Interest rate cuts: This was perhaps an easy one as there was already a market consensus that rates would start to come down in 2024. The Bank of Canada cut its policy interest rate by 175 bps (target of 3.25%), and the US cut its federal funds rate by 100 bps (target of 4.5%). [1 point]
Impact of higher rates: I predicted that things would get worse in 2024 before they started to get better (maybe toward the end of 2024 or perhaps in 2025). In some ways, I think I was right. But I'm not sure we've returned to a "risk-on" approach in commercial real estate, like I suggested. Toward the end of the year, my American friends were telling me that things were suddenly feeling a lot more optimistic and that more deals were being done. But I still feel like we've been kicking the can down the road here in Canada. The public markets certainly did very well, but I think the private markets are still hiding some underwater real estate investments. [0.5 point]
Balanced residential resale market: I thought that we would return to a more balanced resale market in 2024, certainly for the most-in demand cities and submarkets. Here in Toronto, it remains a buyer's market on the condominium side, but the freehold market in Central Toronto has shown signs of improvement over the last few months. Detached house values are up 4.6% year-over-year, despite listing supply also being up 29%. The resilience of core submarkets is what you would expect to see right now during this part of the cycle. (If you're interested in Toronto real estate, my friend Christopher Bibby has a great newsletter that he publishes periodically.) At the same time, I thought that the Bank of Canada would be more resistant to lowering rates compared to other central banks, and that this would be good for the Canadian dollar. I was wrong. [0 points]
Finding good real estate deals in 2024: I argued that this year would be a pivotal year for finding new opportunities. Maybe that was the case for some of you, but as I said above, I think that here in Canada we're still kicking the can down the road. So this one is hard to say. 2025 may end up being more pivotal for many real estate developers and investors. [0 points]
Declining hard costs: Like many of my other predictions, this is market specific. But this absolutely happened here in Toronto. For some trades and divisions, costs are down in the range of 25-30%. And I can tell you that over this past year I received many phone calls from construction executives that sounded something like this, "Hey, I'm about to lay off a bunch of people, so I just wanted to call and see if you might have any new projects starting up in the near future." [1 point]
Return to office: A year ago, I wrote that return to office seemed to have stalled out at around 50% utilization. But I argued that this wouldn't hold and that, of the people who work in offices, most would go back to spending > 50% of their week in it. Looking at the latest data for Toronto's CBD (from November 15, 2024), the average weekly utilization figure is now up to 73%. And the peak day figure (Wednesday) is now 84%. (Both of these are relative to pre-COVID.) This is up meaningfully compared to last year. I don't know at what point we reach an equilibrium, but for now, we seem to be still heading up and to the right. [1 point]
Augmented reality: 2023 was the year of AI. I argued that this year would be the year of augmented reality and that this would represent a further blurring of our offline and online worlds. This was, I think, coming from the fact that Apple Vision Pro was set to be released. But if this happened at all, it happened only incrementally and it certainly wasn't a mainstream phenomenon. Most people I talk to haven't even tried Apple Vision Pro, though I remain blown away by the technology. If you haven't yet tried it, do yourself a favor and book a demo at your local Apple Store. That said, I'm not going to give myself any points for this one. [0 points]
Autonomous vehicles: I was somewhat bearish on this a year ago. I said that it feels as if we're in the trough of disillusionment (within the hype cycle), even if I was optimistic long term. So this year was a pleasant surprise and I was thoroughly impressed by the progress that Waymo, in particular, made. As of June of this year, they had already logged over 22 million rider-only miles. They are the company to beat right now. [0 points]
Impact of automation: This was a weak prediction because it wasn't particularly precise. I said that our shift toward greater automation would feel more insidious than immediate (certainly in 2024). I guess this is true. Elon Musk unveiled dancing bartender robots this year, but they weren't exactly ready to take all of our jobs. Reluctantly, I'll give myself a half point. [0.5 point]
Growth of TikTok Shop: This is where I argued that we should be looking for the future of shopping. And the data certainly supports this. According to recent research from The New Consumer, over 60% of Gen Z's report using TikTok every day. And half of all monthly active users report having already made a purchase through the platform. For those that use it every day, this figure increases to 57%. I don't use TikTok very often -- if at all -- but I know it's extremely popular. I'm also not an expert on e-commerce, but I have a belief that TikTok (and the likes), augmented reality, and crypto are going to give birth to some interesting new ways of buying things. [1 point]
Return of crypto: When I wrote last year's post, the total crypto market capitalization was approximately $1.74 trillion. This was down from almost $3 trillion at the peak of the market in 2021. I argued that the "crypto winter" would end this year and that its total market cap would exceed its previous peak by the end of this year. Today, it's about $3.45 trillion. If only I bought more. But to be honest, this was a total guess. [1 point]
Total score: 6/11 (~55%). Not bad.
