Investor returns will be down in 2015

Canadian real estate investors simply can’t expect to see the value gains in 2015 that they’ve seen in the past decade, say experts.

“Concerns about overvaluation (notably after the Bank of Canada’s 10-30 per cent estimate) and elevated household debt are likely also undercutting price expectations,” added Sal Guatieri, senior economist at BMO Capital Markets. “And those in Vancouver, Toronto and Calgary face some risk of price declines in the years ahead.”

The weekly Bloomberg Nanos Canadian Confidence Index found that Canadian households are the least optimistic they have been since May 2013 that home prices will keep rising.

The share of survey respondents who expect higher prices fell to 31.1 per cent in the last week of December, from a high of 47 per cent in July 2014.

Nik Nanos, chairman of Nanos Research Group, said: “Perceptions on both the future strength of the Canadian economy and the value of real estate are five points below the six-year average.”

Perhaps warnings from policy-makers and economists about overvalued house prices, amplified by falling oil prices, are starting to sink in.

“[The poll results] may be a reflection of increased nervousness,” said Robert Hogue, senior economist at RBC. “On a regional basis, you will have certain provinces, like Alberta, that might be facing more head wind.”

Guatieri added: “Plunging oil prices will clearly weigh on house prices in oil-rich Alberta, Saskatchewan and Newfoundland.”

Benjamin Tal, deputy chief economist at CIBC World Markets, called the decline in Canadian consumer confidence “a natural development”.

“The housing bull market is basically 14 years old,” he added. “That’s a very long period.

"Add to that the continued warning from the Bank of Canada and many others that prices are too high and you have a recipe for reduced confidence.”
 

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