Every real estate investor has a TSN Turning Point. If you are Canadian, and if you are a sports fan, you may know what I am referring to when I say, ‘TSN Turning Point‘.
If you have no idea what I am talking about, not to worry.
Here is what I mean…
For many years TSN had been Canada’s leading sports network.
After each televised sports game on this network, the sports commentators covering the game would review the highlights of the game as well as what they called the ‘TSN Turning Point’.
The TSN Turning Point was the time in the game where the momentum shifted for the winning team. It was a time in which the winning team took stride.
It was a point in which the winning team made a key play that helped them win the game.
All Real Estate Investors Have A TSN Turning Point
Every experienced real estate investor can tell you when their own personal TSN Turning Point occurred.
A TSN Turning point for a real estate investor is a time in which they gained momentum, confidence, and belief in themselves.
For myself and many other real estate investors that I know, The Real Estate Investment Network ACRE Event was The TSN Turning Point.
Today I have a treat for you. The Real Estate Investment Network and Don R. Campbell have a guest post for you. In the post Don and the Real Estate Investment Network refer to the real estate investing space in Canada as well as the upcoming Toronto REIN ACRES Event.
Enjoy the post and feel free to leave your comments for Don in the comments section below.
Best Regards,
Neil Uttamsingh
ps: Don’t forget to subscribe to my blog if you are a new to the world of real estate investing. You will find very valuable information on this blog that will help you to buy your first rental property.
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A Canadian
Real Estate Market
Doesn’t Exist in 2011,
So Don’t Be Fooled
What does 2011 hold for
Canadian Homeowners and Real Estate Investors?
Almost a quarter of the way into the new year, many
people are still looking for ‘predictions’ of what 2011 will hold. That’s why
you see so many pundits come out of the woodwork to share their insights. I do
find this a bit strange as nothing about the market really changed from December
2010 to January 2011 and through to March 2011, other than a few new pictures on
your kitchen calendar. Those who pay close attention to the underlying economic
fundamentals aren’t struggling with what is coming next.
But having said that, let’s take a look at what the next 12 to 18 months hold
for Canadian real estate.
Quick 2010 Overview – Multiple Levels of Confusion
In order to look forward, we do need a quick review of
2010. The year in real estate turned out to be exactly as predicted in January
2010. It was a year of turmoil and confusion (the big economic ‘W’) and those
who were unaware that we were riding this 2010 ‘W’ allowed themselves to be
shaken out of the market (right at the wrong time!)
The economic ‘W’ does have a real cleansing effect on the market as it always
chases out most of the speculators (those who profit only when market values
increase dramatically) and leaves the market to the real professional investors
and landlords.
This confusion was especially felt by those using housing market numbers to
analyze the market. Investors understand that:
If You Are Making Decision based
on Housing Market Numbers
… You are Driving By, Looking In The Rear-view Mirror, and are Bound To Crash!
Government Meddling Led To
Unsustainable Mini-Boom
More confusion was thrown into two very large markets
(BC and Ontario) with the announcement of the HST. Despite some limited efforts
by both provincial governments, how the HST was going to affect real estate
purchases and sales was not clear – into this vacuum sped confusion and an
almost breathless panic to get purchases done before July 1st. This caused a
higher percentage of purchases to be pushed into the first half of the year than
would normally be expected. Due to their sizes, these two markets hold such a
high percentage of the Canadian real estate transactions that this activity made
the Canadian average price and activity jump despite most other markets
underperforming.
This cursory analysis led some housing analysts to predict that a bubble was
forming. This, of course, turned out to be false as markets slowed down again
later in the year. Those of us who analyze the real estate market by looking at
underlying economic conditions knew this boom would be short lived and was a
product of desperation rather than true market sentiments.
A ‘Canadian’ Real Estate Market Does Not Exist
Overall, 2010 proved to investors and homeowners alike
that a ‘Canadian’ real estate market doesn’t exist in and of itself. The
Canadian real estate market is actually a series of very regional markets all
which perform relatively exclusive of each other.
