Some good points made here. Record household savings, stress test, low unemployment with millions of jobs that can’t be filled. That information really points to limited dropping of house prices. Many areas of Canada are still seeing high real estate prices, don’t see a big decline unless unemployment skyrockets.
Based on economics the assessment seems correct but and this is a big but, home prices are very downward inflexible when builders take well over a year to build a house with supply shortages and high supply prices where this is going to keep home prices from falling.
Credit capacity determines the liquidity cost, typically. The BIS has suggested raising rates will lower the cost of inputs and bring costs down as well.
Affordable for who? It's a marketplace and for those who can't afford they go further out of the market area to purchase if indeed they truly want to purchase. Saying things need to drop 75% would mean that interest rates would rise to double digits (teens probably) which would keep homeownership unaffordable for the same people it is now unaffordable for. The market is doing what it needs to do to handle the increased cost of renting money.
@@roadmap999 Move out where? The Maritimes? Alberta? Those are the last places I would want to be on the cusp of an oncoming recession. As it stands now the entirety of southern Ontario is in a bubble. It is not healthy for the economy in the long run. We can't have your average person spending 50% of their income on housing or rent. It doesn't bode well for our capitalist system which requires people to go out and spend money. This was a huge policy blunder that fueled A) Speculative leveraging and B) Moral hazard. Kavcic tries to lay that down more gently in his Q&A. Now the chickens are coming home to roost.
@@donm2067 If prices continue to drop while rates continue to rise then the only people buying will be rich people flush with cash. $1M house $200K down 5.25% mortgage $4767 payment $500 taxes+insurance $300 maintenance (low) You're at $5500 per month. Same house drops to $800K You need $160K down But the rest of the numbers are the same at 7.25% mortgage. Point being only people with cash will benefit from lower prices. The supply needs to increase dramatically to make a dent in the affordability and that won't happen with our Nimby society.
Tired of hearing from economists on the savings of Cdns - who is this cohort ? Millennials no, boomers maybe except the 20% haircut they have taken in markets and they aware steering to retire - Yes Inrealize banks have data on customers bank accounts Pls specify this group
He called a decline in December 2021 of roughly 30% to get back to trend, and said it was stimulated demand pushing prices from the Bank of Canada. betterdwelling.com/canadian-real-estate-doesnt-have-a-supply-problem-its-a-demand-issue-bmo/
Last spring I predicted a big correction from Feb 2022 insane peak back to 2020 prices and then lower to 2018 levels or worse? Key words? Interest rates will continue to increase into 2023 No more deep discounts because MBS market will dry up Renewals of those 2% and lower mortgages will clean out many mom and pop and some bigger investors with forced sales Inflation will continue to compress disposable income A recession pretty much inevitable International market and NA markets will see large correction Short selling in all housing related equities high and rising Govt debt is high making more borrowing for housing relief political suicide Bankruptcy rising Investment in new rental stock will decline due to strict loan underwriting, OPEX and CAPEX increases and rent affordability falling Heard enough?
Fairly accurate summary of the issue. Input costs are also expected to fall towards more historical levels with higher rates, which can return the market to healthier building costs over the long term.
everyone says it's a bubble, agrees its a bubble, but there's no pin. They can still increase amortization etc lots of weapons in the arsenal to keep it going. At the end of the day confidence in the Canadian Real Estate Market is still high
Lol no. Kavcic was being modest when he said expect a year of price declines and 3 years of it going sideways. He is representing BMO as their head economist after all. It's very likely we will see 3-5 years of consistent and steep declines and the market deleverages. He's been sounding the alarms for awhile now and is likely the only bank economist on the street with any credibility at this point.
@@bapa8426 for now. Wait til sentiment shifts and we're in a recession. Tiff is hellbent on capping wage inflation which means destroying the job market
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Some good points made here. Record household savings, stress test, low unemployment with millions of jobs that can’t be filled. That information really points to limited dropping of house prices. Many areas of Canada are still seeing high real estate prices, don’t see a big decline unless unemployment skyrockets.
That’s not what he’s saying. What he’s saying is that it’s early days and 6.5% mortgage rates will have a massive impact on housing.
Great video guys. Very insightful. It was great to hear Rob's thoughts. Thanks!
Thanks for watching! Rob was a great guest.
Based on economics the assessment seems correct but and this is a big but, home prices are very downward inflexible when builders take well over a year to build a house with supply shortages and high supply prices where this is going to keep home prices from falling.
