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Ben Myers on The Canadian Housing Market

Podcast Featured Image 35

Ben Myers of Fortress Real Developments just released his latest “Market Manuscript” detailing the current state of several of the major housing markets across Canada. I asked Ben about what the chances are of a major housing correction in Canada, which bank said that Canadian real estate is undervalued, and how oil prices might affect the real estate market.

Ben Myers Interview Transcript

Andrew la Fleur: Hello and welcome back to the show. On today’s show, I’m very excited to be interviewing Ben Myers once again. Ben was one of the first guests ever on The True Condos Podcast and we caught up with him again. If you want to listen to the first interview I ever did with Ben, you can just go over to or if you’re on iTunes and your iPhone, just go to episode number 3 and catch that interview there.

Ben is the vice president of market research and analytics with Fortress Real Developments. He’s a self-described housing nerd and he is just a guy who really lives, eats, breathes, and sleeps housing data. He’s just studying the market all the time. That’s what he does for a living. He’s got many years of experience, so he’s always a great guy to talk to about what’s happening in the market, take a temperature of the market. He really has a good knowledge of things from coast to coast.

If you want to check out the latest piece of content that he’s put out and the one that we’re going to be talking about on this interview, it’s called The Market Manuscript. It’s about a 50 page document and he puts them out every 6 months or so. Head on over to the show notes for this episode and there’ll be a link there to download it. It’s 100% free and it’s great reading for anybody who’s interested in looking at the numbers and looking at what’s happening in the housing markets across Canada. You can get that at the show notes for this episode by going to, all one word, B-E-N-M-Y-E-R-S, and you can get a link there to download the manuscript.

Yeah, we talked about a lot of great things on this interview. We talked about, is there a chance of a major housing correction in Canada? Is the Canadian market overvalued or is it maybe actually undervalued? Oil prices, how will these new lower oil prices affect housing in Canada, particularly in Alberta obviously? Forecasting ahead 2015, what can we expect from the condo market this year in Toronto? Foreign investors, we tackled, is that a good thing or a bad thing? We talked about a lot of great subjects on this interview. I hope you enjoy it, so here it is, my interview with Ben Myers.

Andrew la Fleur: All right. It’s my pleasure to welcome to the show, Ben Myers. Ben has actually been on the show before. He’s a second time guest on the program. Ben is a senior vice president of market research and analytics at Fortress Real Developments. Ben, welcome to the show.

Ben Myers: Thanks, Andrew.

Andrew la Fleur: Ben, you’ve got … reason, of course, we’re speaking is you’ve got your latest Market Manuscript out. Of course, I’ll include a link to that in the show notes for this episode. I encourage everybody to go and download that report that you put together and understand what we’re talking about here. Why don’t you just tell everybody what the purpose of [those 00:03:25] reports are that you’re doing and why you’re creating them?

Ben Myers: Yeah. We have individuals that invest in our projects. That’s now the specific way I need to talk about them for compliance measures, but there’s a lot of false information out there about the housing market and a lot of misconceptions on where the values are in Canadian housing and what’s happening in each of these specific markets. I really wanted to do a comprehensive document that pulls a lot of these forecasts and numbers together, and put it in 1 big report. This is the third one, semi-annual report, that we send out to the industry, we send out to our development partners, and send it out to the public so they can get a sense of our knowledge and what we can bring to any relationship.

Andrew la Fleur: Okay. We’ll jump right into the content itself. Your report answers a lot of great questions, so I’ll hit you with a few questions here and you can let me know the findings. First one is, what are the chances of a major housing correction in Canada?

Ben Myers: Yeah. That’s interesting. You see many of these forecasts calling for a 40% drop in the resale housing prices across Canada or a 50% drop. One famous guy has been calling for that for about 4 years. Certainly I would be more respective of a forecast like that if there were some type of probability attached to it, you know, there’s a 10% chance that prices could drop 40% or what have you. I wanted to put that out to other housing analysts out there in the market. I’ve appeared in a lot of panels with these guys. I spoke to them on the phone. I read a lot of their materials.

