The Truth About Canada's Real Estate Market - Bursting The "Bubble Theories"

All this talk about housing bubbles and impending market crashes is getting a bit crazy. The leader of the pack, Macleans Magazine, is it again. In an article titled "You're About To Get Burned" Macleans' "Arm-Chair Real Estate Experts" are trying to instill a level of fear in homeowners' minds. The comparisons made to the crash of the American market ignore key contributing factors. Without addressing the key factors leading to the demise of the American market and key factors to the growth of the Canadian market, the report isn't worth the paper it was printed on.

Examples they've used include a couple looking to purchase a single family home in Markham on a shoe string budget of $400,000. There are many areas around the city to purchase a home for $400,000, however Markham is not one of them. It is like settling on owning a Cadillac SUV, yet wanting to pay the same price as a Toyota Prius.

The story goes on to state how low interest rates are setting the stage for a collapse. Nowhere does it state that banks qualify purchasers' on their posted 5 year rate, which is much higher than the low rates being advertised, therefore protecting the homeowner from any such rise in interest rates. Using low rates as a contributing factor in the US is not a fair comparison either, as their contributing factor was sub-prime mortgages which resulted in major financial institutions taking a fall, leave alone the homeowners. The argument of people having "only" 35% equity in their homes is comical. In the sub-prime US days, homeowners were being given 110% financing in some cases. The table was set for disaster. Even Home Equity Lines of Credit in Canada require you to have a minimum of 20% equity in your home.

Traditionally, house prices have been expected to climb year after year. Until the recent economic collapses in the USA and Europe, double digit declines were unheard of. It is important to note that these collapses were mainly due to financial instability created by inappropriate lending practices. They had very little to do with over-inflated pricing. The Canadian banking system is one of the most conservative and sound in the world. There is a reason why it is continually ranked within the top two banking systems world-wide and also a reason why we continue to lead the world out of one of the worst economic catastrophes of all time.

It is funny how the "experts" called in by Macleans are probably sitting in the home they own, writing articles that scare people into selling their homes and going into rental properties in anticipation of a housing market collapse. Even if rates climb, they will be going up .25% or .50%. Maybe they may go up 0.75% or 1% max? So how would selling your home, renting for a few years and throwing away $1500-$2000 per month offset any possible loss? Also, the home you're to be renting is owned by someone - and you're technically paying their mortgage and putting a huge smile on their face while doing so.

Another key contributing factor that isn't mentioned in the article is immigration. With 250,000 people coming into Canada, and with ALL of them needing a place to live, the housing market will remain strong for a while. Annual housing starts, albeit strong, still have not outnumbered the number of people looking for a home.

The reason we are seeing an increase in multiple offers and price appreciation is the lack of inventory. As I've stated before, it is a supply and demand issue. Once supply increases and demand subsides, pricing will return to its normal levels for growth and the hype surrounding multiple offers will die down. Emotion is playing a huge role in misleading articles such as the ones Macleans seems to put out year after year.

For those that have bought into the hype Macleans and their "experts" are trying to create, please let me know. My homeowner clients and I are looking to grow our Real Estate portfolios and are always looking for investment properties and long term tenants. ;)

For current market information and for the lowest interest rates, visit www.teamkhan.net. If you'd like to discuss the value of your home and build a plan for future growth, call me at 905-888-6222 ext 3.

Asif Khan, ABR
www.asifkhan.ca
Re/Max All-Stars Realty Inc.
Re/Max Hall of Fame

Posted via email from Markham Real Estate Today with Asif Khan