time buyers, though not all houses will be in the first-time buyer price range in this neighbourhood in 2015. Areas along the Eglinton Crossway that is currently under construction will be a good bet for a long term investment. This includes Mount Dennis, a neighbourhood with some of the lowest prices in Toronto. Mount Dennis even has its own indie coffee shop opened in 2014! And that's always a good sign for a burgeoning community hub. Like last year, bargain hunters will see the western flank of Scarborough that borders Toronto begin to take off.  Corktown and the Distillery District will really start to shine as all the construction wraps up and the Pan Am Games begin. This may be one of the top spots to buy a condo this year and next. It is a well planned area with a lot of amenities near by. High Park, Leslieville and the Junction Triangle are all places where condos have not been overbuilt and fit in nicely with the neighbourhood.

All in all, it appears it will be a tame year. Of course, anything can happen! No one called for the price appreciation we saw in Toronto houses and a healthy condo market in 2014. 2015 could be just as surprising.