To ask whether residential real estate is a
good investment to the first degree of complexity is the same as asking whether
real estate prices are expected to go up or down. No one wants devaluating
investments, naturally. However, the first thing to understand about real
estate prices is that they’re sticky, which is why there are housing bubbles in
the first place. For example, residential property sales are up again in
Toronto this year, and until recently they were up in Vancouver. Ask the
question of whether properties (at least in the short run) in these cities were
set to go up in coming years, and you’d come up with pretty solid affirmative;
but does it make a good investment? Maybe yes, maybe no, but you’d have to
consider some other things.
That is, when you hear the token economist in
the media referring to the housing markets as “red hot” you’d rightly say he
was speaking pejoratively, that the properties are likely overvalued and that
housing affordability in Canada has been fueled at least in part by record low
interest rates, among other things. Vancouver, it turns out, is the most
expensive city in Canada to own a house in, with shocking carrying costs.
Eventually, it will cease to be the most profitable city to sell a house in. In
fact, home prices have already dipped sharply (figured range from 10-15%) in
the past year as residential property sales slowed to a crawl. This sort of
thing on its own is a good thing in the long run; cooling markets are better
than a nuclear winter, slowing sales are better than foreclosures. And the CMHC
tightening its lending policies is a good sign too.
Ah, but nothing is certain in life. Where
major banks decline mortgages that the CMHC won’t insure, subprime lenders
will. For these and other reasons, prices continue to rise in Toronto. Sooner
or later they’ll stop going up, and whether they’ll go down a lot or a little
is anyone’s guess.
The good news is that there are still
robust urban real estate markets in Canada, where property values are rising in
a measured way. Ottawa is one such place, so is Montreal. Montreal condos are continually seen as a good buy if you’re in the market for
such a thing.
Last Updated: 06/2012.
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