Real estate investors are confused; here’s my take…
Lately, the question I get asked more often than any other, by both investors and first-time homebuyers, is “what do you think is going to happen with Toronto real estate prices?” Unfortunately, since I can’t look into the proverbial crystal ball, I don’t have a definitive, “one-size-fits-all” answer. It’s not surprising that we’re all confused. No sooner does a news headline scream “Canada’s Housing Crash Begins” (thank you for the heart attack, Canadian Business), then another suggests the market is hotter than ever. Is there a housing bubble, or not?
You’re not crazy – there really is no consensus
The Financial Post ran an article recently entitled “Clearing the Fog on Housing“, and although it really did anything but, it at least validated the conflicting data we’re getting and confirmed that it’s not us who are crazy. While most writers seem to be arguing for either a dramatic bust or a continued boom, a more measured view is expressed in Canadian Business’ rebuttal article by Larry McDonald – “Why a Housing Crash is Not Imminent“. Basically, he refutes the idea that “recent softness in the Canadian housing market [is] the beginning of a U.S.-style meltdown.” His position is that while there may indeed be overvaluations in Canadian real estate, the other factors that might tip our system into a crash are not present at this time. We do not suffer from weakness and excessive risk-taking in the banking system, nor can we expect a tightening of monetary policy, that is, strong intent by central bankers to raise interest rates to slow down the economy. In fact, due to issues like the financial troubles in Europe, there is pressure on Canada to keep rates low – and this continues to create a favourable environment for Canadian housing. It is important to note that the U.S. is finally seeing signs of a housing recovery. This is expected to spur improved economic conditions in the U.S., which typically has a spillover effect in improving national income and job growth in Canada. As such, McDonald suggests we can expect the property prices, except for “over-heated pockets” like Vancouver, to fluctuate, but to stay steady overall.
So, should you be worrying about a real estate crash, Toronto?
The bottom line is this: as with the stock market, it is extremely difficult if not impossible to time your property purchase perfectly. You need to ask yourself these questions: Have you done your homework? If you’re purchasing your first home, are you financially and psychologically ready to buy? If you’re a property investor, have you defined your investment objectives, crunched the numbers, and figured out the criteria that an investment property will need to fulfill? And are you comfortable holding onto the property for the long term? If you’ve answered “yes” to these questions, you have found a property that fits the criteria you’ve defined for your home or your next investment property, then it IS the right time, for you, to buy. And the “experts” can fight it out in the media as long as they like.
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Photo credit: [c] Robert Davey for stock.xchg
This article is just as confusing as everything else that is written on the subject. There are main camps on RE, bulls and bears. The bulls probably own a home, or sell homes, or are making some kind of financial gain from RE. The bears are people waiting to buy or financial advisor telling clients to move their cash to equities instead of RE. Not many people are willing to go against the grain and make a bold prediction on a housing crash and put a percent value on it. One thing I’ve noticed is that mainstream media and even some realtors are no longer blindly saying that real estate will never decline, this is a sign of things go come. People like Larry MacDonal make vague statements that IMO are over optimistic and self serving. To say that “other factors that might tip our system into a crash are not present at this time” means that prices aren’t falling yet so everything’s peachy. What other factors is Larry talking about? If he’s referring to interest rates, although they are a factor, they will not be the cause of this crash. If interest rates do go up in the near future, it will definitely be an American size crash. I could go on for days, just read information from both sides of the fence, look for data from sources that aren’t selling you the property or the mortgage and think for yourself.
You’re absolutely right Frankie… So much conflicting opinion out there. Basically, as I commented in the conclusion, you need to look at your own “readiness” for buying, and use that to inform your decision. Trying to find some consensus at this point in time is going to be a stressful exercise!