Happy New Year! Hopefully you had a relaxing Holiday Season with plenty of good food, shared with family and friends. Now that life has settled back down, it's time to get into the swing of things and concentrate on making 2010 a great year.
Things are certainly starting to look up in the housing market and the economy in general...but are they over-inflated already or is this the true beginning?
Let's make a commitment right now to focus on the truth. Not the positive or negative hype. I think we are all tired of the emotional roller coaster. 2010 is about perspective, about reality and about creating tremendous success from it all. And that is what this newsletter is dedicated to providing you in the upcoming year... a place to get grounded in reality and a place to identify the hidden opportunities.
So to start it all off, as an Inner Circle Client, here is some perspective to help start the New Year on the right foot - Part 1 of Key Insights for 2010:
1. This coming year in real estate will be more a regional story than a national story than ever before. National and average numbers will be much less relevant to the investor. In fact, average price numbers will be ignored by most sophisticated investors as we focus on uncovering above average cash-flow at below average prices.
2. Sale's frenzy will continue in the spring of 2010 as the autumn 2009 momentum continues apace. This buying spree across the country is unsustainable market exuberance based mostly on investors and homeowners trying to 'time the market'. Prices in GTA and Vancouver have already increased more quickly than the economic fundamentals would support. In fact, they have gained all of their recessionary losses - even though their economies haven't really changed. Be prepared for some negative news in the late summer in these areas, which will lead to opportunity.
3. We will see a dramatic jump in listings coming in most regions of the country in the spring as sellers also try to time the market. This will lead to a much more balanced market with more subdued average price increases. Confidence will begin to increase on the prairies which will help take up this increased inventory. Late Spring will provide a good time to uncover undervalued properties.
4. MAJOR TREND for 2010 - 2011: Investors will become more aware that a combination of real estate, equities and bonds is a true balanced portfolio. In the past, many investors decided that they were either equity/debt investors or real estate investors. The truth is that this has limited investor's upside while increasing their risks through sector exposure. Value investing is value investing, and well chosen undervalued dividend producing stocks equate to well chosen undervalued positive cash flow real estate. Return-on-cash calculations will be more important than ever in 2010. This is a trend that is already beginning to take hold and will see a strong resurgence in 2010.
5. The addition of the HST in BC and Ontario will have a psychologically negative effect on the new home markets in late 2010, that is why we will see a jump in new home sales and starts in the early part of the year (which many commentators will call a trend- but they would be wrong), then these numbers will begin falling off in the summer. The new home market is important to the health of a region's overall economy due to the number of jobs it creates and economic stimulus it generates. This downturn in housing starts will lead to increased unemployment figures in late 2010 in Ontario and BC (coupled with the mass layoffs that have to occur after the Olympics are completed).
6. Housing markets have adjusted in Alberta and Saskatchewan and have not seen the 2009 frenzy. The reality is that the Prairie region has what the world requires when the global economies start a strong and consistent recovery - Food, Fuel and Fertilizer. All of these commodities will be in high demand in 2011 and beyond which provides long term investors an opportunity due to the relatively low prices and strong ROI's currently being enjoyed in the region's housing markets. Best not to wait until the frenzy begins, pick your well selected positive cash-flow properties during this slower time, then wait.
7. Real Estate areas to be very cautious about:
1. Forestry specific towns - still a long way to go for recovery (more mills closing in January) despite the new forest product's deal with China.
2. Pre-Sale Condos (didn't we learn how risky these can be during the last boom?) Seriously, when will people learn that lining up for anything creates an artificial demand which provides zero opportunity for negotiations? Why do you think they are marketed this way? It is not investing, it is speculating.
3. Recreational property - Always the first to be hit in a downturn and the last to recover in an upswing.
4. US Property (warning, we won't have witnessed the worst there until at least mid 2012 - despite the recent sales figures released). Make sure you read our article on the US market HERE. Also watch the commercial real estate market in the US, it is about to enter a downward cycle like we haven't seen in decades.
To see my latest BNN interview discussing more around the 2010 marketplace Click Here Now
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