Weekend Reading – Historic housing correction coming
Welcome to some new Weekend Reading material – why a historic housing correction is coming (or not).
Before sharing some of my favourite finds from the past week, including shoutouts to some bloggers crushing it with their investing journey, here are some of my recent articles just in case you missed them:
I believe financial independence really boils down to two major things over time – that’s it!
Image reference: The Behavior Gap – Carl Richards.
I recently posted my latest monthly dividend income update. Excluding our RRSPs and other assets, we’re now averaging $75 per day in tax-efficient and tax-free dividend income every single month – and growing for our semi-retirement dreams.
Finally, if you want to learn how many stocks are truly enough for your portfolio – read on.
Weekend Reading – Historic housing correction coming
I’ve written about my housing market thesis before on this site, a few times.
More recently this spring I mentioned the following:
- “Expect real estate prices (that have been inflated too high for too long) to come down this year, maybe down another 10% from where they are now.
- Expect the cost of owning a home to go up, with inflation running hotter and with borrowing costs going up as well. My friend Robert McLister, a respected mortgage analyst and expert, was recently quoted that for the first time since 2010, nationally-available uninsured 5-year fixed rates are all above 4%. McLister also recently referenced some TD research that estimates 5-year fixed rates have increased 140 basis points year to date, which equals about a 12% decline in affordability for the average homebuyer.
- Expect people to complain about the combination of higher inflation and higher interest rates since many people feel they didn’t see it coming.”
Of course, the latter point is hardly a prediction since we’re seeing that now.
Unfortunately for some, things are reverting to where they should be – leaving an “upside down world” that has been happening: a screaming bull market during a once-in-a-century pandemic no less, markets artificially inflated by uber-low inflation, further supported by non-existent cheap, borrowing costs; an economy pumped by juicy government stimulus (with money we/taxpayers don’t have), triggering use of leverage and an abundance of retail and real estate spending with cash most people absolutely don’t have.
Harsh, I know.
But true, I believe.
I want every reader to be mindful that some real estate correction can and should happen.
So, what does any historic housing correction coming mean?
Well, I’m pessimistic about real estate to a point in Canada near-term but not nearly as bearish as RBC.
According to this new RBC report that severely downgraded Canada’s housing market:
“We expect home resales will fall another 17% in Canada by early next year after dropping 19% in the second quarter and 13% between the first quarter of 2021 and first quarter of 2022. Cumulatively, this 42% plummet (from record-high levels) since early 2021 would exceed the peak-to-trough declines of all four previous national downturns (-33% in 1981-1982, -33% in 1989-1990, -38% in 2008-2009 and -20% in 2016-2018).”
“Buyers in high-priced markets are especially sensitive to interest rates and we believe will struggle the most in the period ahead. Our forecast has home resales in British Columbia and Ontario cumulatively sagging 45% and 38%, respectively, in 2022 and 2023, setting the stage for a home price index drop exceeding 14% from quarterly peak to trough in both provinces.”
That’s not good.
Especially not good if you’re relying on your home near-term to fund your retirement. (I have no intentions of doing that ever for the record. I thought that was a bad idea 10 years ago.)
So, what does a “historic housing correction coming” mean to me?
Well, first off, I don’t want any historic housing correction to occur, let’s say that. But some (more) correction might be helpful…
Then again, I’ve always seen our home (whether that was in Ottawa, just outside the city, or now back in the city where we now live for the last three years) as a place to live. I/we have to live somewhere. Whether my home is worth $600,000, $900,000 or $1.2 million – while I would like to say it matters it doesn’t to a degree.
Two, while any epic housing correction (that decreases the value of our home significantly) isn’t great, I have no intentions of moving/cashing in, other. This is akin to buy low, sell high. If I’m not selling our condo, what does it matter to my net worth?
Finally, three, I welcome a bit of a housing reset. I’ve never believed money should be cheap for everyone – without any long-term borrowing consequences. I’m not advocating I want to see any consumer broke, bankrupt, or forced to take a consumer proposal. Rather, I simply don’t believe most folks should have access to low, nearly-free credit; an unlimited bankroll. Like trust, credit must be earned and maintained. It is my hope with some higher inflation, higher interest rates, we entrench more financial discipline into everyone – creditors and borrowers alike.
As a project manager, I tend to look at the downside risks more often than not – I look at both risks in the project and risks of the project. This might seem like semantics to many people but they are fundamentally different.
Like a potential historical housing correction coming, risks related to your personal housing situation and risks related to the housing market are also two very different things. Understanding those different risks, as they relate to your personal finance situation, will serve you VERY well when it comes to any housing market predictions.
More Weekend Reading – beyond the historic housing correction coming
Congrats to some of my fellow blogging friends, simply crushing it when it comes to working towards their dividend investing and financial independence goals. Kudos!!
My Prudent Life earned just over $1,000 in dividends from their TFSAs last month alone!
Passive Prairie FIRE continues with a sensible mix of stocks and ETFs to deliver more income.
Freedom 35 Blog highlighted his options trading summary – impressive work – making almost $6,000 in just one month.
Dividend Daddy is on fire…his “July 2022 dividend total is $6,051.79“. Just wow.
In my portfolio, I was happy to see one of my stocks release news about their special, upcoming dividend payment:
Canadian Natural Resources ($CNQ) says it will pay a special dividend of $1.50 per share on Aug. 31 to shareholders of record as of Aug. 23, double its current quarterly dividend of $0.75 per share.
While I have some oil and gas stocks in my portfolio, I do believe the industry must evolve. I own other energy assets accordingly (and happy to do so). The oil and gas industry faces some major decisions ahead.
“Building a clean energy business inside an oil and gas company presents an additional challenge in the form of resistance from the capital markets. Clean energy companies can be broadly divided into technology providers on the one hand, and asset-based businesses on the other. Fossil fuel investors understand all about exploration and development risk, sovereign risk, even interest rate risk, but little or nothing about how to scale a technology provider. As for asset-based clean energy businesses, they tend to be less risky than oil and gas developments; however, since they generally generate lower returns, they require a lower cost of capital. An oil company held by investors for its volatile but lucrative returns is not the right owner of utility assets.”
You have to wonder with our climate crisis staring at us in the face, how all of this might play out…
Chief Investing Disrupter Dale Roberts at Cut The Crap Investing offered a take on how many stocks might be enough as well, and some outlooks for our Canadian economy. What do you make of his take?!
Want to travel hack? Curious about how to value your travel hacked points amongst other travel rewards programs? Take a look at Barry Choi’s updated post on Calculating the Value of Your Reward Points here.
Have a great weekend, stay safe!