Lessons From Past Recessions
Your hosts Daniel Foch and Nick Hill covers an important topic - recession. They look back to the past recessions and discuss Canada’s Real Estate Housing market. They look at the economic cycle and what happened in the 80’s, 90’s, and what we can expect in 2023’s Real Estate and Housing market.
Key Takeaways:
The Canadian real estate market is experiencing a significant downturn, with house prices down by more than $170,000 on average since February 2022, and sales down by about 30% year over year from the peak of 2021-2022. This trend continued into 2023, marking it as a record low year for the market.
The 1990s real estate downturn left a lasting impression on that generation of investors, particularly baby boomers, many of whom have since been cautious about real estate investments due to the risks associated with high leverage and debt.
Past downturns, such as the 90s correction, show that despite significant financial hardship, many homeowners eventually recovered. This provides a comforting context for current homeowners and buyers facing challenging market conditions.
Rapid rate hikes, as seen during the 1980s recession, effectively controlled inflation but also led to significant drops in house prices. This historical lesson is relevant today, as recent rate hikes aim to curb inflation, potentially leading to similar price corrections in the real estate market.
The 2008 recession led to a prolonged period of ultra-low interest rates, fuelling an unprecedented housing boom. However, such conditions were unsustainable, and the eventual need to raise rates again has brought about current market challenges. This period serves as a reminder of the cyclical nature of real estate markets and the potential consequences of prolonged low-interest environments
Real estate prices are stabilizing, and the market is expected to follow seasonal patterns, particularly in spring, which traditionally sees increased activity in Canada.
Homeowners renewing mortgages in the coming years will face higher monthly payments, primarily due to increased interest rates. This could result in decreased property values, reduced equity liquidity, and potential negative cash flow for tight-margin investments
The Bank of Canada's future interest rate decisions will hinge on inflation trends. Currently, in a disinflationary environment, rates may be cut to relieve economic stress. However, there is a risk that previous rate hikes might have overshot, potentially triggering a recession.
Listen on Apple Podcasts:
 | A guest post by
|