I sent it out to the top 40 housing analysts. I got a 40% response rate which was not too bad. I asked them, what do you think the probability of a 20% drop in the housing market over the next 5 years, from pricing at the end of 2014? About 63% of the respondents said it was less than 5%. It gives you a little bit of sense of what they’re thinking. The other 37% said it was anywhere between 5 and 20%. They thought the chance was a little bit higher than that, but certainly no one said it was greater than 20% chance that the market would decline.

Andrew la Fleur: Interesting. When we’re talking about, you’re polling the different housing analysts in Canada, obviously not a scientific, statistically significant, I guess, you could say, but very good anecdotal evidence, in terms of talking to the experts in the industry and these are what the experts who are studying the market every day, this is sort of generally what they’re thinking. Is that fair? Is that accurate of what the findings?

Ben Myers: Sure. Many of these studies are being done by analysts that don’t live in Canada. They’re looking at very high level data and they don’t often know the trends that are influencing several of the markets in Canada and why some of these data figures are changing. That’s often the part that’s most difficult about analyzing a market. You need to understand what’s behind the numbers, not only understand the numbers.

Andrew la Fleur: Right. That’s a great point. Many of the headlines that we see, they’ll say things like Deutsche Bank or World Bank or IMF or I don’t know, United Nations or I don’t know, somebody out there far away, has made this statement that the Canadian real estate market is this or is that or whatever. That’s a great point and I guess that’s a great point to note about your report is everyone you polled and all the sources you polled are from Canadian sources.

Ben Myers: Exactly.

Andrew la Fleur: Great. On that note, next question. A major Canadian bank concluded that housing in Canada is actually undervalued. Why don’t you fill us in on who that bank was and why they said that?

Ben Myers: Yeah, it was in a report that I had seen no one reference. It was a RBC Global Asset Management report from November 2014. It was probably one of the best reports that I’ve actually ever read on the state of Canadian housing market, and they responded to these, what I call the 2 variable studies, the price-to-rent, price-to-income, debt-to-income, US housing prices versus Canadian housing prices. We want to make simplified studies that people can understand, but you just can’t use numbers like an average, an average number for the entire Canadian housing market, an average number for the entire rental market.

The interesting thing about the rental market one, which I was trying to get my point out when I was on BNN the other day, but I didn’t do a very good job of it, but it was looking at the price-to-rent ratio. Basically you’re looking at the average price of a Canadian home and dividing that by the average price of a rental unit, and you say, “Okay, that’s changed over time so now we’re concluding that Canadian home prices are overvalued because that relationship has widened.” People like to think your alternative to buying is renting, so therefore, if housing is going up at a rate faster than rent, then obviously Canadian housing market is overvalued. I’ve never understood why it doesn’t mean rents are undervalued. It just means Canadian prices are overvalued.

I’ve never understood why that’s not the case, but one of the big factors that’s not taken into consideration is the numbers that are used in there do not include condo rentals. You can’t compare renting to buying when you’re excluding all these rental units that are on the market. As we can see and that certainly you can attest to this, the amount of units that are being rented in the Toronto market that are condominiums is just through the roof. All of these studies, including the one that was done by the Bank of Canada, exclude supply. You’re not taking into account what’s happening with the supply of rental units or the supply of Canadian housing units.

Even the report that most people focused on, which was done by the Bank of Canada, their financial system review, it said that Canadian home prices were 10 to 30% overvalued. They had a line in there, in that report, that said, “Yeah, it’s actually been 10% overvalued since 2007,” which didn’t get a lot of media pickup. It also said our report ignores supply. I think if anyone has taken a class in economics, the first thing you learn about is supply and demand. [I use something 00:10:39] by supply and demand. If you ignore the supply, how can you come up with an accurate valuation in the market? That was something that I wanted to make sure was in The Market Manuscript.

In conclusion, that was an extremely long answer to your question, but RBC Global Asset Management said that all these measures are very much flawed but the best one is average price to average carrying cost ratio. When you use that with a variable rate mortgage, which a lot of people are now taking a variable rate mortgage, it shows that Canadian house prices are 4% undervalued. I just wanted to make sure that that report was out there being in the mix with several other of these studies that are showing that Canadian housing is overvalued.

