The Scoop on the 2011 Toronto Real Estate Forum

Over 2,200 delegates attended the 2-day Real Estate Forum at the Metro Toronto Convention Centre in early December 2011 to hear industry experts and economists look back at 2011 and prognosticate on what the real estate industry will look like for 2012.  Some interesting statistics:   The REIT index went up 9.8%, while at the same time the TSX went down 10%.  Income-producing real estate was clearly a profitable asset and the institutions and pension funds were clearly the largest players in this marketplace, being involved in over 60% of all income-producing property transactions.  This "insatiable appetite for yield" by the institutions, pushed cap rates to some of their lowest in history.  Even private investors move up the risk spectrum to obtain product.  I point to Pierre Bergevin, President and CEO of Cushman & Wakfield, Canada.   According to Sheila Botting, National Leader and Partner of Real Estate, Deloitte & Touche LLP, retail was the best investment product with retail sales continuing their climb and cheap debt driving further acquisitions.  Retail sales in 1997 were averaging $430/sq. ft. and increased to $590/sq. ft. in 2011.  Interestingly, Apple made up 10% of the entire retail sales spectrum.   Two economists, David Rosenberg, Chief Economist & Strategist, Gluskin Sheff + Associates Inc. and Avery Shenfeld, Chief Economist & Managing Director, CIBC World Markets Inc., who addressed the question of "Is the recession over?"   Anyone who knows David Rosenberg is familiar with his perpetual doom and gloom forecasts.  So according to him, the 1990 recession has never really ended.  He pointed to the high levels of government and consumer debt, the anemic growth rate in the U.S. of 2.4% of GDP growth, whereas in a positive market, the growth should be closer to 8%.  Growth for 2012 has been predicted to be only 1.7% in the U.S. instead of the 4% predicted by the Federal Reserve Bank.   And of course, the doom and gloom in Europe cannot be ignored.  David understandably says that it takes 6-7 years to recover from a financial collapse, and he sees that we are only into 2 years of that timeframe so we have a long way to go.   For housing, he believes and I understand other economists are in agreement, that the Canadian housing market has plateaued and is relatively balanced.  David points out that house prices have overshot fundamentals and are due for a flattening or a correction.   Dr. Avery Shenfeld, although not predicting a recession, pointed to the significantly better increase in GDP in Canada of 3.5% in the third quarter after a negative second quarter.  The average of the two is still well below 2%.   For the first time in history, there is a reverse employment gap between Canada and the U.S., Canada usually being higher than the U.S.  The current published gap is about 2% but Avery felt that the real gap was 4% because there are so many people in the U.S. that have left the employment market.   Although Shenfeld felt no recession was in the cards for Canada, he did concur that houses were overvalued and that the era of increasing house prices was coming to an end.  Although the loan default rate is very low at less than ½ of 1% of all mortgages, 6% of the entire mortgage market represents borrowers utilizing in excess of 40% of their income for mortgages.  If rates move only a small bit, this could be a problem.   At the end of the day, one was left with severe negativity from David Rosenberg but that is to be expected from him.  From Avery, you did have warning bells of a potential softening of the housing market, increased mortgage defaults, and a real threat of a European implosion which could have serious consequences for North America.  So caution is the watchword.   Hopefully, none of our many condominium investors were in attendance that morning to hear the rather negative outlook of our esteemed economists.