Economic Supercycles vs. Toronto Real Estate

A little background: A few notable economists, around the beginning of the 20^th century, have proposed the notion of 50-60 years supercycles. They suggested that these supercycles do not necessarily apply to each individual country but are present and influence the global economy. While the precise start and end of the supercycles as well as their duration has been open for debate, a number of economists identify 5 cycles since the Industrial Revolution.

 Modern macroeconomics rejects the idea of supercycles, but it is interesting to note that the theory is the centre of the largest dissident group within economics, groups that includes prominent economists, and which is respected by respected business people.

 Each cycle has four seasons: winter (depression), spring (growth), summer (acceleration) and fall (plateau).

Supporters of the theory indicate that the last cycle extended more than usual to 80 years and the fall phase occurred in the nineties and the start of the first decade of the new millennium. Consequently, what we experience now is the winter phase.

 Regardless of other drops in real estate prices that occurred within the supercycle (e.g. early ‘80s), a winter phase always affects the value of the real estate.

 How much longer will this winter last? According to the insiders, until 2016 – 2020.

Which begs the question: if the theory is correct, is it a bit early to see a sustainable growth in real estate prices?

 CIBC has recently predicted a coming second dip in real estate prices in the United States of 5 – 10%. Almost 2 million mortgages are more than 90 days delinquent and according to history, most will end up foreclosing.

 If that happens, it will validate the hypothesis that the winter of the supercycle will last a few more years.

 Next post: Is the growth we see in the economy and real estate prices in the past months sustainable?