In fact, in 2010 and in 2011 the market really will be a ‘Goldilocks’ story.
Some markets will be too hot (compared to underlying economics), others will be
too cold, and some will perform just right. As our regions continue to detach
from each other economically this trend will continue for many years to come and
will compel investors and homeowners to ignore national real estate numbers and
trends. They must focus on what is happening in their region.
2011 Market Predictions
To make it easier to predict what is going to occur in their
local real estate markets, investors can use the formula shown below. Long term
increasing prices of real estate stem from economic (GDP) growth. Without
economic growth, a real estate market is not sustainable. Sure there can be
upward and downward blips not attributed to economic growth (such as when the
governments meddle as in 2010), but these are just short-term unsupported blips.
Figure: The Long Term Real
Estate Formula
GDP Growth = Job Growth = (12 months later) Population
Growth = Increased Rental Demand = Decreased Vacancies = Increased Rents = (18
months later) Property Purchase Demand = Increase in Property Prices
This cycle works both ways, over roughly the same time lines. Sustainable real
estate price increases occur approximately 18 months after a region’s economy
begins to grow and they drop approximately 18 months after the economy in a
region begins to shrink.
We can use Alberta’s markets as the perfect illustration of this formula in
action. Alberta’s GDP grew so quickly for years in a row and the real estate
markets skyrocketed over that time and even after the economy began to slow
down. This set up a number of high expectations and assumptions by people not
understanding this formula and scared a lot of people out of the market. Even
today, despite the fact that Alberta is going to lead the nation in economic
growth in 2011, those who experienced the 20% annual increases in the past are
sitting on the sidelines waiting for the market to come back. Smart investors
who understand the inevitability of this formula are quietly picking up pieces
of Alberta cash-flowing real estate, positioning themselves for the inevitable
increase in demand 12 to 18 months from the start of the strong economic growth.
Because Canada’s 2011 market is going to be even more regionally fractured than
in 2010, it is imperative that investors and homeowners understand this formula
and they make their investment decisions based on it, rather than the
fluctuating housing market numbers.
CREA & Competition Bureau
Settlement Leads to Unintended Consequences in 2011
As with any structural changes to an industry, the settlement
imposed by the Competition Bureau on Canadian Real Estate Association’s MLS
website will have many unintended consequences on the health of the Canadian
real estate market. We are currently completing a full report and analysis of
these consequences (some of which are OK and some of which are not good news).
Here are some preliminary conclusions that will affect the overall market:
- Housing metrics will indicate incorrect readings of the
health of the market, leading to inaccurate analysis by some market
commentators during the year
- Often used metrics such as ‘sales to listings ratio’,
‘days on market’, and ‘overall number of listings’ will be impossible to use
as comparisons to previous year’s performance. This is because under the new
rules, there will be many more listings being posted by people just fishing
the market at very little cost (many poorly priced, poorly managed listings
left in the system too long).
- These additional listings will lead to average price
increases being softened more than the underlying economics would usually
lead to.
The complete Unintended Consequences of the CREA
Settlement with the Competition Bureau report will be publically distributed to
all who are subscribed to
www.myREINspace.com.
Finally, the distinction between real estate “investors” and real estate
“speculators” is created by one thing – a sound and unbiased education in real
estate fundamentals. Done properly, real estate investing produces results in
any market conditions because it incorporates economic fundamentals, proven
business practices, and a long-term vision. On the other hand, real estate
speculation requires perfect timing, lots of hope, and a strong enough stomach
to ride out the cycles in the market!
By far the quickest, least expensive and most engaging way to become a
sophisticated real estate investor is to set April 16th and 17th aside to attend
the
2011 Toronto ACRE™ Live event. Now in it’s 19th year, the ACRE™ system
continues to be where Canadians go to receive an unbiased real estate investing
education that works – not because if focuses on the “Canadian” market, but
because it teaches investors to drill down into the economic fundamentals that
drive regional real estate markets.
