I shared a few thoughts on CMHC’s bearish outlook in this article, but I’ll share more of my high level thoughts in this thread 1/ thestar.com/business/2020/…
Out of all the analysts suggesting CMHC's more negative outlook of an 18% decline is very unlikely, how many predicted that home prices would fall by more than 18% in most of the 905 regions 3 years ago? Exactly Zero! So take the bulls with a grain of salt too. 2/
This of course is not to say that CMHC is correct, but the reality is they have access to more data than almost any other housing analyst so you have to take their negative outlooks seriously – even if we think it’s too bearish. 3/
It’s always better to hope for the best and plan for the worst. Toronto real estate has always been about hoping for the best and expecting the best, relatively few have planned for the worst. On who would be most impacted by a decline in prices ... 4/
I don’t think it’s buyers because their selling horizon should be 5-10 years out which insulates them from a potential short term decline. I’ve seen many say “well if I wait and prices fall, my mortgage will be $100K less” but 99% of buyers would not actually behave like this..5/
Virtually all will just move to a slightly nicer house or maybe a slightly nicer area – their debt level and mortgage payment would be the same. I’ve never seen buyers lower their budgets with the market. So for buyers who are anxious about the market ….6/
and want to try for that better area, then certainly they can sit on the sidelines and try to time the market. But from experience, it’s hard for people to jump into what they feel is a sinking ship. I saw this during the financial crisis…7/
Very few wanted to buy in Q4-2008 when prices fell and there actually were deals out there because they felt things were going to get worse. By April 2009 all the price declines and deals disappeared because every buyer rushed back into the market at the same time… 8/
But again, for those who want to try this strategy I wish them luck. I personally think it is better to mitigate the risks that they can control and predict rather than trying to predict where house prices will be in the near future. I aim to write more about this. 9/
I think the more vulnerable people are the those considering downsizing in the next 12-18 months. Many home owners use the equity in their home as part of their retirement planning 10/
The thing that makes these downsizers different from buyers is that their selling horizon is in the next 12-18 months (not 5-10 years) which makes them more vulnerable to a short term decline in prices. 11/
Deciding to sell ahead of schedule is not about trying to time the market but rather it is about mitigating risk, which not enough people do these days /
