Yesterday, a somewhat optimistic newsletter arrived in my In box from a colleague who operates a real estate investment and rental management company in Regina. I say optimistic because it revolved around how they were successfully meeting the challenges of a tough real estate climate in that city. Prices are stagnant there. Rentals are readily available, and they have to be creative to keep their properties filled.
How opposite to our market!
But it wasn’t always like that. Until a year ago, we were in that situation, our market having been flat, or even trending downward for around seven years. Now all we see is the incredible surge in housing prices and the sharp increase in rental rates, if one can even find a rental.
Prices for single family homes have risen 30-40% over the last year. Some are using the word “bubble.” Many are convinced that this is a short-term price spike that will soon experience a “correction.” (Excuse the use of that silly euphemism for “down-turn”.) But there are enough optimists to keep the market trending upward.
I’ve written before that I don’t think this is a temporary spike that will flip into a “correction.” My reasoning is that, unlike the traditional pattern, the Fraser Valley didn’t ride the wake of the rising Vancouver housing market in the previous seven years, so our up-tick is really just catch-up (though we aren’t catching up much, as metro prices keep rising, too.)
I’ve been suggesting that this surge may eventually slow down, even level off, but not likely take a big step back down.
Now I’m hearing suggestions that the biggest rise is yet come—and it will happen in the next three months. And the reasoning seems sound.
Want to hear it? Are you ready for a little macroeconomics?
There’s a lot of money in this world that is looking for safe investments. Money from China, from India, from Europe, from South America, from Mexico. Some of that goes into major projects, sometimes in the developing world—like the bridge the Germans built over the Panama Canal a few years ago. Like the canal the Chinese are proposing to cut through Nicaragua.
But more of the money is invested in the developed world because investors want confidence that the money will be safe. Instability kills investment in any region. North America, Australia and Europe have been the most stable regions of the world. That is why, when instability occurs elsewhere on the planet, the money immediately rushes to the United States (even if their economy is weak), driving up their dollar against other currencies.
All that is suddenly in doubt. Britain’s vote to leave the EU has already had a huge destabilizing influence in Europe. The British pound has taken a nosedive. And the implications for the rest of Europe are unclear.
All of this creates a hesitancy for foreign investors to park their money in Europe, and to look for new, more stable, places to do so.
But, are they rushing to the United States? The current election situation down there is creating a lot of angst around the world. Can they trust a potential Trump presidency? Will it be any better under a Clinton presidency? In any case, it’s “wait and see” right now.
But money doesn’t like to “wait and see!” Every day that it sits idle is a wasted opportunity!
Right now, our area is an attractive investment option in a world with very limited alternatives. And because we are such a small economic area (from a global perspective), with a small population base, it doesn’t take much diversion of capital into our area to have a huge impact.
Where will that money go? While it could go into dams, or pipelines (though that hardly shows promise of stability) or forest products (ditto), it will more likely keep going into the residential sector. That’s quick and easy; big projects take many years to make investments pay off.
“We’re about to be the next Hong Kong,” enthused my friend (who is obviously in the housing industry).
I’m not saying it’s going to happen. But it could. The reasoning behind the argument seems sound.
We’ve got three months to find out.
At least, that’s how I see it . . .
You inspired us all!
Can I cover two topics in one blog post?
This past weekend our fellow British Columbian Jared du Toit inspired a whole generation of Canadians with his close finish in the Canadian Open golf tournament. An amateur, still in college, who’s played only one previous professional tournament, was in the final pairing on the final day. (That means, top 2).
In the end, du Toit settled for a 9th place tie, three strokes behind the winner and two behind the world’s #2 ranked player, but also two ahead of the world’s #1 (proving that this wasn’t a micky mouse tourney). What an incredible performance!
Congratulations, Jared! You inspired us all. And prompted my choice of quotation this week.