- Hey, welcome back, it's Nolan Matthias from Mortgage360
and today we're discussing Royal LePage and their prediction
that housing prices are going to increase nationally
by 5.5% in 2021.
And I wanna discuss specifically why different economists
are predicting different things for the economy.
I also wanna discuss why there's this increase
in housing prices during a pandemic.
And then at the end I wanna give you
a little bit of my own predictions.
But before we get into it, do me that favor,
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Okay, so let's get into it.
Let's talk about Royal LePages predictions,
greater Toronto area, they're forecasting to go up by 5.75%.
This is already after a record year
of housing price increases there.
They're expecting that Ottawa prices are gonna go up
by 11 1/2%, this is because of government
and tech sector expansions.
They're predicting that the prices sitting in Canada
Vancouver is going to go up by 9% in value.
And then we're predicting that Halifax
and greater Montreal are gonna go up
between six and 7 1/2%.
And that Calgary and Edmonton
are gonna back regional trends.
Yes, they're referring to the oil industry there
and have modest price growth, which I think is probably
a pretty fair assessment of Calgary and Edmonton.
Now let's talk for a second here about the difference
between this report and what CMHC has been saying
because CMHC has been predicting a lot worse
than what Royal LePage is predicting.
And the reason for that, is because different economists
are paid by different people.
And their economic predictions are going to be dictated
by who's paying them.
So obviously, a company like CMHC is hiring an economist
to help them figure out what their worst case scenario is
because CMHC isn't sure.
So they wanna figure out is if everything goes
absolutely wrong what their worst case scenario is
and how much money they need to be able to have
on hand in order to pay out insurance claims.
So obviously an economist that works
for CMHC is going to have a trend
towards the negative a little bit more
than somebody who's working for a company like Royal LePage.
Now Royal LePage obviously is paid.
It's a for-profit company based on positive things
happening in the real estate market.
So their economists are going to tend to predict more
positive aspects because as Royal LePage puts this sort
of information out to the real estate network
they wanna give off a positive vibes that hopefully
that becomes a self fulfilling prophecy
and their agents sell more houses
and make more money, right?
Because I don't know if you've ever been
in a real estate office, but in real estate offices
where people are really upset and really sad
about how bad the market is, nobody makes money.
But in markets where they see opportunity and they see that
there's an opportunity to make more money
there things are usually a lot better
and a lot more positive.
So really what you've got is you've got two different types
of organizations predicting different things
because they've got different motivations.
And then you've got banks that are kinda going right
down the middle of saying, 'hey, we see
that the economy could get worse and it could get better.
We don't know yet, there's vaccines coming."
And they're kinda predicting a pretty flat market.
And here's the thing about economics,
is it's not the predictions that dictate
what's gonna happen to the economy.
It's the things that surprise you.
It's things like a pandemic or a financial crisis
that dictate where the market's going to go
and nobody ever expects those things.
So really what's going to happen in 2021
with respect to real estate markets is, well we have no idea
and something will surprise us,
the market will either get really good or it might get bad
but we won't know until we know.
But what we can talk about with certainty is how we got here
because nobody expected in March that we'd have a pandemic.
And when we found out about the pandemic
nobody thought for a second that we were gonna have a market
that got hotter.
Everybody expected that the market was going to cool down.
And in fact, at the beginning of the pandemic
I was wondering how I was gonna be able to
keep people employed.
Now, obviously interest rates got lower
and the market's changed.
And now we're in the situation where we've had record sales
in a year that nobody expected us to have record sales.
And the question is, what's the reason for that?
Well, the answer is, we've had a shift
in where people spend their time.
So you know how Starbucks always wanted to be
the third place, right? People had home work and Starbucks.
Well, Starbucks, when we're able to go back there
is going to quickly become the second place
because work and home are merging into one place.
And that's why you're seeing this shift in the economy.
This shift in the real estate market
and increases in housing prices
is because people are now working from home.
Employers are understanding that employees
are actually more productive when they're at home.
And the employees that are working from home are realizing
especially if they have a spouse that works there as well
that they need more space because being at home
with another person who works, is really difficult.
But what that's done is created this movement
towards bigger houses.
No, obviously movements towards bigger houses don't happen
without some added affordability.
So obviously there's some things in the economy
that have assisted this.
One is for the most part high-income earners
haven't experienced the same interruptions
in income as lower income earners.
So people who work in hospitality and tourism industry.
