For those of you who don’t have the time to watch a 35-minute video, here are the questions covered, and the times at which they appear so you can skip ahead…
Question #1 from Cal @ 1m 40s
The same question as for Ben last week: How far will governments, central banks and their assorted agencies go to preserve RE values? Will they do the proverbial “whatever it takes”? How much does it matter whether they do or don’t?
Question #2 from Mordy Weinberg @ 4m 51s
If someone needs to sell a low end condo in downtown Toronto (or any other house or condo) and it could be sold anytime between now and June 2021 – when would you think they would get the best price. What if it needs to sell by December 2020?
What if it’s vacant and although the sellers can wait – they will have to cover the costs or get a new tenant and sell a tenanted property?
Question #3 from Mordy Weinberg @ 8m 56s
I have many more questions that I would love to hear John’s (And yours) thoughts/estimates/guesses-
Will the market drop before it bounces back and how low will it go?
Which housing type will drop worst and which will perform best?
Will we hit buyers market territory ?
Same questions for the rental market.
David- here is one that I know you probably have some strong opinions about- What’s going to happen to the pre-construction market? Will people continue to pay above current market value in the hopes and expectations of future profits?
What about the fact that the rents may compress – making it harder to cover the costs?
Question #4 from Chris @ 20m 19s
John, the LG title is definitely more of an endearing joke than a troll! Many of us really do respect and appreciate the work that you do and info you share.
Assuming the province begins opening up in mid May, how do you see the market responding, through the summer/fall and over the next year or two?
You sometimes take flak on Twitter, I would say unfairly, for being a bear, or a bull (I think most find your assessments to be pretty balanced). If you had to place yourself on the spectrum from bear to bull and everything in between, given the GTA market’s current prices and fundamentals, where would you land?
And we all know I’m going to ask for your guess for our game! When do you think the GTA Average Sales Price will re-attain the $910,290 mark, of February 2020?
Question #5 from Francesca @ 31m 07s
Continuing on what Chris is asking; seeing that the spring 2020 market will be greatly impacted by the time everything reopens up and people regain confidence in buying and selling, will the summer of 2020 be more active than usual summers? Will it become a buyers summer market or remain a sellers market? Summer time is usually pretty slow with people going away on vacations but if this year people are stuck at home and not travelling even to cottage country they will technically have more time to pursue listings and to sell their house. Or will the market not rebound until the Fall when usual activity normally restarts? I’m wondering how the normal cycle of real estate will be impacted by the psychological effects of this pandemic and the economic ramifications of it.
John Pasalis
at 10:07 am
Thank you David and all of your TRB readers for all the great questions.
Now I’m going to do the one thing I normally can’t do after an interview, follow up on one of the questions I got. Why analyze housing data if we can’t time the market?
A very simple but great question.
In addition to the answer I gave in my interview, I’ll follow up with two additional thoughts that I should have thought of considering the answer is a key part of my research/grad school thesis.
If you believe the idea that housing bubbles are largely a behavioural phenomenon rooted in an increase in the number of people buying real estate strictly for the expected capital gain (independent of the rent they may earn) – then analyzing micro housing data may help us spot bubbles. If you read the report I wrote in 2017 (I referred to it in the interview) that looked at investor demand in the GTA – this was effectively a quantitative methodology to model a behavioural trend in the market.
Not only did it highlight a speculative risk in the market, it highlighted the areas that were most vulnerable to a decline in prices. And this is the other critical piece. House prices appreciate and depreciate at very different rates within a metropolitan area depending on the neighbourhood and type of home. So modeling data can sometimes give us more insight into the areas/house types that are more vulnerable to a decline in prices (or more likely to rise at an above average rate).
That said, I do take your point that most people don’t need to worry about the numbers to the degree that I do. I don’t subscribe to the “analysis paralysis” approach to home buying. I do think a lot of people worry too much about things nobody can predict.
Thank you again!
John
Jimbo
at 10:24 am
Do you utilise are to model the data or another program? So you rely on linear regression, tree etc to get the best incite on real estate?
Jimbo
at 11:01 am
R not are
Chris
at 4:13 pm
Good interview guys, thanks! Look forward to the next two parts. I’ll put LG JP down for April 2022 in our game!
Jimbo
at 4:49 pm
I think the question I posed will be hard to quantify without excel and it may take time to download and parse through the data without unfettered access to each regions land registry. I was assuming John would’ve paid for that access as part of his thesis.
That being said, the government made HST payable on any house that is brand new, or substantially renovated, my belief is it is at the provincial rate so 10-15% in all areas but one. What if they transitioned a tax from buyer to seller, so regardless of how much money you made on your house you pay a flat 5% on the total sale value. This would make anyone cashing out their retirement plan breath a little easier but would hurt someone who was divorcing and selling after 3-5 years.
In an era where government will be cash strapped I would not be surprised to see this. The CRA started tracking home sales last year so the outline is already there. In TREB alone that would have amounted to $3.6B in gov’t coffers in 2019. I just can’t see them passing up this kind of opportunity
Clifford
at 1:50 am
Why must the solution always be a tax? We are taxes too much as it is.
Jimbo
at 10:43 am
I agree with you 100%
Just seems like low hanging fruit.
Appraiser
at 7:30 am
TRREB April data: Year over Year
Sales -67%
New Listings -64.1%
Average price +0.1%
HPI Benchmark Price +10%
Appraiser
at 7:36 am
Average rents are down 2.7% for one bedroom and 4.1% for 2 bedroom condo apartments.
Appraiser
at 7:45 am
Two bedroom units are now at the bargain price of $2,705 per month!
One beds are $$2,107.
J G
at 8:19 am
Oops, the average price is already down 10% from 910k in Feb to 821k in April.