I like this score because it means I'm not being too consensus. What fun would that be? That said, I do think some of my predictions were a little obvious. I don't want to be just extrapolating existing data forward; I want to be thinking critically. I also try not to stray too far into topics that I'm not well versed on, like shopping on TikTok. But it's a fine line given my strong interest in tech and crypto. I'll see what I can do to tighten things up and be a little more non-consensus with my predictions this year.
Stay tuned.
Reading Howard Marks' investment memos is up there with reading Paul Graham's essays. You just need to do it. Howard's latest is about "taking the temperature" of the market and I think you'll find the lessons invaluable for everything from equities to residential real estate.
Here's an excerpt that I liked:
We don’t say, “It’s cheap today, but it’ll be cheaper in six months, so we’ll wait.” If it’s cheap, we buy. If it gets cheaper and we conclude the thesis is still intact, we buy more. We’re much more afraid of missing a bargain-priced opportunity than we are of starting to buy a good thing too early. No one really knows whether something will get cheaper in the days and weeks ahead – that’s a matter of predicting investor psychology, which is somewhere between challenging and impossible. We feel we’re much more likely to correctly gauge the value of individual assets.
These are investing words to live by. Avoid your own emotionality and value the asset. If it's not cheap, don't buy it. If it's cheap, buy it. Then take a long-term view. It all sounds simple enough, but it's clearly not so easy. And that's why we have extreme highs and extreme lows in the market.
Eighteen months ago, everyone wanted to buy residential real estate. Today, prices are lower, but fewer people want to buy residential real estate. Part of this is obviously because of interest rates. But part of it is also just because of emotion.
Interest rate cuts: This was perhaps an easy one as there was already a market consensus that rates would start to come down in 2024. The Bank of Canada cut its policy interest rate by 175 bps (target of 3.25%), and the US cut its federal funds rate by 100 bps (target of 4.5%). [1 point]
Impact of higher rates: I predicted that things would get worse in 2024 before they started to get better (maybe toward the end of 2024 or perhaps in 2025). In some ways, I think I was right. But I'm not sure we've returned to a "risk-on" approach in commercial real estate, like I suggested. Toward the end of the year, my American friends were telling me that things were suddenly feeling a lot more optimistic and that more deals were being done. But I still feel like we've been kicking the can down the road here in Canada. The public markets certainly did very well, but I think the private markets are still hiding some underwater real estate investments. [0.5 point]
Balanced residential resale market: I thought that we would return to a more balanced resale market in 2024, certainly for the most-in demand cities and submarkets. Here in Toronto, it remains a buyer's market on the condominium side, but the freehold market in Central Toronto has shown signs of improvement over the last few months. Detached house values are up 4.6% year-over-year, despite listing supply also being up 29%. The resilience of core submarkets is what you would expect to see right now during this part of the cycle. (If you're interested in Toronto real estate, my friend Christopher Bibby has a great newsletter that he publishes periodically.) At the same time, I thought that the Bank of Canada would be more resistant to lowering rates compared to other central banks, and that this would be good for the Canadian dollar. I was wrong. [0 points]
Finding good real estate deals in 2024: I argued that this year would be a pivotal year for finding new opportunities. Maybe that was the case for some of you, but as I said above, I think that here in Canada we're still kicking the can down the road. So this one is hard to say. 2025 may end up being more pivotal for many real estate developers and investors. [0 points]
