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Will Home Prices Drop?

December 21, 2020

Low rates artificially increase all hard assets (Milton Friedman)

 

The Canadian Mortgage and Housing Corporation (CMHC) has suggested that Canadians will see home prices drop 10%-18%. I just finished reading their “2020 Residential Mortgage Industry Report” and I must say, I am quite amazed that this Canadian institution would say something like this. It makes money like no other company in Canada and has contributed $4 billion in premiums back to the federal government in recent years. There are close to zero mortgage defaults in Canada (less than .05%) according to CMHC and power of sales for a residential home in Toronto are minimal.

 

Many economists who I will not name here (Benjamin Tal, CIBC) have been so wrong (Bill Duggan, CMHC) about interest rates and home pricing, it’s really hard to believe. When I said interest rates won’t change for 10 years in our Fall 2008 Newsletter it was simply an educated guess that proved to be outrageously correct. The current housing market is moving like a freight train and for single family homes in Toronto, Hamilton, Barrie and almost any city in Canada with a population above 100,000… put simply, home prices in these markets continue to increase. This weekend, my friend went to see a cottage listed at $899,000 on Balsam Lake in the Kawarthas. When he arrived, there were 4 couples walking the property and two couples leaving. When they met the agent he said 37 families had been through the property. Two years ago this would sell with one buyer for $600,000. Today it sold for $1,200,000.

 

There is no doubt that mortgage deferrals are an overhang in the marketplace. Many people are concerned with what happens next. You have to ask yourself who really needed the deferrals and who just took it because it was there to take?

 

I think suggesting 10% to 20% decrease in home values is irresponsible and alarmist. If an economist gives an economic outlook for 20 years they will eventually be right. CMHC is trying to scare Canadian’s out of this feverish market. There are other ways to accomplish this. Having read their entire 50 page housing outlook, I see no empirical evidence to support this prediction.

 

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