Monday, March 03, 2014

Housing collapse? What housing collapse?



Bad news trumps good nearly every time in the media, especially in the financial media. Interest rates are going up, interest rates are getting cut. Consumers are in trouble with too much debt, consumers can handle their debts. We’re in a recession, were in a depression, we’re fine. There’s the housing bubble that never happened, but some are still waiting for it, and the latest -- escalating house prices and lack of affordability.

For the most part, the constant worry reporting by the media and the economists and pollsters who feed those headlines is overblown.

We have low interest rates, which will likely be here for awhile. We’ve heard how rates are on the uptick, but we’ve been hearing that since 2010 – it’s like the boy who cried wolf.  While it’s true that fixed rates did go up slightly, we’re back to discounted variable rates at 2.6%. And those 5-year fixed rates are sitting at 3.39% or less. We’re back to the future!

A look at housing prices across Canada and we see a picture that’s not so bad. Sure, the two inflated markets—Toronto and Vancouver – have crazy pricing, but in the rest of Canada, house prices seem to be rising at modest levels, unless, of course, you’re buying in a hot market – these markets come and go. 

StatsCan’s latest survey of financial security, released on February 24, shows that the median net worth of Canadian households reached nearly $244,000 in 2010. That’s up 44.5 per cent since 2005. While debt still remains historically high -- $27,368 (less mortgage debt) in the fourth quarter of 2013 according to Trans Union, most Canadians are wealthier than they’ve ever been.  

Overall, total family assets in Canada rose to $9.4 trillion in 2012, with the value of families' principle home representing one third of the total assets. Pension assets, including employer plans and private pension plans, made up 30% of the total, while other real estate holdings — rental properties, cottages, timeshares and commercial properties — represent almost 10%.

Will there be a rebalancing or a correction? It’s true that, after a long period of spending, consumers will cut spending to pay debt; however, Benjamin Tal’s (Deputy Chief Economist for CIBC), Weekly Market Insight Report, found that consumer spending rose 3.1% in the fourth quarter of 2013 and the savings rate remained stable at 5%.  Household debt is still a concern because it is still rising, albeit it more slowly than in previous years. 

Low interest rates, coupled with steady job creation, and a slight increase in wages, bodes well for the future of housing.

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