News: Are home prices inflation-proof?

In this week's Industry News (Week of 21 Mar 2022).

Mortgage rundown: Are home prices inflation-proof? | The Globe and Mail Real estate has made automatic millionaires of thousands of Canadians. Inflation could keep boosting their net worth, for now. Inflation is doing a moonshot and that can’t be good for home prices. Or can it? If you’re sitting on the edge of your seat, wondering if your windfall home equity will go up in smoke, know this: Real estate is a strong inflation hedge historically, and people believe that it will continue to be. WHAT’S GOOD FOR HOME PRICES? The stagflation-stained 1970s were a posterchild for inflation. Canada’s consumer price index rocketed 109 percent between the first oil embargo of October 1973, and September 1981, the month mortgage rates set an all-time record. During that very same period, home prices gave inflation the bird and shot up 146 percent. Now, think about that for a minute. In one of the most devastating economic eras since the 1800s, people took refuge in real estate. And despite all the bubbletalk, which shouldn’t be dismissed, there’s more that could support home values, including:

1. A refusal to list: Resale housing supply is at record lows, leaving homeowners too scared to list before they can secure a new home. Millions of Canadians would love to cash in on their equity bonanza. The problem is, most people don’t want to downsize or move far away. That majority are resigned to not sell at all unless they have to, and that doesn’t help supply.

2. Employment momentum: Canada’s labour market is on fire. More jobs and higher incomes mean more homebuying demand. And free-spending politicians could continue fuelling job growth.

3. Net migration: Statistics Canada doesn’t have current net migration forecasts, but the Minister of Immigration plans to admit more than 1.3 million new permanent residents through 2024, and they all need a roof.

4. Equity windfall: Soaring rates make qualifying for a mortgage tougher, but not if you can bag a bigger down payment. Skyrocketing home values have armed parents with gobs of equity. They’re all too willing to gift or loan that equity to reduce their kid’s mortgage balance. This will soften the rate blow to some degree.

5. New-home building: If builders slow home construction as rates soar, like they did in the late 1970s, that, too, could limit supply and support prices. So could the fact that building costs keep rising. That pulls up resale prices, too, given they’re a newhome substitute.

6. Debt devaluation: As inflation soars, incomes rise. But most mortgage payments stay relatively fixed. So not only does your mortgage balance drop, your relative debt expense drops, all while you build tax-free equity on your primary residence – a compelling reason to hold for the long run.

See the full article here.

---

Konfidis is pleased to share our weekly real estate investing industry news piece herein. We love connecting with our members. Reach out with your questions to hello@konfidis.com.

Shael Soberano, CFA Konfidis Inc. Chief Investment Officer

Ready to start the process of buying a real estate investment property?

Try out Konfidis, a real estate investment company that identifies and vets the top investment properties in the market today. We've developed a simple way to invest using big data, cutting-edge technology, plus our team of experts to help you outperform the market.

Talk to us today about our Top Reviewed Investment Properties of the week.

Talk to Us