Andrew la Fleur: Very interesting. Let’s talk about oil prices. Nobody knows what’s going to happen with them exactly, but what impact will lower oil prices have in the Canadian real estate market? Maybe a part B is from your report, is what can we learn from historical times when we’ve seen oil prices fall down quite a bit, like has happened in the past?

Ben Myers: Yeah. I’m just trying to wrap my head around what this all means. I’m certainly not an expert on the oil markets or their impacts on real estate. Really all I could do is just turn to historical numbers. The World Bank had come out with a study that showed the last 5 major oil price declines. A couple were coincided with the US recessions. One coincided with the Asian crisis. Another one coincided with an oversupply of oil and a change in OPEC policy, which is very similar to what’s happening now. That happened in 1986 and we saw oil prices stayed low for a long period of time. A lot of people are forecasting that that’s actually what’s going to happen as well.

We could actually look at the major period in 1986 where oil prices went down. They went down about 50% year over year for a long stretch there. During that same period, house prices in Alberta, house prices in Calgary I’m saying, based on the new home price index, actually went up 8% year over year. The new home price index tends to underestimate prices, so that was a pretty significant jump in a period where we had low oil prices.
Actually in 3 of the 5 periods, new home prices actually went up during those declines. I actually expected to see 5 or 6% decreases in all of those periods, just so I could say, “Well, okay, this is kind of the worst case scenario.” I was actually pretty surprised that in 3 of those instances, pricing actually went up.

Going back to the last one, the last oil price decline which coincided with the global economic crisis, the global economic meltdown, whatever you want to call it, the resale pricing went down about 7%. If you used a lag of several months for new home prices, new home single detached prices, you actually saw them come down 12%. That was kind of the … I’m using as the worst case scenario because we, at that point in time, obviously there was a recession going on in the United States, there was a recession going on in the rest of Canada, we were in the middle of a credit crunch as well, obviously associated with that, so the situation was much worse than it is today.

I’d like to think that it won’t be as bad as it was in 2008, 2009 period there this time around, but I think once bitten, twice shy. Many of the Albertans have that fresh in their mind and are going to be pretty cautious about jumping back into the market right now. I’m hoping it’s just right now, it’s more of a crisis of confidence than it is a crisis of substance. I’m hoping that, after a few months, the dust finally settles and people realize they haven’t lost their job, that a lot of the people that they know haven’t lost their job, that they still would like to buy a new home or they would still like to move up and they’ll decide to make that decision.

Andrew la Fleur: Are we overbuilding in Canada? Do you think we have too much supply?

Ben Myers: I don’t. I don’t. We’ve consistently been in that range of in and around 185,000 to 290,000 new housing starts. We had a stretch in the … About 10 years ago, we were up in the range of 205,000 housing starts, but that was kind of in response to a long period of underbuilding in the market, where we were in and around 160,000 housing starts. I don’t think we’re overbuilding. I think we’re building exactly where we need to be, in and around that 180 to 190 housing starts range. That seems to be the number that several of the analysts are saying is a sustainable level of housing starts.

I was asked on my BNN interview, what do you think about these low housing starts, seasonally adjusted housing starts for February? I think I surprised her with my answer saying we’re good with it. We’re happy with the low housing starts as a development company. We don’t want to see the talk about overbuilding in the market. Low supply leads to higher prices. Less developers out there trying to get construction financing, more potential dollars for us. Less developers grabbing pieces of land, more opportunity for us to grab those pieces of land.

Housing starts is not directly a reflection of a current level of demand. It’s lagging demand. It typically reflects sales that happened in the year prior. If you look at certainly the Toronto market, if you look at the correlation between sales in the previous year and starts the next year, it’s very, very close to being an even relationship. I’m not concerned about housing starts this year. I think we’ll probably end up fairly close to where we were last year.

