News: Real Estate Wealth Surge & Growing Residential Investment

In this week's Industry News (Week of 8 Nov 2021).

Surging real estate wealth is a golden opportunity for some to accelerate retirement plans | Financial Post Home prices in Toronto and other large Canadian markets continue to surge, while other regions such as Atlantic Canada offer housing at a lower price point, creating an enticing opportunity for those with the ability to move. For those in position to capitalize, the increase in real estate wealth offers an opportunity to accelerate retirement plans or, if they are already retired, to significantly supplement income. People who can work from home or find a job elsewhere and move to a lower-cost city may be able to get more house for their dollar. Single-family homes in places like Regina, Winnipeg, North Bay and many Maritime cities average under $400,000. Some British Columbia and Ontario residents could do downsizes of $1 million or more and live in comparable homes. See full article here.

One of the World’s Hottest Real-Estate Markets [New Zealand] Tries to Cool Down | The Wall Street Journal New Zealand is pulling every lever to tame property prices without shaking its economy and crashing the market. New Zealand is emerging as a test case of whether authorities can restrain rising home prices without tanking the market and destabilizing the economy at the same time. The South Pacific nation’s efforts could offer a blueprint for the many other countries facing a similar dilemma after the coronavirus pandemic. A combination of low rates, economic stimulus and changes in buying patterns as people work remotely is pushing real-estate values higher all over the world, pricing out many first-time home buyers. The problem is particularly acute in New Zealand, where housing supply failed to keep up with population growth over much of the past decade. Home prices have risen more than 30% in the past year, according to a property-price index from the Real Estate Institute of New Zealand. Governments have several tools at their disposal to influence real-estate prices, including boosting housing supply either through direct investment or changing land-use regulations, restricting mortgage lending and offering financial assistance to first-time buyers. Economists and policy makers debate whether central banks should use interest rates to try to rein in housing prices by influencing the cost of borrowing. Higher rates could make mortgages more expensive and cool demand for housing, but they could also have unwanted impacts on inflation or employment, the traditional areas of focus for central banks. Gareth Kiernan, chief forecaster at Infometrics, doesn’t expect New Zealand home prices to fall soon. All the government and central-bank measures combined might succeed in slowing price increases, he said, but that still means a grim outlook for first-time buyers. Demand is also likely to increase, Mr. Kiernan said. The government recently decided to allow residency for tens of thousands of people on temporary visas, which means more people will be looking to buy homes. And the construction industry is still struggling to build houses fast enough to meet existing demand. Mr. Kiernan said interest rates would need to rise by quite a bit more than currently expected to bring about a fall in prices. New Zealand’s central bank in August projected that the cash rate would reach 1.6% by the end of 2022 and 2% in the second half of 2023. Even if home prices stopped rising, and assuming incomes grow 3% a year, the home-price-to-income ratio would take until 2050 to decline to its level in 2000. Mr. Kiernan said. "It’s going to remain very painful I think, very difficult for people wanting to get into the housing market, for a long time," he said. See full article here.

Residential investment in Canada is 10% of GDP | Frances Donald, Global Chief Economist & Strategist - Manulife Investment Management (via Twitter) Residential investment in Canada is 10% of GDP... which is 4 standard deviations above it's long-term average share. Chart via David Doyle at Macquarie. See full tweet here.

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Shael Soberano, CFA Konfidis Inc. Chief Investment Officer

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