Benjamin Tal: Don't bet on price appreciation

Investors crossing their fingers and hoping for price appreciation may increasingly strike out, according to CIBC’s leading economist, suggesting the housing market no longer supports flipping.

“We are in the ninth inning of this boom," Benjamin Tal told Canadian Press Monday. "If I was a speculator, I would not be buying. The days of flipping houses and speculating on increasing prices are clearly coming to a close.

The assessment comes on the heels of CMHC’s move to slow real estate sales by limiting lender access to government backing for mortgage securities. That step will encourage banks to up their interest rates, making it harder for borrowers to qualify, argue economists.

Still, Tal’s comments come just ahead of this week’s release of home sales data in July, with almost all analysts expecting near double-digit growth compared to the same month last year.

Price appreciation is expected to come hand-in-hand with the sales spike.

That snapshot of the market – along with an 8 per cent climb in Toronto prices – means many investors will continue to place their bets on price appreciation.

That strategy can continue to make sense even if the property doesn’t immediately cash flow, argues investment specialist Adam Brind, with Core Assets Real Estate Brokerage in Toronto.

It really depends on the details of the purchase and property, he told CREW, but in some cases diminishing mortgage payments and reasonable expectations of appreciation recommend buy-and-hold purchases.

Not all agree. One investor is reminding newbies that cash flow is king, and buying on the promise of appreciation is challenging.

“It’s tempting because prices are still rising across much of Canada and there is a sort of scarcity of good investment properties to buy even at a price where you cannot cash flow,” Shanna McFarlane, author of Top 5 Secrets to Maximum Profits in Minimum Time, told CREW. 

“But you have to be able to cash flow the property immediately otherwise you may struggle to keep the property and price appreciation isn't guaranteed.”