February 2010 | Market Analysis

Market Analysis | February 2010

Li Read's Market Analysis download (pdf)

Market Analysis

I attended the 2010 World Outlook Conference on January 22/23.

Held in Vancouver, this annual conference, created and hosted by Michael Campbell, with its projections for the year for the equity side of investment, invites speakers from around the world. There were several presenters from the U.S., plus Canada, Asia, Australia.

It’s a good idea, I think, to bump out of usual channels, and to listen to other points of view.

Everything touches everything else in this intermeshed/borderless post-internet world, and the thoughts of these investment advisors, many of whom advise at the company or government level, are very useful for real estate investment guidance, too.

Each speaker referred to the stock market’s resurgence as having happened on March 9, 2009. This market buoyancy surprised many of them, after the collapses in Fall 2008. It’s interesting that the entry-level property category also saw a resurgence in activity, although at markedly reduced prices, at beginning of March, 2009, too.

Many of the speakers referred to the recession, though, as actually having been in evidence since 2006.

Their two main points seemed to be that deflation was still with us, “right this minute”, but that reflation was underway. (Is that a polite word for inflation?).

Printing more money was, in their opinion, going to continue and the result of this would be the continuing debasement of currencies.

As a result, all of them encouraged investors to have core positions in their portfolios in gold, precious metals, rare earths. They did not see a continued buoyancy in the stock markets, and some were forecasting the “double dip” scenario, of further economic woes, by August.

Sounds like a call to hold hard assets. Isn’t that what commodities are?

Well, real estate in protected areas is another vehicle to preserve capital. For us, the Islands Trust’s cap on growth has created that investment protection aspect to property ownership. There is a limited supply, regardless of market trend in play, at any given time.

My impression, looking back, is that our Islands real estate market, which is a secondary home/discretionary marketplace, where many properties are second or third home choices to begin with, also slowed by 2006. Some homes may become primary residence/retirement choices eventually, and others may remain as a recreational second or third home choice, but to begin with, the purchase in our kind of area is often a secondary property decision.

In retrospect, on Salt Spring and the Southern Gulf Islands, the buoyancy in real estate came between 2001 and 2005. Both sales volume and prices doubled in these years.

A slowing trend did appear in 2006, noted by all sellers/realtors throughout the Coast, and this continued right through to the meltdowns of October, 2008.

The “pause period” of 2006/2007/early 2008 was seen as a global phenomenon, and especially affected all resort based/discretionary areas.

The Wall Street Journal referred to 2006 as having been “stable/inactive”, globally, meaning that inventory and prices had remained stable, while buyers were inactive.

Until Fall 2008, however, this “pause” was poorly understood, locally.

Locally, for some sellers, encouraged by some realtors, who reduced prices dramatically to try to engender some action, it must have been worrying when nothing happened. When a buyer says “not right now” to a purchase, in a secondary home marketplace, then nothing will happen. It’s about confidence, not about price. No one “has to” buy a second home, in a recreational area.

It’s buyers who set market trends, not sellers or realtors. In our 21st Century world, the consumer is in control of all business processes. Technology has erased the wall between “the expert” and the customer. This definitely changes marketing in real estate, in a discretionary area. (Call me, for details on what I am referring to, here).

The U.S. buyer for Salt Spring and Gulf Islands properties has evaporated, for the moment. Continuing economic uncertainties in the U.S., combined with a high Canadian Dollar (our currency is flirting with par, next to the U.S. Dollar) has made us momentarily less attractive.

The Alberta buyer for an Island opportunity is very attracted to the U.S. Sunbelt states right now — huge “deals”, and a Dollar close to par. A Pacific Northwest Coast option can be put on hold for a bit, while our traditional Alberta buyer explores a sunny retreat in Arizona, at a give-away price.

The Vancouver/Lower Mainland buyer might be more interested in an Interior property purchase. No ferry or plane schedule to adhere to, and price points much lower.

An Ontario buyer, seeking a retirement choice, might still have a Coastal purchase on hold, awaiting economic news. There is still an argument to be made, in the here and now, for “holding” in cash/not buying the recreational or retirement choice just yet. There is a fear that prices may reduce another 10 percent at least, in the “double dip” theory.

It seems, then, that the real estate and the equity sides of investment projections are complimentary, at this exact moment in time. Sort of like a balanced teeter-totter, which is not a position that “holds” for long!

The equity based speakers all seemed to feel that there would be more “bad news”, perhaps by late Spring, with a resulting continuation of lack of confidence by the consumer, and yet they were also all projecting that within 3 to 5 years, we would be in a dramatic inflationary time. In such periods, cash is valueless.

A good reason, then, to consider a purchase now, in our Southern Gulf Islands splendour — a microclimate that delivers more sun/less rainfall than in other regions of the northwest coast, with easy access to major centres and yet wonderfully “apart”, with an infrastructure that delivers the amenities of the 21st Century, especially on Salt Spring Island, with the rural charm of yesteryear still intact, with the ability to be self-sufficient.

With the reduction of prices by 12 to 25 percent, over the last two years, which makes the Gulf Islands more affordable than at any time since 1999, and with continuing low mortgage rates for the time being, it’s a moment to act, from a buyer’s perspective, to preserve capital.

More information on Salt Spring Island and Southern Gulf Islands properties and lifestyle? Call me!

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