Patrick FlanneryFeatures Business Intelligence
The Canada Mortgage and Housing Corporation released a study recently saying housing may be overvalued in as many as nine of Canada’s top 15 housing markets. Now places like Hamilton, Ont., and Saskatoon, Sask., have been added to the familiar big cities like Toronto, Vancouver, Montreal and Calgary as places where the price of housing is exceeding what we would expect to see according to their history and the financial, economic and demographic conditions in the economy.
We have been hearing about the house price “bubble” for some time, though now that bubble appears to be expanding to cover more of the Canadian bathtub. For at least 10 years, economists have been wringing their hands about the unsustainable acceleration of prices in the big markets and the inevitable crash it predicts. About five years ago, economist speakers at industry events started admitting that the predicted crash was taking a long time to come. About three years ago they started wondering if it was ever going to come and admitted puzzlement as to what is going on. Maybe Canadians are so resigned to debt now that we will continue to pay anything for housing as long as the mortgage rates stay low.
If housing prices are in for a correction across the board, it’s not good news for the rental industry. Residential construction is a $15-billion industry in this country employing close to a million people. The value of houses drives investment in that industry, and most equipment rental stores depend heavily on custom from its contractors. Housing prices tell an economic story on the other side as well. When people are employed and making money, they pay more for houses. When they aren’t, they don’t and prices collapse. A bursting price bubble and the sharp reduction in the value of a family’s primary asset will put a freeze on spending that will send a chill across the entire economy.
Diversifying your business away from one-dimensional reliance on housing contractors and homeowners is one way to avoid this risk. Opportunities may exist in local factories and municipal governments – when is the last time you knocked on their doors? Another way to mitigate risk from fluctuations in the fat middle of the market is to move up the market. I remember doing a story on a custom furniture manufacturer back in 2008, just as the Great Recession was starting to bite in the U.S. and Canadians were wondering if we were going to catch the same disease. This man made dining room chairs that cost $10,000 each. The economy was going into recession and other furniture manufacturers were shutting down or fleeing to China, but this company couldn’t keep up with demand. Seems the “one per cent” are not affected by recessions the same as the rest of us. Perhaps there are opportunities in luxury custom homes and recreational properties that don’t go away when price bubbles burst.
Looking ahead to next issue, we will be revisiting Canadian Rental Service’s 40-year history with news and company profiles from the past. If you have photos and stories from the ’70s, ’80s and ’90s, or want us to remember a special person that was instrumental in building the industry in your area, please let me know. I’m just a button-push away at email@example.com or 226-931-0545.
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