Weekend Reading: Unhealthy Housing Market Edition

Canada’s housing market continues to defy logic as prices have shot-up more than 40% on average across the country. Last spring, then CMHC boss Evan Siddall predicted that home prices would fall between 9-18% due to the economic impact of the pandemic. So, what happened?

One reason is that high income earners working from home bid up prices for detached houses in big cities, suburbs, and rural areas. Another reason is there simply isn’t enough inventory to keep up with demand – leading to bidding wars and bully offers. 

The lack of supply is a problem when you consider that Canada’s population growth slowed to a crawl in 2020, with more people leaving Canada than moving here after Q1 2020. When immigration picks up again post-pandemic, we should see an even larger demand for housing.

Real estate analyst Logan Mohtashami called this an unhealthy housing market when he appeared on the Animal Spirits podcast this week. He was referring to the US market, but the problems are even more widespread in Canada.

“This is a very unhealthy housing market because inventories are too low. We might only be up just a little bit year-over-year in existing home sales and we have 13-18% price appreciation. That is not a healthy market under any circumstances. You should not be competing with 10 to 12 people for a house. That’s not how it’s supposed to be.”

The entire episode is worth a listen. I agree with Logan when he says that the pandemic has pulled forward demand that we might not have seen for 2-3 years. But he also said this is not a credit crisis like the previous US housing boom. It’s legitimate demand, and supply needs to catch up before prices will cool off.

For a Canadian perspective, listen to the latest Mostly Money podcast with Preet Banerjee and real estate analyst Ben Rabidoux. He said, among other things, that:

• Most of the people who lost their jobs weren’t in a position to buy in the first place
• Those who were, tended to see their financial situations improve during the pandemic
• Lower interest rates have further increased debt servicing ability

Rabidoux also explains how the mortgage deferrals that hundreds of thousands of Canadian homeowners took advantage of during the early stages of the pandemic did not lead to massive delinquencies at all. In fact, Rabidoux said most people who deferred mortgage payments did so out of an abundance of caution rather than extreme financial hardship.

This Week’s Recap:

Earlier this week I shared how to create your own financial plan in eight easy steps. 

Many thanks to The Globe and Mail’s Rob Carrick for highlighting my article about what cards I carry in my wallet.

My wife and I go for our second doses next week as Alberta gears up for a full-scale re-opening by the end of the month. Call us cautiously optimistic about our two dose summer.

Promo of the Week:

Readers frequently ask where they should park their US cash. I never had a good answer until now. EQ Bank has launched a no-fee US Dollar account that pays 1% interest.

It claims to offer a competitive exchange rate, it’s CDIC insured, and you can send your US dollars to the US or abroad in just a few easy steps and with no hidden fees.

You’ll need to first open an EQ Savings Plus Account and then open the US Dollar account from your browser or EQ mobile app in just a few steps.

Weekend Reading:

Our friends at Credit Card Genius are offering a free $100 Amazon.ca gift card when you sign-up for Canada’s top cash back credit card – the Scotia Momentum Visa Infinite Card. This is a no-brainer, folks.

A Q&A with Purpose Financial’s Som Seif on his new retirement longevity fund and why Canada is falling behind on financial innovation.

Wealth means different things to different people, but one general rule is that if you’re still worried, you’re not wealthy.

A must-read article from Morningstar’s Ruth Saldanha on why retirement is about more than money:

“Money is important until it fulfills what you want. And then it doesn’t matter. Look at money as survival vs thriving. When you are in the mode of survival, money = happiness. When you reach the mode of thriving, you begin the comparison. At the point of comparison, it takes a lot of money to move the needle to higher amounts of happiness.”

The Humble Dollar blog says retirement can be the best time of our life — but only if we manage it right.

The 34% stock market crash in March 2020 lasted just 23 trading days. Is this the future of bear markets?

David Aston writes that it’s the end of the trail for these trailing commissions (DSCs) – and good riddance.

Many young people don’t need financial advice if they’ve developed good money habits. But with age comes greater complexity. Robin Powell looks at some reasons why you might turn to a trusted financial advisor.

Gen Y Money explores whether employee life insurance is enough. It’s not, usually. Don’t make the same life insurance mistake that I did.

Finally, another gem of a post by Morgan Housel who explains how to get the goalposts to stop moving.

Have a great weekend, everyone!