In my, I guess, my average of all the forecasts in the market, it only looks like it’s going to be a 3% drop. Condo sales in Calgary were up 4%, condo sales in Edmonton were up 32% last year, condo sales in Toronto were up 51% last year, so once a lot of those projects get under construction, you’ll see starts back up, and in a few months from now, you’ll see people talking about oversupply again.

Andrew la Fleur: Yeah. Yeah. When people jump to conclusions about housing starts, I always just shake my head, because like you said, it’s a lagging indicator. There’s so many other factors that go into it, in terms of high rise versus low rise starts. They’re very different. The headlines, they just get 1 stat, it’s housing starts this month or this year or this quarter, and they make all sorts of conclusions on it without knowing any of the things that went into it.

Ben Myers: Yeah. It’s a reflection of available supply. It’s a function of available approvals. It’s a function of available building permits. It’s the availability of construction financing. Yeah, there’s part of that that has to do with developers want to go ahead with building spec homes. Some developers when they feel the market is down will build spec homes, but I think that’s a very small part of the market, in terms of the overall housing starts that happen in a year, right?

Andrew la Fleur: Mm-hmm (affirmative). Let’s zoom in on Toronto itself and the condo market here. Forecasting for this year, you said last year’s sales were very strong, up about 50% from 2013. What are you predicting or what’s the consensus amongst the housing analysts that you polled for how many condos we’ll see sold in Toronto this year, and how would you describe the temperature of the Toronto condo market in 2015?

Ben Myers: Yeah. Sure. I think it’s positive. I think my forecast is, I think it was, 17,700 or 17,750, something like that. I believe Urbanation was somewhere around 18,000 or 18,500. Actually, Will Dunning, who is typically underestimates sales, is predicting over 22,000. I was pretty shocked to see that forecast. I think there’ll be less projects come to market this year, and typically there’s a pretty even relationship between number of units that are launched in a year and the number of sales in that year.

We’re not going to see as many projects this year. We’re not likely to see as many sales this year. Obviously the market is very much driven by the large scale downtown condo projects and there’s only a few of those that I see on the horizon for launching in 2015, so we’re not likely to see the same level of sales. I think 2014 was a really good test case for the condo market. We had record levels of completions, a lot of units were being put on to the rental market, but you’re still seeing high lease-to-listings ratio, you’re still seeing rent increase, you’re still seeing low days on market for these rental listings. I think there’s still a very strong appetite for rental product in this market.

I think investors are being a little more cautious in terms of the locations and where they buy investment units. It looks like the 905 has certainly slowed down in terms of investor activity. I still think there’s end user demand in those markets but the investor is sticking to areas where there’s transit. That’s why we’re seeing the strongest sales that are projects that are right on the subway or close to a streetcar or a GO train station. I think that will continue to drive investor demand, but lenders are interested in getting into more condos.

Obviously you see these rental projects popping up. They require a lot of equity. They require a lot of confidence on construction lenders to lend on a project without sales in there. We don’t know that pro forma number, that rental number that’s projected, if it’s tested, when they know in a condo apartment, with 60 or 70% sold, that number’s been tested so they know that there’s demand for that product at that price. They don’t know how long it’s going to take to absorb all those rental units.

Who’s confident in the rental market? If there’s confidence in the rental market, there’s confidence of investors. If there’s confidence of investors, it means they’ll buy condo units. Running it through that kind of gauntlet, it makes me feel good about the condo market in Toronto and certainly in the 416.

Andrew la Fleur: Yeah, I think that’s a key point for everybody to remember, and something I’m seeing on the ground, so to speak, selling condos with my clients and working with them, is like you said, there’s going to be much fewer new condos launched this year. It stands to reason that the number of sales will probably go down this year. As usual, the headlines at the end of the year will probably read something to the effect of the condo market is down, sales are down, times are bad for some reason, but really it’s probably actually a very good thing for the market overall if sales are actually less this year than they were coming off of last year.

Ben Myers: I really don’t think that 23,000 or 24,000 is where we want to be on an annual basis. I’d be much more comfortable if that number was 15 or 16,000 condo units, keep it under supply, keep the demand there, keep the pricing increasing. I’m happy at a lower number, right?

