Canada’s largest bank sees a lot of risk in real estate, just not where other people may see it. RBC Senior Economist Robert Hogue published a list of risks that may impact real estate markets near-term. The bank feels government aid kept prices moving higher, but the market is “far from risk free.” Here’s some of the issues they feel could cool the market, but won’t necessarily impact prices.
Higher Interest Rates
At the top of the economist’s list is a risk that occurs if the economy does well – interest rates rise. Low rates provided a “powerful tailwind” to send prices higher. Hogue feels higher rates may reverse some of that power, if they rise faster than expected. Some investors already feel this is occurring.
The Government May Be Pressured To Intervene
RBC also sees faster home price gains may lead the government to intervene in the market. The economist mentions B.C.’s measures in 2016 and Ontario’s measures in 2017, as examples. It was thought to be unlikely for either government to do anything during this period.
Reduced Immigration May Last Longer Than Expected
Falling immigration rates are another risk the economist sees, especially in major markets. Hogue believes if slow immigration persists longer than expected, the impact will spread beyond the rental market. More specifically, this would impact condo apartments in their opinion.
Prolonged Elevation of Unemployment
Oddly, high unemployment isn’t a risk on the way up, but the economist believes it can be a risk if it persists too long. Hogue states, “high unemployment could outlast government support, potentially undermining housing demand.”
There are risks that new variants of the virus could emerge, rolling back “progress.” Hogue said this could be “destabilizing to any recovery.” It’s unclear why initial setbacks are bullish for real estate, but additional setbacks wouldn’t be. It’s the easiest way to get a round of stimmy, although you’d be dealing with weaker loonies.
lol.Yeah, it’ll be a real risk if that happens.
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