RECESSIONS

This is the best recession I’ve ever been in! And I’ve been through a few. In the Spring of 1974 I bought my first house for $46,000 and in April of that year the government of Mr. Davis introduced a speculation tax and rent controls. Inflation was rampant but the real estate market collapsed leaving 26,000 built unsold inventory on the market. It took two years to recover.

In 1980, with inflation raging once again interest rates were raised dramatically. I was the first person on my block with an 18-½% first mortgage. This was a short-lived and severe recession but recovery was stronger than ever leading to the roaring 80’s. It should be noted that during these very buoyant times interest rates averaged 11 ¾% for a five year term.

In 1989, real estate was severely overheated throughout the world and the recession of the early 1990’s was long and deep. Recovery began in 1995 and of course continued unabated until this year. The first signs of economic slowdown were initiated with the high-tech collapse earlier this year.

The common factor over the past 30 years has been the evils of inflation. In every previous recession prices climbed so irrationally as to lead to a severe softening of demand and the resultant market correction. Real estate as the primary big-ticket consumer item, often led the way as an indicator of these corrections.

But 2001 is different. There is little or no inflation. Interest rates are coming down – now at 6% for five-year money. By the time this column is published the Bank of Canada will have lowered rates even further. This appears to be a manufacturing led inventory correction and a slowing of growth – a brief pause for consolidation and clearance before surging again in mid to late 2002. The events of September 11th have compounded the complexity of this economic pause bringing additional hardship to specific industries outside of manufacturing – airlines, travel, hotels et cetera.

So growth is slowing from levels in excess of 5% GDP annually to the just above 1.2%. A significant correction indeed - but still positive growth.
Real Estate in the GTA is also very different. Instead of leading the way in an economic correction it is behaving in a very contrarian manner. There is no doubt that demand was softened somewhat in the immediate weeks following September 11th. But recent new openings reinforce that underlying consumer confidence is quite remarkable.

Arista Homes opened a new project in Mississauga on September 22nd at Churchill Meadows. Over 1000 prospective buyers turned out and in the month since over 35 had purchased. Monarch and Sandbury Homes opened $450,000 singles on the Millcroft golf course in Burlington on September 29th and had a line up - producing over 30 sales in three weeks.

The most remarkable story is the past weekend of October 20th. Tribute and Paradise Homes opening a project in central Mississauga called Centrepoint. This is a mix of single and semis priced from the low $200’s to the mid $300’s. More than 1500 consumers visited the site for the opening weekend. In two days over 160 homes were purchased - recession indeed!

The consumer is responding to value in GTA real estate. Value created by significant choices and historically low rates. The near zero vacancy rate in rental accommodation is also motivating this consumer to a first time purchase.
The next several months will be defined by uncertain economic environments. But housing will not be one of these. The GTA consumer is recognizing that housing is a long-term investment and despite an economic correction this is an exceptional time to take action. Don’t forget that as this economy recovers in 2002 interest rates will rise once again.

Having been through three very difficult and financially devastating recessions in the past three decades I really like this one - this is the best I’ve ever been in!

Keep Positive!
PMA Brethour Group
Andrew Brethour
Marketing & Sales Consultant to the New Home Industry
andrewb@pmabrethour.com