Will we see a housing market crash in 2020 and beyond? The Canadian Mortgage and Housing Corporation (CMHC) published its housing market outlook this week and, well, their forecast for home sales and prices look pretty bleak.
Housing starts are expected to see a decline of between 51% to 75%, and not begin to recover until the second half of 2021. Existing home sales are likely to decline somewhere in the range of between 19% to 29% before a recovery in late 2020. And, finally, the forecast for existing home prices is a decline of between 9% and 18% before a recovery in the first half of 2021.
As real estate tends to be regional / local, the greatest expected decline will be felt in Alberta and Saskatchewan thanks to the negative impact of low oil prices. Ontario is expected to see larger declines in sales and prices this year than in BC and Quebec. The Atlantic provinces will see a more modest correction.
The average price for a home in Canada was $488,203 in April 2020 – down about 1.3% from a year ago. But national home sales fell by 56.8% from March to April this year, and the number of newly listed properties decreased by 55.7%.
The bottom line, according to the CMHC housing market outlook, is that the real estate market will feel the effect of COVID-19 until at least 2022.
You can download the CMHC housing market outlook report here.
Since the report’s release, CMHC’s president and CEO Evan Siddall has faced severe backlash from, you guessed it, real estate agents who claim the outlook was “panic-inducing and irresponsible.”
RE/MAX believes real estate prices across Canada will remain stable or experience a modest decline. In other news, your barber thinks you need a haircut, your investment advisor thinks you need to save more, and your insurance broker thinks you’re under-insured.
Evan Siddall defended CMHC’s position in a Tweet.
“They’re whistling past the graveyard and offering no analysis. Here’s ours. You decide.”
We looked at the recent financial & economic developments in Canada, including the impacts of the #COVID19 pandemic. Check out the national highlights on the #housing market ⬇️ & learn more in the full report: https://t.co/AD4OLbe9YI pic.twitter.com/b8oeJoDG85
— CMHC (@CMHC_ca) May 27, 2020
Siddall also encouraged readers to question the motives of anyone suggesting that house prices “always go up.”
Obviously forecasts are just that, a best guess as to what may happen in the future. Real estate advocates argue that even though housing starts and sales have plummeted, many sellers will simply wait out the pandemic until the housing market picks up again. They won’t accept an 18% decline in their asking price.
But housing prices have declined by as much (and more) before COVID-19, and this time some homeowners may not have the luxury of waiting.
More than one million homeowners applied to defer their mortgage payments. Eight million Canadians have applied for the Canada Emergency Response Benefit (CERB). Airbnb asked the federal government to bail out its hosts in Canada, a request that was dismissed with a one word response: “No.”
Something has to give, and many of these homeowners will be forced to accept whatever offers come their way.
This Week’s Recap:
No new posts from me this week, but I’m working on another retirement income case study that I hope you’ll enjoy.
Over on Young & Thrifty I wrote about the difference between Canadian and U.S. listed ETFs.
Mutual funds with deferred sales charges (DSC) are being gradually phased out but many investors are still locked in to this insidious fee schedule. In this post from the archives, I argue that it’s probably best to rip off the band-aid and get rid of your DSC mutual funds.
What I’m Listening To, Reading, and Watching:
I won’t lie, I’ve watched a lot of television since the pandemic hit. We have a treadmill in our basement and when the weather is bad I watch TV while I run. I’m so glad we have Netflix and Crave to pass the time.
I’m catching up on some shows that I never got around to watching while they aired. I’m near the end of season three of The Wire, which has been excellent. My wife and I started also watching Westworld and finished season two. It’s a bit of a mind bender.
For podcasts, I’m thankful that my usual lineup of Animal Spirits, Rational Reminder, and Freakonomics have continued to put out new episodes weekly. Episode 100 of the Rational Reminder featured professor Ken French and is a must listen for investors.
The new season of Against The Rules with Michael Lewis is out. While the first season was about referees and fairness, this season is all about the rise of coaching. It’s probably my favourite podcast at the moment. You should check it out.
My book reading has been in a decline lately. I guess I’m secretly hoping that George R.R. Martin will finally finish Winds of Winter (wishful thinking, I know). If you have a good book recommendation please leave a comment.
Weekend Reading:
Credit Card Genius looks at travel rewards and expiration dates – how to avoid losing your points.
Are you booking or changing a flight? Erica Alini explains all the rules for major Canadian airlines.
Budget travel expert Barry Choi explains why credit card travel insurance may be overrated:
“I personally never rely on my credit card travel insurance for anything travel medical related.”
The Globe and Mail’s Rob Carrick finishes off an excellent series called Pandemic Personal Finance with a 10-point checklist of things you should have done by now to protect or improve your money situation.
One thing every investor should have is an investment policy statement to keep your portfolio in check in good times and bad. Maria at Handful of Thoughts shares her personal investment policy statement and what you need to know about creating your own.
Similarly, Gen Y Money shares how she’s investing during a pandemic.
Million Dollar Journey offers a guide to Canadian investing taxes: dividends, interest and capital gains.
Finally, here’s Squawkfox Kerry Taylor with a sobering take on masks, money, and how COVID-19 is changing social norms.
