The doom and gloom stores have started again about the Canadian Real Estate Market.
Here are some signs:
- Canadian debt to income ratio is 160 per cent, which means we have $1.60 of debt for every $1.00 of income.
- Canadian real estate is 20 per cent overvalued.
- In Toronto, too many condominium units are coming onto the market. If there are no buyers or renters, prices will fall.
- If interest rates rise 1 percentage point, many of those with a mortgage will be in trouble.
- Canada is not creating jobs as quickly as the United States.
I see it another way. If you look at the market fundamentals, you can conclude the real estate market is extremely health.
I spoke to Brad Lamb, one of Canada’s leading real estate brokerages, who has developed projects in Toronto, Ottawa, Calgary and Edmonton. You would expect him to put a positive face on things, but here are some of his arguments.
Few places to build new homes
In 2001, 30,000 new homes were built in the GTA, of which 22,000 were low rise and the rest were condos. Buyers were able to find new detached homes in the GTA in areas such as Mississauga, Oakville, Oshawa and Milton.
However as land became more expensive and more greenbelts established across Ontario, the result is not enough land available to build that many low rise homes. As such, for the last few years, we have seen the opposite; 22,000 new condo units every year and 8,000 detached homes being built. But we still have the same number of buyers coming into the GTA who need to find a home for work or to raise a family.
Who’s building apartments?
Rent controls have persuaded developers to build condos instead of apartments. Yet young people entering the work-force still need a place to live. That is why the vacancy rate for new condos in Toronto is close to 1 per cent. If the units are filled with tenants or owners, prices cannot crash.
Will interest rates go up at all?
For the past four years, bank have been saying that rates should begin rising in 18 months. Same story today.
Rising rates go along with an over-heated economy. Canada is very far from being over-heated, with growth averaging about 2 per cent annually in the last few years.
Debt to income ratios are misleading
Lamb says you have to distinguish between credit card and mortgage interest debt, which is the interest you pay on your home or an investment property to help build an asset.
Most Canadians are able to carry the cost of their own mortgage debt and the rental income from their investment properties in most cases pays for all of the property expenses. Separating good debt from bad debt would show a different picture.
Canadian real estate remains one of the best investments out there.
By: M. Wieslander