Declining hard costs: Like many of my other predictions, this is market specific. But this absolutely happened here in Toronto. For some trades and divisions, costs are down in the range of 25-30%. And I can tell you that over this past year I received many phone calls from construction executives that sounded something like this, "Hey, I'm about to lay off a bunch of people, so I just wanted to call and see if you might have any new projects starting up in the near future." [1 point]
Return to office: A year ago, I wrote that return to office seemed to have stalled out at around 50% utilization. But I argued that this wouldn't hold and that, of the people who work in offices, most would go back to spending > 50% of their week in it. Looking at the latest data for Toronto's CBD (from November 15, 2024), the average weekly utilization figure is now up to 73%. And the peak day figure (Wednesday) is now 84%. (Both of these are relative to pre-COVID.) This is up meaningfully compared to last year. I don't know at what point we reach an equilibrium, but for now, we seem to be still heading up and to the right. [1 point]
Augmented reality: 2023 was the year of AI. I argued that this year would be the year of augmented reality and that this would represent a further blurring of our offline and online worlds. This was, I think, coming from the fact that Apple Vision Pro was set to be released. But if this happened at all, it happened only incrementally and it certainly wasn't a mainstream phenomenon. Most people I talk to haven't even tried Apple Vision Pro, though I remain blown away by the technology. If you haven't yet tried it, do yourself a favor and book a demo at your local Apple Store. That said, I'm not going to give myself any points for this one. [0 points]
Autonomous vehicles: I was somewhat bearish on this a year ago. I said that it feels as if we're in the trough of disillusionment (within the hype cycle), even if I was optimistic long term. So this year was a pleasant surprise and I was thoroughly impressed by the progress that Waymo, in particular, made. As of June of this year, they had already logged over 22 million rider-only miles. They are the company to beat right now. [0 points]
Impact of automation: This was a weak prediction because it wasn't particularly precise. I said that our shift toward greater automation would feel more insidious than immediate (certainly in 2024). I guess this is true. Elon Musk unveiled dancing bartender robots this year, but they weren't exactly ready to take all of our jobs. Reluctantly, I'll give myself a half point. [0.5 point]
Growth of TikTok Shop: This is where I argued that we should be looking for the future of shopping. And the data certainly supports this. According to recent research from The New Consumer, over 60% of Gen Z's report using TikTok every day. And half of all monthly active users report having already made a purchase through the platform. For those that use it every day, this figure increases to 57%. I don't use TikTok very often -- if at all -- but I know it's extremely popular. I'm also not an expert on e-commerce, but I have a belief that TikTok (and the likes), augmented reality, and crypto are going to give birth to some interesting new ways of buying things. [1 point]
Return of crypto: When I wrote last year's post, the total crypto market capitalization was approximately $1.74 trillion. This was down from almost $3 trillion at the peak of the market in 2021. I argued that the "crypto winter" would end this year and that its total market cap would exceed its previous peak by the end of this year. Today, it's about $3.45 trillion. If only I bought more. But to be honest, this was a total guess. [1 point]
Total score: 6/11 (~55%). Not bad.
I like this score because it means I'm not being too consensus. What fun would that be? That said, I do think some of my predictions were a little obvious. I don't want to be just extrapolating existing data forward; I want to be thinking critically. I also try not to stray too far into topics that I'm not well versed on, like shopping on TikTok. But it's a fine line given my strong interest in tech and crypto. I'll see what I can do to tighten things up and be a little more non-consensus with my predictions this year.
Stay tuned.
Reading Howard Marks' investment memos is up there with reading Paul Graham's essays. You just need to do it. Howard's latest is about "taking the temperature" of the market and I think you'll find the lessons invaluable for everything from equities to residential real estate.
