Thursday, April 24, 2014

Top calls on Canadian Real Estate from Bank Economists

"Boom times are over for Canada’s housing sector" Canadian real estate and housing boom may be ending, Scotiabank warns
Housing has generated a staggering $1.7 trillion in net new wealth for Canadians since 2000.
I find that claim a bit misleading. Because housing is priced at the margin (i.e, one person in a neighborhood of 100 houses sells for 10k more and suddenly collectively the neighborhood is a million dollars richer. Are they really? They can't all access that wealth through selling, as that would tank the market. Unless there is a real structural change, locally, say, a company headquarters moves into town.

If everyone accesses that wealth through refinancing, that's not real wealth either as you've still got debt on the other side of the balance sheet which is sticking around no matter what the price is when you sell. And if you sell and move up the street, overpaying by 10k to get back into the market, then that's not real wealth either, that's a shell game.
· That investment increased, on average, by 4.2 per cent between 2000 and 2012, almost double the GDP growth rate of 2.2 per cent, and accounts for almost 7 per cent of overall economic output, the highest among the G7 countries and double the rate of the U.S.
· Forty-five per cent of that boost to the economy comes from new construction, 37 per cent from renovation and 18 per cent from real estate transaction and transfer costs.
Did you know that inefficiencies in a system could constitute economic "boost"?
· The total spent to create all those granite-clad kitchens and Euro-style bathrooms, and boost the value of Canada’s housing stock, ...
UGH. There is only so much in wages that can be spent on shelter, over the long term. Granite or no granite. The rest is an economic sinkhole. Now, if you actually invested in efficiency, or healthfulness, that might come back as a return. Granite? Not so much. By the way, don't forget to seal those shiny new counters annually, or you will have to replace it a lot sooner than you think.

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