Credit capacity determines the liquidity cost, typically. The BIS has suggested raising rates will lower the cost of inputs and bring costs down as well.
Did you buy in Feb or March
Wow didnt know Jason Statham started working at BMO! Just kidding, great video.
We need a cut of 75% for houses to reach affordable prices.
in some markets yeah
Affordable for who? It's a marketplace and for those who can't afford they go further out of the market area to purchase if indeed they truly want to purchase. Saying things need to drop 75% would mean that interest rates would rise to double digits (teens probably) which would keep homeownership unaffordable for the same people it is now unaffordable for.
The market is doing what it needs to do to handle the increased cost of renting money.
@@roadmap999 for say 90% of society. Why do you want everyone to pay more for a house? If pay less you get more time with your family and hobbies.
@@roadmap999 Move out where? The Maritimes? Alberta? Those are the last places I would want to be on the cusp of an oncoming recession. As it stands now the entirety of southern Ontario is in a bubble. It is not healthy for the economy in the long run. We can't have your average person spending 50% of their income on housing or rent. It doesn't bode well for our capitalist system which requires people to go out and spend money. This was a huge policy blunder that fueled A) Speculative leveraging and B) Moral hazard. Kavcic tries to lay that down more gently in his Q&A. Now the chickens are coming home to roost.
@@donm2067 If prices continue to drop while rates continue to rise then the only people buying will be rich people flush with cash.
$1M house
$200K down
5.25% mortgage $4767 payment
$500 taxes+insurance
$300 maintenance (low)
You're at $5500 per month.
Same house drops to $800K
You need $160K down
But the rest of the numbers are the same at 7.25% mortgage.
Point being only people with cash will benefit from lower prices.
The supply needs to increase dramatically to make a dent in the affordability and that won't happen with our Nimby society.
He is on BMO’s payroll. How can he be objective.
Thanks for having me on! I learned a ton from this interview
Thanks for co-hosting with Will. Killer questions, and always a pleasure.
Great job, Dan! Good questions
Tired of hearing from economists on the savings of Cdns - who is this cohort ? Millennials no, boomers maybe except the 20% haircut they have taken in markets and they aware steering to retire - Yes Inrealize banks have data on customers bank accounts Pls specify this group
Wat he say last January? That is more important for credibility!
He called a decline in December 2021 of roughly 30% to get back to trend, and said it was stimulated demand pushing prices from the Bank of Canada.
betterdwelling.com/canadian-real-estate-doesnt-have-a-supply-problem-its-a-demand-issue-bmo/
Last spring I predicted a big correction from Feb 2022 insane peak back to 2020 prices and then lower to 2018 levels or worse? Key words?
Interest rates will continue to increase into 2023
No more deep discounts because MBS market will dry up
Renewals of those 2% and lower mortgages will clean out many mom and pop and some bigger investors with forced sales
Inflation will continue to compress disposable income
A recession pretty much inevitable
International market and NA markets will see large correction
Short selling in all housing related equities high and rising
Govt debt is high making more borrowing for housing relief political suicide
Bankruptcy rising
Investment in new rental stock will decline due to strict loan underwriting, OPEX and CAPEX increases and rent affordability falling
Heard enough?
Fairly accurate summary of the issue. Input costs are also expected to fall towards more historical levels with higher rates, which can return the market to healthier building costs over the long term.
A
everyone says it's a bubble, agrees its a bubble, but there's no pin. They can still increase amortization etc lots of weapons in the arsenal to keep it going. At the end of the day confidence in the Canadian Real Estate Market is still high
Lol no. Kavcic was being modest when he said expect a year of price declines and 3 years of it going sideways. He is representing BMO as their head economist after all. It's very likely we will see 3-5 years of consistent and steep declines and the market deleverages. He's been sounding the alarms for awhile now and is likely the only bank economist on the street with any credibility at this point.
@@alessandroc47 you can always dream I guess, but ppl simply aren't selling. And they don't need to with helocs and other products
you don't need a pin, overinflate and the walls can get too thin too. Credit cycles take time
@@alessandroc47 yup - he has been really candid and fair with his assessments, and steadfast as well. No flip flopping like some others
@@bapa8426 for now. Wait til sentiment shifts and we're in a recession. Tiff is hellbent on capping wage inflation which means destroying the job market
P
A