Here's an excerpt that I liked:
We don’t say, “It’s cheap today, but it’ll be cheaper in six months, so we’ll wait.” If it’s cheap, we buy. If it gets cheaper and we conclude the thesis is still intact, we buy more. We’re much more afraid of missing a bargain-priced opportunity than we are of starting to buy a good thing too early. No one really knows whether something will get cheaper in the days and weeks ahead – that’s a matter of predicting investor psychology, which is somewhere between challenging and impossible. We feel we’re much more likely to correctly gauge the value of individual assets.
These are investing words to live by. Avoid your own emotionality and value the asset. If it's not cheap, don't buy it. If it's cheap, buy it. Then take a long-term view. It all sounds simple enough, but it's clearly not so easy. And that's why we have extreme highs and extreme lows in the market.
Eighteen months ago, everyone wanted to buy residential real estate. Today, prices are lower, but fewer people want to buy residential real estate. Part of this is obviously because of interest rates. But part of it is also just because of emotion.
Last week was "forum week" in Toronto. (That is, it was the Toronto Real Estate Forum.) And as is the case every year, Benjamin Tal, deputy chief economist of CIBC, opened up the event with his usual macro view of the world. For those of you who missed it (as I did), here are some of his key points (via RENX):
The Bank of Canada's overnight rate will ultimately/likely settle into the 2.75-3% range (currently it sits at 5%). He expects rates to start coming down this summer.
Inflation is down, but we're not yet at the 2% target. The "last mile" is always the toughest.
But as we know, the BofC will take a recession over high inflation, any day.
The mortgage market has fallen faster than in the early 90s recession. Tal said that the residential real estate market in Canada is right now facing "the biggest test" since then.
Canada is in what he calls a "per capita recession". But for the million or so immigrants that the country accepted over the last year, we'd be in a full-blown official recession.
Finally, he called this correction in the housing market both "real" and "healthy"; he spoke about normalcy returning in 1-2 years; and he posited that the market will be "crazy" when it does return because of a supply deficit.
This last point is an important one. New housing supply is mostly shut off right now. I say mostly because there are obviously still projects under construction, and there have been and there will continue to be some successful launches. But by and large, most developers are waiting right now, principally because the absorption isn't there. They have no other choice.
But Canada continues to grow. People from around the world continue to want to move here. And there continues to be a need for a lot more new housing. So when the market does return -- and it, of course, will -- there is going to be a supply-demand imbalance. And as is always the case in real estate, there will be a lag in responding to this imbalance.
This is what Tal means by "crazy".
Photo by Wiktor Karkocha on Unsplash
Last week was "forum week" in Toronto. (That is, it was the Toronto Real Estate Forum.) And as is the case every year, Benjamin Tal, deputy chief economist of CIBC, opened up the event with his usual macro view of the world. For those of you who missed it (as I did), here are some of his key points (via RENX):
The Bank of Canada's overnight rate will ultimately/likely settle into the 2.75-3% range (currently it sits at 5%). He expects rates to start coming down this summer.
Inflation is down, but we're not yet at the 2% target. The "last mile" is always the toughest.
But as we know, the BofC will take a recession over high inflation, any day.
The mortgage market has fallen faster than in the early 90s recession. Tal said that the residential real estate market in Canada is right now facing "the biggest test" since then.
Canada is in what he calls a "per capita recession". But for the million or so immigrants that the country accepted over the last year, we'd be in a full-blown official recession.
Finally, he called this correction in the housing market both "real" and "healthy"; he spoke about normalcy returning in 1-2 years; and he posited that the market will be "crazy" when it does return because of a supply deficit.
This last point is an important one. New housing supply is mostly shut off right now. I say mostly because there are obviously still projects under construction, and there have been and there will continue to be some successful launches. But by and large, most developers are waiting right now, principally because the absorption isn't there. They have no other choice.
But Canada continues to grow. People from around the world continue to want to move here. And there continues to be a need for a lot more new housing. So when the market does return -- and it, of course, will -- there is going to be a supply-demand imbalance. And as is always the case in real estate, there will be a lag in responding to this imbalance.
This is what Tal means by "crazy".
Photo by Wiktor Karkocha on Unsplash
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