Andrew la Fleur: Absolutely. As for the individual condo investor, that’s exactly my point. You should be happy as well. If you hear that sales are down at the end of this year, and if you’re in the market, you should say, “Good.” That means supply is down. Demand will remain the same and that means your prices are going to continue to go up.

Ben Myers: It’s really about the residual sales and the projects. You want to see the projects that did launch. How well did they do? That’s what it’s more about for me than the total number in the market.

Andrew la Fleur: Great point. Another thing you talked about in your report, foreign investors. Did you conclude that foreign investors are a good thing or a bad thing?

Ben Myers: Interesting question. It seems like everyone that ever talks about foreign investors in the Toronto condo market is really just trying to tell you that there’s not a lot of them. There’s not. No, there’s not. There’s not, there’s not, because everyone thinks it’s bad and I don’t necessarily think it’s bad. I think it shows that, if people from other countries are looking to Canada as the place they want to invest their money, I think that’s a positive.

We’re building 500 and 600 unit condo projects, so it requires 300, 400, 450 pre-sales before these buildings can get built. Now with the affordability issue for young buyers, the fact that these large towers can take 3, 3 and 1/2 years to build, plus a period between launch and construction, you’re looking at potentially 4 and 1/2, 5 years to get occupancy. They’re just not making that commitment. When you have these investors and you have foreign buyers coming in, they help these projects get built and provide rental supplies going forward. I don’t think people would be too concerned if a Chinese developer came in or a Chinese landowner came in and bought 1,500 rental units and kept them over 10 buildings. People wouldn’t have an issue with that, but for some reason, the individual ownership really scares people.

I asked the analysts. I said, “What do you think? Do you think foreign ownership is good or bad?” I believe about 40% said it was good and actually the 60% said that you couldn’t characterize it as good or bad. It’s always interesting. Some people thought, “Yes, it’s fine.” They’re coming in, they’re holding the units long term and renting them out. Eventually a lot of them want to come here and live in those units themselves. They have some type of connection here with a relative or a family member or something like that, so I don’t know why we make such a big deal about it.

I think it’s just fear. It’s fear of the unknown. We don’t know what they’re going to do. I would be worried if they were coming in and buying a whole bunch of single detached houses and letting them sit vacant. I think that would be bad for our housing market, but I don’t think that’s … Certainly that’s not the case and that’s not what’s happening in the Toronto market.

Andrew la Fleur: Last question from your report. You said the top metropolitan housing market in North America is actually in Canada. It was a bit of surprise which one that was. Can you tell us?

Ben Myers: That was probably one of the only reports that I sourced that was a non-Canadian report. That was by a rating agency called DBRS. They looked at 4 different countries and ranked what the best housing markets were over the last … metropolitan area housing markets were over the last decade. Out of the North American markets, what they looked at was Canada and the United States. Surprisingly, Winnipeg was voted the top housing market of the last decade in North America. [crosstalk 00:27:51]

Andrew la Fleur: Winnipeg. Yeah.

Ben Myers: It was interesting. I was trying to get a sense of how they ranked them. It had to do with pricing, and it had to do with absorption, and it had to do with other factors, quality of life and things like that. Yeah, voted Winnipeg, so we’ve seen some slowdown in Winnipeg, obviously, over the last year. It was in a market that was in a big housing boom for, we’re talking the 5 years before 2013, so it’s slowed down a bit, but I still think there’s demand for condominiums there.

They’ve built a lot of them. A lot of them have been suburban, but they have 2 large scale downtown projects under construction right now in Winnipeg. We’re going to be launching our project there at the end of this year hopefully. We’re working on the sales office now. We just think it’s an interesting opportunity for investors that are looking to put their money in a different market.

Andrew la Fleur: That’s great. Now one sort of bonus question. If you had a magic wand and you could change one thing about the condo industry or the condo market in Canada, what would it be and why?

