November 30th, 2022 | Market Watch

THE REAL ESTATE MARKET – WHERE WE ARE, WHERE WE’RE HEADED AND WHY!?

Canada’s inflation rate for the month of October came in at 6.9% – a flip on the downward trajectory that we’ve seen over the past few months. Let’s take a closer look – if we take out food and energy – prices rose 5.3% year-over-year in October, following a gain of 5.4% in September – down 0.1% (good news). Buuuuuuuuut, CPI core inflation increased by 0.1% for both CPI-trim and CPI-median (bad news).

Why is that bad news?

• Because CPI core inflation is what matters most!
• This figure is the # that the BoC will rely on most when deciding whether or not to halt, increase or decrease interest rates

The past is often (not always) the greatest indicator of the future. So, it’s not a bad idea to see what happened in the past when CPI was at an all-time-high …

Looking at 1981

• Inflation was at 12.5%
• But, at that time, debt levels / China / geopolitical wars weren’t as much a factor
• Interest levels came down fairly quickly as a result of super high interest rates set by the BoC
• And eventually, came down to 4.4% in 3 years … not 9 months! (i.e. Feb 2022 to Nov 2022)
• But here’s the important part – the inflation rate just stayed in/around 4% for the next 6 years – 6 years … now that’s a chunk of time!
• During this time, the BoC tried to further reduce inflation by moving the rates up and down – but inflation remained quite sticky/stagnant around 4%

Now – let’s fast-forward to present day 2022

Gasoline, food and shelter prices are at an all-time-high and are the key factors driving up inflation (CPI). So – let’s look at each of these 3 factors a little more closely, shall we?

• Gasoline         

> OPEC just cut production aimed at keeping markets in balance, which will likely put even more pressure on our gas prices.

> Further – there are predictions that the US will also be putting a stop to its petroleum reserves, which will put further upward pressure on prices.

> Add to that the uncertainties around the war between Russia and Ukraine + China’s oil demands surging.

> So – conclusions – gas is likely to cost the same or more in the near future.

• Food

> To grow, harvest, transport food etc., we use a lot of gas, right? As a result – food is likely to cost the same or more in the future.

• Shelter

> And shelter?  Well, rents are up anywhere between 10-30% year-over-year across the board since September.

> And housing prices are still adjusting.

And these 3 factors, namely, gasoline (4.28%) /food (15.94%) and shelter (29.80%), make up about 50% of our CPI. Add to this – wage inflation. If inflation rises, cost of goods/services rise, people will need to make up this loss somewhere, right?

CONCLUSION

Given the unpredictable nature of global factors + the 3 key elements that make up our CPI, we are not likely to see inflation letup in the coming 1-3 quarters. So, rates are likely to stay in/around the same or even jump a little bit higher (0.25 to 0.50 basis points).

Many economists, analysts, banks etc. have made a ton of predictions leading up to our current market. Very few were accurate, and many were dead wrong. Therefore, it’s wise to educate yourself, look at your own circumstances, and weigh the pros vs cons of making a move.

What we can say with confidence is this ….

• Prices have adjusted significantly from peak-to-trough
• Anywhere from 15-40% depending on where you’re referring to – as you get further away from the core, we see a more dramatic impact/fall as prices also rose dramatically in a short period of time
• While you can’t time the bottom – prices have adjusted fairly significantly for many homes (not condos)
• So, this presents opportunities for those whom it makes sense for
• Further, consumer behaviour has shifted, so today’s climate to purchase is far more accommodating vs 12 months ago (i.e. you can actually negotiate!)
• And here are 2 articles we wrote to help you in evaluating your options – MARKET CRASHES ARE OPPORTUNITIES IN DISGUISE & BUY YOUR LAST HOUSE FIRST
• While we believe in seizing opportunities – we also encourage you to evaluate your own position, finances and risk tolerance … and ensure you make the best decision for yourself
• What we want to avoid is pushing FOMO – as that sort of nonsense is what encourages unhealthy markets
• Educate yourself – weight against your own circumstances – make a decision that makes sense to/for YOU!

Thanks for reading! We hope it’s been helpful and encourage you to reach out if you have any questions or would like to discuss your particular plans in more detail.

Thanks!

Amir + Aleks