I was recently asked to speak at a Real Estate Investing seminar, conducted by a friend and client of mine.
The subject was “Unlocking Financial Freedom Through the Art of Lending.”
Pretty fancy title, eh?
For whatever reason, I went into the seminar thinking it was going to be a lot of novice investors, and we would be talking lending 101.
Boy, was I wrong.
I was blown away by the quality of real estate investors in the room.
Most of them would make darn good mortgage agents, as it was obvious that many had already navigated the complicated mortgage process for investment properties.
One of my biggest takeaways from the evening was the overall sentiment in the room towards Canadian real estate.
It was NEGATIVE!
In fact, numerous times during the event, the conversation became about how to invest and get a mortgage in the United States.
The reason for wanting to look elsewhere to invest, is simple…
…in Ontario, the math just doesn’t work!
At today’s cost to buy or build real estate, it is darn near impossible to rent or sell at a profit.
And unless you are living under a rock… you’ve probably already heard that there is a pretty significant housing shortage in Canada.
In fact, the CMHC, Canada’s national housing agency, recently stated that the country needs at least 3.5 million more new homes by 2030.
With the pace we are going, we won’t even hit a million new homes by 2030!
So let’s put this into perspective… we need way more houses, but those who build/develop the housing are telling us they can’t make money doing it…
…this seem like a problem, a very BIG Problem!
Not surprising, BMO Capital Markets recently issued a statement warning its investors that residential construction investment is plummeting.
They even went as far as commenting that, perhaps the government should try stopping the decline in new construction before promising to double it. Ouch.
Quite simply, Canadian investors are putting a lot less money into building more houses.
The bank notes that this is the worst annual decline since 2011.
So the solution is this… we need housing, badly!
But those who are most effective at adding to the housing supply (builders, developers, investors) are not able/willing as the economics don’t make sense for them.
Essentially, the gap between what it costs a builder/developer/investor, and what an end-user is can afford, is too large.
To us, in the mid-to-short term, this means one of two things…
- Politicians allow things to play out naturally, and the already politically charged housing problem continues to get worse and worse, or
- governments will try to deal with the issue in the only way they know how, and that is to try and re-stimulate investor demand by enticing them to add to the housing supply (think… more money printing and lower interest rates).
The BMO folks appear to be more confident that governments are embracing the investor-driven model.
“Recent moves by the federal governments to lower borrowing costs for developers and reduce sales tax on the construction of rental units are helpful first steps.” – BMO Senior Economist Sal Guartieri
Agree or disagree with this approach, that is up to you.
But we too feel that this is the most likely outcome.
And based on our conversations with the investor community, you can bet that they are ready and eager to get going.
I’m not at all saying that we will see another 2021 run up in real estate prices…
…but what I am saying is that it would have been really beneficial to have known ahead of time the impact that the 2020 pandemic response policies had on real estate values.
Everyone’s situation is different… and how this applies to you may differ to how it applies to me.
But if you already own real estate or desire to own real estate, then one way or another, you are affected by all of this.
Feel free to reach out and have a conversation about how all this stuff may apply to your own situation.
All The Best,
Vince