And for those who have had uninterrupted incomes,
they found themselves paying lower interest rates
on mortgages.
And what that has done, is it's allowed them to
have greater purchasing power, that's why somebody
who is living in a medium-sized house is able to buy
a large house right now it's because the lower interest
rates are allowing them to stretch dollars further.
So subsequently what you see is in different markets
there being a sellers market for high-end homes
and bigger homes in the suburbs that are closer
to things like the mountains or lake country or wherever.
And that is what's really been fueling this economy
and what Royal LePage is saying, and what they're seeing
is that that fuel is going to continue into 2021
because there quite frankly, hasn't been enough supply
of those slightly bigger homes to fulfill the demand.
And I think in a lot of ways that Royal LePage
is bang on with respect to this outlook.
Now let's talk about the opposite opinion
because CMHC definitely didn't see this coming.
In fact, they were predicting that we would see
an 18% decline in housing values over the course of 2020.
It didn't happen.
And that's the thing about economics.
It's always the thing that nobody saw coming that surprises.
No, I think CMHC had good reason to expect
that housing prices would go down
because obviously they saw that there was this pandemic
there was all these deferrals, right?
The national rate for deferrals was around 9%, it's now 5%.
That's not because less people need deferrals.
That's quite frankly, because people ran
out of time under deferrals.
And only time is going to tell how many of those people
who are in deferrals and who have had interruptions
in income are going to find themselves in for closure
and bankruptcy.
But for the most part, what it's looking like right now
is that the economy, well smaller is still pretty stable
for the majority of people.
And as we start to see vaccines rolling out
we're gonna see more and more confidence in the economy.
I know that friends of ours who work in the medical field
are getting vaccines as early as the 20th
and as more and more people get those vaccines,
things are going to look more and more positive
and things start to look more positive,
people will start spending more money.
Obviously low interest rates are going to be here
for a very, very, very long time because obviously
as the central bank starts to increase interest rates
if they do so too quickly it will create
a self fulfilling prophecy where
people can't afford their payments.
And therefore the economy will end up
back to where we started
and where lower interest rates are needed again.
Now, one thing that I'm not sure that Royal LePage
has considered in their 5.5% increase in price forecast
is that as we see more and more foreclosures come on
and there are going to be some foreclosures
not everyone is going to get saved.
Is that that could add supply to the market.
And therefore, that added supply
could basically balance things out.
So here's my prediction.
I don't necessarily think that CMHC is doom and gloom
is the right prediction and I don't think
that the rosy picture that Royal LePage has basically
painted is going to necessarily be an accurate prediction.
But I think we're gonna fall probably somewhere
in the middle.
Or, we could find ourselves having some massive surprise
in the economy where housing prices go up a massive amount
in 2021, we could also see a surprise on the downside
and they could go down substantially.
But at the end of the day, here's, what's important
for people who are buying homes to live in right now.
25 years from now, when your mortgage is paid off 2021
is just going to be a blip on the radar.
Whether you bought at the top of the market
or the bottom of the market in 2021, it doesn't matter
because at the end of the day, 25 years down the road
your house is going to be where it's substantially
more than it is today, and that will be a good investment
as long as it's a property that you've bought
that is within your means that you can afford to pay for
and that doesn't have any massive issues with it.
So here's my message for home buyers in Canada in 2021.
Buy the house that makes the most sense for you
and that is financially within your ability to pay for it.
If you do that, and you continue to be able
to make your payments and you don't have
any interruptions in income,
you're going to be very well off 25 years down the road.
Don't think for a second, that staying out of the market
is a good idea, because if you're expecting
a crash to happen, you may not see it.
Look at CMHC.
They expect an 18% decline in prices, it didn't happen.
Don't let that be you.
And if you think that housing prices are going to increase
and therefore you're gonna go and buy a whole bunch
of property while you might find yourself
on the bad end of that prediction as well.
I certainly would not be buying any properties on spec that
aren't going to be built for a year or two down the road.
That's definitely going to be the type
of speculation that gets people in trouble
because we have no idea what tomorrow looks like.
And the one thing I can tell you about 2021 is
it is full of uncertainty because 2020
was full of uncertainty, trying to make predictions
and time the market is going to be dangerous.
It's going to be the thing that gets people in trouble
and ultimately speculating is the fool's game.
So if you found this video useful,
if you found it interesting
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and tell me what you think is gonna happen
in housing prices in Canada in 2021
in the comment section below.
Cheers we'll see you on the next video.