February 3, 2012
Real Estate Viewpoint
by Curtis D. Cossey, CDC Consulting
As an appraiser, business owner, homeowner and investor, I have been watching the world financial crisis and issues related to economic projections. I have followed the news, real estate reports, rumors, doom and gloom gossiping and many other sources which are all very confusing. I thought there has to be some way of painting a clearer picture to be able to confidently decide for myself how things are going to turn out. Economics and market history of what sparks downturns and upticks in the market would be a good start. Not real estate statistics but indicators of growth in past times, which is consistent every time. I have read several articles and stumbled across a few with this approach. Using this approach is now more important than ever with the current economic problems globally. It is hard to maintain your emotions when real estate increases or you think there is a deal, however the following model tests your patience but could benefit you in the long run.
If you are trying to predict what is coming in the real estate market, don’t look at the real estate statistics they only represent the past. Positive GDP Growth increases job growth which increases population growth and more jobs and more population growth. This will increase demand approximately a year later (depending on surplus inventory) in turn increasing rents and decreasing supply which leads to more demand therefore increasing prices. This cycle works in the opposite direction as well, over roughly the same time lines.
It is important to not try to predict your specific target region’s market using national numbers. This is especially true when analyzing markets in countries with a large geographic size such as Canada.
Averages do not represent the true market, similar to your property tax assessment. One high sale price can skew all the results. An example is an infill neighborhood where some homes are new and executive while others are renovated or dated and in original condition. This is also true when there are major influences in the area such as a view or ravine exposure. An average across the city could indicate a rise in prices of 10% in the last year; however some areas may have dropped 5%. This would not be represented by the average or median figures.
Influential market forces often prove to have a shorter term, yet dramatic effect, among specific markets. It may make it look like boom or bust is occurring when it really isn’t. These forces can be economic or government based. For instance, the Vancouver Olympics, HST and high speculation of industrial development for the oil industry.
Ensuring that your portfolio and each property within it, creates positive cash flow from the beginning is extremely important in economic times like these. Counting on the market going up at the right time for you is a substantial level of risk to your portfolio.
Identify how specific green choices being made across Canada by your future tenants and buyers can dramatically increase the value of your property. GREEN features are: accessibility to public transportation, walking distance to amenities, community connectivity (services, parks, etc.).
Currently, during the economic turmoil, we are a safe haven for capital and investment which support the economy. When the economic turmoil begins to disappear, we will then step into being the safe and secure supplier of the 4 key commodities (food, fuel, fertilizer and forestry) the world will need during its recovery. Each these commodities will bring strong job growth to specific regions of our country, and these jobs will further fuel demand for rentals and property purchases. Markets are very specific (regional), and the fundamentals must be heeded exclusively to each individual area
About CDC Consulting
CDC Consulting Services Inc. was established in 1996 to provide superior real estate appraisal services to our clients. CDC Consulting Services Inc. is an independent firm with several Strategic Alliances, providing a full range of valuation services throughout Western Canada. We offer residential, commercial, assessment appeals, insurance appraisals, agricultural, personal property/machinery and equipment and business valuation services.