By Lachman Balani
TORONTO: There are many financial strategists who still claim that the Canadian housing market is on too much of a tear and that a crash is imminent. Ever since a spokesperson from Capital Economics came out strong in 2011 crying wolf saying the Canadian housing market is about to crash, the media has been blowing hot and cold about it. Even overseas experts claim that the Canadian housing market is too hot and will experience some kind of Ragnarok much like the Toronto housing market did from 1989-1996.
Well as the saying goes, if you cry wolf enough times, the wolf will finally appear, however it is my belief that it will not show up this coming year.
Following are the 5 top reasons:
1: Interest rates- Low interest rates will persist through next year because the Canadian economy is not solid enough. Even though this means certain areas notably in the oil and resource patches of the Canadian landscape may experience a downturn in their economies with accompanying job losses that could lead to a fall in house prices, it does not mean it will be widespread. From 1989-1996 there was a drop of about 26-27% in overall home prices in Toronto but in other parts of the country, prices actually rose.
2: Job creation-As mentioned, Canada is not on solid footing which will in all probability lead to further lowering of interest rates and as the Governor of the Bank of Canada, Stephen Poloz, noted earlier this month they are not adverse to entering negative interest territory if need be, which will spur property purchases in strong areas of the economy notably in Vancouver, Toronto and other parts of the country where there is strong job creation according to a recent Globe and Mail article.
3: Foreign direct investment- Foreigners with excess money are still expected to park their money in Canadian real estate, because of the safety of democratic values and rule of law of this land, much like they have done till date.
4: Refugee influx – Another important factor is the entry of refugees who are being approved as permanent residents upon arrival. Many of these refugees will find work and enter the market for real estate as many mortgage lenders are willing to lend to qualified newly landed immigrant5.
5: No exorbitant price rise – The last factor is the price factor. In the last 10 years the average price in Toronto has risen from $315K to $566K according to TREB (Toronto Real Estate Board) statistics or an average price rise of 6% and does even represent a rise of 100%. The laast time there was a ‘crash’ was from 1989-1996 and thatwas after a 150% rise if prices in 4 years from 1985- 1989. Even if you go back as far as 1996 when things started turning around upwards from the downturn in 1989, we still have a rise of 6% per annum. According to a recent Financial Post article the average home price Canada wide 10 years ago was $250K and now it is $442K or a 5.9% rise year over year. A 6% annual rise is definitely not a reason to forecast the coming of Armageddon for Canadian real estate.