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.