But let’s just compare with April 2019 so it seend like price hasn’t gone down.
Chris
at 8:50 am
Yep, quite the price decline over the past couple months! I wonder if average price has ever fallen so quickly from February to April? Usually it climbs as the spring market ramps up. Unusual times for sure.
Chris
at 11:19 am
Seasonally adjusted prices fell by 11.8% from March to April.
“It’s funny, when Seasonally Adjusted numbers suit their narrative, TRREB’s not shy about pointing them out. This month… not so much.”
– Scott Ingram
https://twitter.com/areacode416/status/1257535680202387461?s=21
J G
at 8:43 am
Here’s the stat I’m interested in –
Feb 2020 Condo:
416: 722k,
905: 534k
combine: 666k
April 2020 Condo:
416: 612k (DOWN 15%)
905: 489k (DOWN 8%)
combine: 578k (DOWN 13%)
I can’t find the decrease in monthly rent since Feb 2020, but I think it’s likely at least 10-15% too.
Tbh if I’m an investor, I might consider buying a downtown condo if price falls below 500k.
Appraiser
at 10:43 am
COVID-19 slowed down Vancouver real estate sales, but not its prices:
“Despite ongoing concerns about the economy and millions of Canadians out of work, the average price of a home in Vancouver went up 2.5 per cent compared to April 2019 and a 0.2 per cent from March 2020. The average price of a home in Metro Vancouver is $1,036,000.”
https://ca.finance.yahoo.com/news/vancouver-real-estate-prices-covid-19-193239135.html?soc_src=community&soc_trk=tw
Chris
at 11:15 am
“Obviously that was somewhat balanced out with a huge plunge in new listings. But overall, months of inventory for sale nearly doubled,” Saretsky told Yahoo Finance Canada.
“While price movements are hard to gauge in a low volume environment, I would say on average there was some minor price discounting.”
J G
at 11:43 am
Why not compare April 2020 with Feb 2020? How much is it down by? Typical bull.
If I compared the S&P with April 2019 instead of the peak Feb 2020, it’s only down 1.7%.
Chris
at 11:55 am
If we’re cherry picking stats, how bout this one?
416 Detached Average Price:
March $1,465,826
April $1,249,730
MoM -14.7%
Peak Apr’17 $1,578,542, so down 20.8% from peak three years ago
condodweller
at 11:37 am
Just like with Ben I hadn’t heard of your LG until I saw links/quotes here. This is another example of you can’t judge some by what people are saying about them. JP’s opinions are right up my alley. Similar to Ben I like his attitude of weighing things and assigning risk values.
Regarding bias, I think a good way to tell if someone is biased or not is to listen to them speak and see if you can tell how they earn their income ignoring comments that obviously give it away. JP is pretty unbiased based on this interview. Definitely less biased than David, sorry David but even he didn’t think it was so crazy that the recover could take a few years.
BTW I listened to the Bershire annual meeting webcast and when even the Oracle of Omaha tells me that he has no idea how long the pandemic will last and its effects, I would not call out anyone regarding their opinions.
I liked his insight regarding the risk with high value homes which I’m sure all the bulls here would dismiss as anecdotal. These anecdotal tidbits are exactly what I look for when listening to an expert who has more experience in the area than I do.
Looking forward to the second part…
Clifford
at 4:19 pm
Everyone is biased. You can see it here how thry spin stats whether you’re bullish or not, there is plenty of spin on both sides.
Cal
at 1:24 pm
These interviews are great, they offer more insight than just about any RE articles or twitter bits. Thanks to David for putting them together, and to Ben and John for sharing their thoughts and knowledge.
Appraiser
at 5:55 pm
Interesting take on the market from CIBC:
“If you really don’t need to, you probably aren’t conducting any real-estate transactions at the moment. Therefore, the price signal that we are getting from recent data is both weak and misleading. To get a reliable price signal, you need a large pool of transactions. Today’s sample is way too small, and biased due the dominance of forced transactions.”
~Benjamin Tal and Katherine Judge https://economics.cibccm.com/economicsweb/cds?ID=10932&TYPE=EC_PDF
Chris
at 5:58 pm
I already posted this report the other day.
“Overall, as the fog clears, we expect to see average prices 5-10% lower relative to 2019 levels, with high cost units in the high-rise segment of the market seeing the most notable price declines.”
Chris
at 5:57 pm
Add CMHC to the game, with a guess of late 2022!
“Canada Mortgage and Housing Corp. expects a prolonged period of weak real estate prices because of the COVID-19 pandemic, with a return to pre-recession pricing more than two years away.
CMHC chief economist Bob Dugan said the current best-case would be a return to pre-recession housing prices in late 2022.”
https://www.bnnbloomberg.ca/home-prices-won-t-recover-from-covid-for-at-least-2-years-cmhc-says-1.1431897
Chris
at 6:00 pm
In other news:
“Lower rents and slowing demand may result in a post-pandemic condo sell-off, expert says”
https://www.thestar.com/business/2020/05/04/will-lower-rents-and-slower-demand-push-some-condo-investors-to-sell.html
jeanmarc
at 9:54 pm
Here is another prediction of what could happen later in the decade, same person who predicted the 2008 financial crisis.
https://www.bnnbloomberg.ca/nouriel-roubini-warns-of-l-shaped-greater-depression-1.1431864
Those possibly dipping into the RE market in the next few years may end up just being a big “dead cat bounce” in stock market terms.
Crofty
at 4:40 pm
Roubini was an important economic advisor to Bill Clinton in the 1990s. By contrast, Donald Trump takes “advice” from Larry Kudlow, a former CNBC talking head (i.e. NOT an economist, i.e. a shameless shill). Okay, the Trump administration is just about the lowest bar around, but still…