I was browsing the on-line media yesterday (as I will from time to time) and came across an interesting chart in the Globe and Mail that was published last Wednesday, so it is not "breaking news", however, it may be quite telling and certainly may have significant implications going forward:
Condo vacancies in Toronto have reached record highs.
I leave the discussion about the direction of the real estate market to those who are more seasoned and have a greater degree of expertise.
However, I am afraid of heights and this chart is scary:
As an economist we are trained to understand that everything is cyclical, some cycles can last extended periods of time before an adjustment takes place and predicting the exact timing is never easy.
As a bond trader in the 1980's and 90's it was important to be on top of trading cycles that were in large part determined by interest rate cycles.
As a wealth manager, it has been equally important to monitor the cyclical broad economy and developing trends that follow.
The housing market (in Canada) has had a long cycle of upward price trajectory since the last down-turn (and of course different regions have had their own trends driven by various economic circumstances).
Many have tried (and failed) to predict its collapse (especially in Toronto and Vancouver).
The cycle will end when it ends and for a simple and good reason: there will be more sellers than buyers.
Simple supply and demand economics.
The chart above seems to indicate increasing supply and decreasing demand in the Toronto condo market, just as was the case at the last cyclical peak in 1991-92.
I would not want to have too much of my net worth tied up in that particular asset class, especially if I would need to sell to create personal cash flow (because it is not liquid).
I rent (because I don't like being emotionally tied to any asset).
How much of your net worth is tied up in home (residential, vacation, "investment") ownership?
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist