By Mark Weisleder
The doom and gloom stories have started again about the Canadian real estate market. Here are some signs:
- Canadians debt to income ratio is at 160 per cent, which means we have $1.60 of debt for every $1 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 U.S..
I see it another way. If you look at the market fundamentals, you can conclude the real estate market is extremely healthy.
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.
Fewer 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 condominiums. 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 condominium 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 to work or raise a family.
Who’s building apartments? Rent controls have persuaded developers to build condominiums instead of apartments. Yet young people entering the workforce still need a place to live. That is why the vacancy rate for new condominiums 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, banks have been saying that rates should begin rising in 18 months. Same story today.
Rising rates go along with an overheated 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 distinguish between credit card debt 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.
Mark Weisleder is a Toronto real estate lawyer. Contact him at firstname.lastname@example.org