Have a great weekend, everyone!
Stock markets around the world continue to climb higher after bottoming out on March 23. In what seems like ages ago, markets fell harder and faster than ever before as the world grappled with a global pandemic and stay-at-home orders.
The TSX, as represented by iShares XIU, fell more than 32%, while the S&P 500 (represented by iShares XUS) fell more than 22%. Since then, global markets have steadily recovered and XUS is down just 1.04% on the year while XIU is down a relatively modest 11.5%.
Some people are not happy about this. One article reported that billionaires got $434 billion richer during the pandemic – an absurd claim that ignores the stock market crash leading up to March 23.
Another article claimed that bored day traders were ‘stupidly‘ playing the markets during these uncertain times and are going to ‘get played’ because economic conditions are only going to get worse. That may be true, and I recently wrote about the pitfalls of commission-free trading, but let’s dig into the reasons why this article makes no sense:
1.) The stock market is not the economy. Yes, it may seem strange to see markets rising at a time when economic and employment data is incredibly depressing. But the stock market is forward looking and based on expectations.
Collectively, investors know how bad things are. That’s why markets fell so hard and so fast in March. But it also has some baked-in expectations of both the present and the future. As long as those expectations are met (as bad as they are) there’s no reason to think markets can’t continue to trend higher.
Besides, look at the strength of the five largest companies in the U.S. (Microsoft, Apple, Amazon, Alphabet and Facebook), which continue to thrive and now account for one-fifth of the market value of the index.
However you look at it, historically the linkage between the stock market and the economy is actually pretty weak.
2.) The future is always uncertain. Cynics argue that we shouldn’t invest in these ‘uncertain times’, as if there’s ever a time when the present and future are certain and predictable.
Investing has always been about believing in the power of human ingenuity and progress over time. So even though the cause of this crisis is different than the 2008 financial crisis, or the 1929 great depression, we’ve always found a way to persevere and reach new heights.
If you truly believe this time is different then we have bigger problems to worry about than where to invest our money.
No one knows which way markets will go in the short term. But with history as our guide we know the long term trajectory points up and so it’s best to stay invested.
3.) Young traders with $1,000 accounts aren’t moving the market. Yes, many young investors are going to lose money betting on stocks in their new commission-free brokerage accounts. But young investors have always done this, from the dot com era through the financial crisis. Call it a rite of passage for some investors who believe they can strike it rich investing in the latest fad, from tech stocks, to cryptocurrency, to cannabis stocks, and now (apparently) pharmaceuticals.
Betting on individual stocks is not a smart strategy, period. But it’s not any more stupid today than it was 10 or 20 years ago. In some cases the best thing to happen to these young traders is a quick loss and a lesson learned. A worse outcome might be a series of winning bets, which will lead to overconfidence and misjudging their decision to be good thanks to a favourable result.
This Week’s Recap:
I was please to once again collaborate with a panel of experts to select the top ETFs in 2020 for MoneySense. The list expanded to 42 ETFs (out of 800), but include a lot of overlap such as the asset allocation funds offered by Vanguard, iShares, and BMO.
I managed one post this week, with a list of five investing rules to follow in good time and bad. I’m kicking myself for not including a sixth rule: simplify.
I’ve answered countless reader questions in the last few months about asset allocation, asset location, tax efficiency, U.S.-listed ETFs, Norbert’s Gambit, and comparing similar ETFs across different providers. Most of that stuff doesn’t matter, or at the very least will only improve things at the margins.
To be clear, if you’ve decided on a passive indexing approach then you’re already 90% of the way there. Investors can drive themselves crazy tripping over every decision to fine-tune and optimize their portfolios.
Try this approach instead. Decide between paying slightly more for a hands-off, automatic investing solution (robo advisor), or a lower cost DIY solution (asset allocation ETF through a discount brokerage account).
I’ve seen way too many investors end up with decision fatigue, analysis paralysis, and complexity regret by trying to build and manage their own portfolio of multiple ETFs in each account.
Keep it simple and opt for a fixed asset allocation across all accounts. You can do that easily today by purchasing an asset allocation ETF like VBAL or VGRO in each of your RRSP, TFSA, Individual account, etc. No need to get any more complicated than that.
Weekend Reading:
I mentioned recently how I’ve shifted our credit card rewards strategy to focus more on cash back and free groceries. On that subject, here’s a great look at how to maximize your PC Optimum Rewards.
Wondering when Canadians can start travelling again? CBC’s Sophia Harris shares everything you need to know about travel and travel insurance.
Millionaire Teacher Andrew Hallam has been absolutely killing it lately with his writing. I loved this piece about Netflix and Amazon investors going crazy:
Five burley men stormed my home. They dragged me by the hair to my laptop (I often dream about having hair). The biggest guy’s name was Jeff. He screamed, “Log in to your brokerage account! Sell everything! Then invest the entire proceeds into Netflix and Amazon shares! And if you try to sell them before ten years are up, we’ll come back for your scalp!”
Real estate pricing forecasts are all over the map, with experts predicting everything from a rise of 12% to a drop of 30%.
