YOU’RE ABOUT TO GET BURNED.
This is what the cover of last week’s Macleans magazine boldly states. There have been some very strong arguments lately that the Canadian real estate market is headed for a big crash, just like in the U.S. three years ago. They point out how much of Canada’s economy has come to rely on the country’s housing boom – and how much consumers have been digging themselves into debt just to keep it going. The average Canadian home now costs five times the average income, well above what many economists consider affordable and sustainable. There has also been a lot of cheap credit available out there for homebuyers. In Toronto, there is no question that there have been some very sharp increases in prices over the past couple of years.I have been saying up until now that investment properties are likely to hold their value despite the strong sellers’ market of late.
However, I must admit that I have seen a few really crazy sales over the past few weeks. There was a house at Pape & Danforth that traded for 1.3M. I have seen some places going for upwards of $250K more than the asking price. In many cases, the investment value has all but been thrown out the window. Have a look at some of the recent income property sales for February on the Plex website. Some just seem downright scary.I don’t know folks. Does anybody really? I just can’t see this current vociferous demand lasting forever. It doesn’t make sense to me that 3 out of 4 houses will automatically trade for $50K to $100K over asking, no matter what the list price may be. I don’t like to use words “bubble” or “correction” (I’ve only known price increases in the past 12 years as an agent), but it seems like prices are getting a little bit out of control. There will be more inventory in the next few months as there always is each Spring so presumably that will feed a good portion of the current high demand. If it doesn’t stop and the prices continue to go on like this, does this mean that income property buyers need to stay out of the market?
Any of my clients that have bought in the past couple of years have likely seen their properties increase in value, even though at the time we thought that we were likely buying at the top of the market. Secondly, if you are in for the long term, then I really don’t have a great concern for what might seem like an overpayment today. Just don’t disregard your spreadsheets. The numbers never lie. If your property breaks even (or better) and achieves a decent cap rate, then as I have said before it is always a good time to buy an income property. This is even more so the case for owner occupiers. I have never found it easy to time the market, but I do know that if you stick to the fundamentals, you will be fine regardless of external market conditions.