Ben Myers: I wish everything could close on time. That would be quite interesting. I think people, I wish they could just understand supply versus demand. I wish they could see that some of these projected closing dates that you see put out there are just projected and that they’re not what actually gets completed. Then you’d understand context. Context is the hardest thing for people to understand and I’ll just give you 1 example before I get off on another tangent, like I have earlier in this call.

The number of completed and unabsorbed supply went up significantly in January, according to numbers by CMHC. People said that’s the highest in 25 years. For one, they didn’t mention the fact that CMHC has changed the definition of what is completed and unabsorbed condominiums. It changed in 2013, so it doesn’t include units that are rented out. Developers, a lot of developers, once you’re 80% or 85% sold, you’re in a profit situation. You’re making money. You’ve paid off your construction loan. You have enough money to pay your employees and stuff like that and all that fun stuff. You’re making money. [crosstalk 00:30:34]

I don’t need to sell these while I’m under construction. I’m going to hold these until the building is complete and I might use one as a model. I might mock some up. I will get a higher price when people are able to walk through them. Some developers take that strategy. Other developers say, you know what, I want to defer the profit on these units until another year, so I’m going to rent them out. They put them on MLS and they rent them out themselves. There could be someone living in those units but CMHC doesn’t include that as a sold unit, a developer sold unit. You can’t compare it to previous years.

The last point is the fact that we had 23,000 units register or occupy over the last year. If you look at the number that are completed and unabsorbed over that total number, it still only ends up in the 5 to 8% range, almost exactly where it’s been historically. Yeah, the absolute number is high and we’re going to monitor that and we’re going to look not only at the absolute number, but where are the units? 100 of the units are in a suburban Oakville project. 250 units are 1 developer and this developer is one of the richest developers in Canada. He’s not lowering his prices. He’s not going to influence the market by what he does with those remaining 250 units.

It’s not only knowing how the numbers come together, but why they come together and who they are. I think it’s really important to understand the context of some of these numbers. That’s why I try to put out to our people that invest in Fortress projects and to the general public, just to keep them aware of what’s actually happening in some of these projects and give them better context, which I think is lacking, especially when a newspaper story, you’ve got 500, 700 words. You can’t get the full spiel of what’s going on.

Andrew la Fleur: Absolutely. It’s all about context. That’s a great point. I think we can probably leave it there. Thank you very much again for your time, Ben. Appreciate it. If people want to get a hold of you or learn more about Fortress Real Developments, what’s the best way to do that?

Ben Myers: Yeah, is a great place to start. If they’re interested in investing and passively in real estate, I’d suggest FMP Mortgages, FDS Broker Services, or [FFN 00:33:09] Capital. Check any of those 3 out. You can find me on Twitter at @benmyers29. I post lots of articles on there, my opinion on things, so follow me up but don’t troll me.

Andrew la Fleur: No trolls allowed. Okay.

Ben Myers: Exactly.

Andrew la Fleur: Great. Thanks a lot, Ben, and again, we’ll include a link to The Market Manuscript as well in the show notes for this episode so anyone listening can go and check that out and download the document that we’ve been talking about this whole podcast. What is it, about 50 pages long, right?

Ben Myers: 50 pages. Yeah.

Andrew la Fleur: Yeah, lots of great meat in there to digest for anybody who’s interested in taking a deeper look at the Canadian housing market.

Ben Myers: Keep it on your bedside and it’ll help you go to sleep at night.

Andrew la Fleur: There you go. Okay, thanks a lot, Ben.

Ben Myers: Yeah. Okay. Take care.

Andrew la Fleur: Thanks. Bye. Okay, there you have it. That was my interview with Ben Myers of Fortress Real Developments. Once again, for all the show notes on this episode and to get your copy of The Market Manuscript, just head on over to, all one word, B-E-N-M-Y-E-R-S. You can download the free copy there.

Thanks again for listening. Thanks for supporting the show. We appreciate all the listeners out there. If you want to get a hold of me anytime, of course, you can send me an email,, or you can call me, text me, 416-371-2333. Thanks for listening. Thanks for your support. If you have any ideas or comments on the show, I’m always willing to hear from you, and I wish you happy investing in all your endeavors. Have a great week. We’ll talk to you next time.

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