Environment upgrade part 2: Canada Montreal housing market analysis

Part of the series: Environment upgrade

Like any good investor worth being called such, I spent a sizable amount of time analyzing the market before I proceed to the actual hunt. Analyzing of the data helps in the overall understanding of the factors in play. It is the part that is the most boring for most, but satisfying when done right. While most people jump straight to contacting a real estate agent after getting their mortgage pre-approved, I silently sat in front of my computer night after night to simply browse. This serves two purpose. One to cool down the initial rush of euphoria, two to give me time to be better informed.

I first waited for the Census Canada‘s population density data to release to determine if the island of Montreal’s population is growing or not. A growing population ensures that house prices will go up and that the current slump in the housing market is only temporary as demand increases. I find their 10 year thematic map very useful in determine where the hot spots are to buy.

In a December 2006 post, I predicted a decrease in housing prices around the middle of 2007 and have religiously checked MLS housing prices ever since and read the GMREB report on the housing market to determine that the condition is right and the home prices are indeed decreasing. My findings were that for the first quarter of 2007, the average condo prices in the greater Montreal area decreased by ~3%. Combine this with the US housing market meltdown around June 2006 that added a little to the panic and you see a sudden surge of homes for sale (Canada economic usually respond to US economic changes after 6 months.)

Based on my graphical analysis of historical data on home prices and etc, the housing cycle lasts around 10 years with 2003 being the peak bottom and should see another slight dip in middle of 2007 (this is purely from the graphs.)

Perhaps it is not clear to you in this as the price is in a continuous rise. So I transformed this into a percentage difference graph which made everything clear.

All of these told me that the right conditions have been met and a quick glance at Canada’s mortgage static pushed me to get the pre-approval right away to lock in the interest rate. Why? You asked? Because of China’s exploding economic paired with the rising demand of oil and energy. You see, Canada’s economy is that of a pure exporter of natural resources. 50% of the enterprises that exists here are about Natural resources so the Canadian currency is seen in the world as a natural resources currency. With China going full out growth and development, rising demand of nuclear energy and the forever decreasing “easy” oil. Canada exports copper, uranium and oil sand in response.

The result is a CDN dollar that increases in value and with that, comes inflation. As a result, the central bank of Canada will have to increase the interest rate to balance and along it, the mortgage rate. With this maneuver, I am betting that the dollar will keep on increasing value and that the value of houses will not drop for more than 5%. (11% is the worst case scenario.)

I finally contacted an agent around March 2007 after I began my observation around October 2006…