The research paper released yesterday predicts that after the housing market has undergone a “gradual, modest, downward adjustment over the next three years,” the annual rate of return for real estate will dip to the 2 per cent mark - and stay there.
“A string of lacklustre performances will mean in nominal terms will be roughly 2 per cent over the next decade,” says the report. “In other words, real estate gains are set to match the pace of inflation.”
Queens University real estate professor John Andrew agrees with the projection.
“I wouldn’t even be surprised if the growth rate for housing is less than inflation over the next decade,” he says.
The findings are in stark contrast to predictions from Moody’s Investors Service, which claimed yesterday that Canada was on track for a severe correction with prices being knocked down by 44 per cent.
TD chief economist Craig Alexander says the bank’s report disputes claims like these that propagate the belief a correction is on the cards.
“I do not think we have a housing bubble in Canada,” he says. We have had abnormal strength in the market during a period of low interest rates and when rates go up over the next three years, you will get a cooling and weaker prices, but not a permanent shock and not a sharp correction.”
But with two reports in as many days offering such conflicting projections, it’s important that investors be mindful of the relevance of such macroeconomic national reports, says broker/owner of Realosophy Realty Inc Pasalis.
“Investors have to remember this is talking about national averages and price changes, it’s not really relevant to the average investor investing in a local market,” John Pasalis says. “Even within a local market, you’ll have different asset classes that will perform differently – what’s happening in the housing market will be different to what’s happening in the condo market. Large scale, ten year predictions like this – it’s something to be aware of, but not something I would be worried about as an investor.”
Andrew says the predictions in the report will likely come to fruition, and points to two key variables investors should consider when analysing the market in the long-term.
“One is income growth,” he says, “and I think this report is quite accurate in terms of their predictions regarding this. We’ve already seen a significant slowdown in income growth across the country.” He also names the rise of interest rates as another key variable. “We may not see them rise for the next 3 or 4 months, but when they do - even modestly -that will have significant cooling effect on the market as well.”
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