Half Banked blogger Des Odjick says voting with your dollars has never mattered more. I agree 100%. Like Des, we’re also supporting our favourite local businesses and have even created a nice Friday night tradition of take-out and a virtual wine-tasting while our kids watch a movie.
Behavioural economist Richard Thaler says the law of supply and demand should have eliminated any shortages at the grocery store but it failed to account for one thing: it’s not fair to raise prices in an emergency.
Of Dollars and Data blogger Nick Magiulli explains why failed predictions don’t matter.
The Ritholtz Wealth Management team share their 10 rules for retirement investing:
Do you and your spouse build in some ‘no questions asked’ spending money in your budget? We do. This Pocket Worthy blogger explains how a $500 monthly allowance saved her marriage.
My Own Advisor Mark Seed shares a detailed look into his quest for financial freedom. Well done, Mark!
The Globe and Mail’s Tim Cestnick shares some questions every cottage owner needs to answer.
Here’s an incredible and heartbreaking story from Morgan Housel on the three sides of risk.
Finally, an inside look into King Arthur Flour, the company supplying America’s sudden baking obsession.
Have a great weekend, everyone!
When it comes to money, no one has it completely figured out. We can learn a lot from our own failures and from the mistakes of others. Stories like the one shared by Kind Wealth founder David O’Leary – who filed for bankruptcy at age 25 – highlight the fact that no matter who we are, we’ve all made a mistake or two with our finances. There’s no shame in admitting it, and by sharing our financial failures we can help others avoid potential pitfalls in their own lives.
Humble Dollar blogger Richard Quinn fessed up to 10 big financial mistakes in a recent column, from betting on penny stocks in his late teens, to selling investments at a loss to buy an engagement ring, to borrowing from his retirement account to pay for his kids’ college education. Despite his many money failings, Mr. Quinn still managed to retire comfortably – something he attributes to working for the same company his entire career.
I’ve shared plenty of my own financial mistakes in this blog. I started investing in an RRSP at age 19 when I was earning less than $25,000 per year and still had student loan and credit card debt. I had to cash out my RRSP to pay off my maxed-out credit card.
I got in over my head as a first time home buyer and needed a roommate to help pay the mortgage. When he moved out I once again turned to my credit card to cover my monthly shortfall. Not smart.
I took out a second mortgage – basically a consolidation loan – to pay my high interest debt and clean up my act. Thankfully, it worked.
I bought mortgage life insurance once. Never again.
My investing journey began with high fee mutual funds (I’ll take a pass since it came with an employer-match), turned DIY when I decided to pick individual dividend stocks, before finally coming to my senses and switching to index investing.
I’m still making mistakes and learning as I go. I quit my job last December to focus full-time on writing and financial planning. It was the best decision I’ve ever made for my career and for my family, but now I regret not doing it sooner.
What are some of your financial mistakes? Share them in the comments below.
This Week’s Recap:
I managed one post this week, opening up the Money Bag to answer reader questions about bonds behaving badly, investing USD, active management in a market crash, and how I’m handling my credit card rewards and loyalty points.
In other news, I’ve opened a corporate investment account at Questrade. If you recall, I received an excess cash payout from my pension which means I won’t have to take out any money from our business this year.
My plan is to keep a cash balance of six months worth of projected 2021 expenses (when we will resume paying ourselves), and then invest any remaining funds.
Finally, many thanks to Rob Carrick for including my article on renewing your mortgage in his latest Carrick On Money newsletter.
Weekend Reading:
Credit Card Genius compares five digital wallets and explains why they’re safer than your physical wallet.
A Wealth of Common Sense blogger Ben Carlson describes the five types of investors in this market. Which one are you?
Warren Buffett says he’d disagree violently with the notion that passive investing is dead.
The federal government announced this week that seniors who qualify for OAS will be eligible for a one-time, tax-free payment of $300, and those eligible for the GIS will get an extra $200.
Rob Carrick says seniors deserve help with expenses in the pandemic, but investment losses is another matter:
“It’s not the job of government to backstop individual investing losses. If anyone loses money in the stock market, that’s on them.”
Meanwhile, parents are in financial limbo after spending thousands on sports, arts, and summer camps that have been derailed by COVID-19. Our kids are finishing up their ballet and piano lessons online with Zoom and Skype, respectively. We hadn’t committed to any summer camps because we thought we’d be travelling in the U.K.
Here’s a very good and relevant piece from Jonathan Chevreau on whether retirees should reduce their RRIF payments during COVID-19. The government gave RRIF holders the option to withdraw 25% less than their minimum mandatory withdrawal rate this year.
PWL Capital’s Ben Felix digs into the 4 percent rule in his latest video on how to retire early:
Millionaire Teacher Andrew Hallam shares a stellar post on why Canadians are wasting billions on currency-hedged ETFs.
Michael James reviews the financial documentary, Playing with F.I.R.E. I watched it last week and really enjoyed it as well.
Erica Alini of Global News looks at coronavirus and the housing market, and asks if it’s a good time to buy.
Finally, here’s travel expert Barry Choi on what the future of travel may look like.
Have a great weekend, everyone!