GREATER TORONTO AREA REAL ESTATE BLOG
5 Years Later – How & Why Canada avoided the Housing Market Crash
Housing Market Crash
It’s now been 5 years since the U.S. Financial Markets bottomed out and began their upward trend which has generally been ongoing to this day. Housing Market in U.S. however did not begin its real recovery until 2012. While there have been numerous articles and arguments over the years on this subject, one thing is certain right now, our Housing Market held up exceptionally well. What the future holds for Canada’s Housing Market is up for discussion (as always) but let’s look at some reasons how & why we were different during the years that lead to the big crash:
– Limited Subprime Exposure
While in Canada Subprime mortgages added up to only few percent of the entire market, in U.S. they accounted for about 1/3 of all mortgages in the days leading up to the Housing Market Crash. This was the single Largest reason.
– No Interest Only Mortgages
In U.S. Teaser mortgages that included Interest only payments for the first couple of years which resulted in no payments made towards the principal. These were inexistent in Canada.
By 2006 over 50% of homeowners in U.S. had less than 5% equity in their homes and about 1 out of 3 had negative equity. In Canada only around 15% of mortgages have less than 15% equity in their homes and virtually none have negative equity. That is a massive difference.
– Sustainable Housing Starts
While the argument can be made that there is an oversupply of condos in Toronto, the overall Housing Starts were and continue to be on a sustainable path in Canada. In U.S. in the years leading to the crash the Housing Starts were nearly double the household formation numbers.
– Lender recourse
In many States you could simply walk away from your home if you chose to do so with no repercussions. In Canada the banks will pursue you for the rest of your life until they recoup their loss (through legal action) if you choose to default on your mortgage and leave the bank at the loss.
Most of the boom in Canada has been and continues to be in the major urban areas, such as Toronto, where immigration numbers are high. Outside of those Housing Market in Canada has seen more modest gains. In U.S. pre-crisis boom has seen prices rise at unsustainable pace all over the country.
What is in store for Toronto’s Housing Market?
For the past couple of decades we’ve been reading numerous articles that have been predicting the illusive housing market crash or continuing uptrend. The story is much the same today: no one has that crystal ball in their hands. One thing that is certain though, if you do have a job and have the downpayment saved up and are looking for a place to live in for years to come you should be buying.
Possible exception to that would be buying a condo in Toronto. The city has gone vertical in recent years and has a massive flow of condos hitting the market in the coming year/s. There are currently over 50,000 units that are under construction (more than demand can handle), and with a lot of saturated speculation condo market has already shown weakness in the past few years and will surely continue to lag compared to low-rise market. I have been stressing this point to all my clients for sometime now and will continue to do so until further notice. If you choose to buy a condo, careful planning and comparative market analysis is of utmost importance and you better be planning on living or keeping that condo for years to come. With Toronto’s double land transfer tax, CMHC fees, Closing costs, Realtor fees, Capital Gain taxes and Legal fees you could easily end up in the negative if you choose to sell that condo within few years. The chart above compares price change in the past few years between low-rise & high-rise markets.
Low-rise Housing Market is on a Tear
Low-rise market on the other hand is absolutely nuts. Reasonably priced properties are selling in 1-2 days and often over asking. My most recent journey with my clients through few properties in the town of Aurora, Ontario was another proof of that. All the properties that we saw sold within few days. All sold over asking, and more shocking they all went on average 10% higher than similar homes did only 6-8 months ago. Today, listings are low while buyers are plenty who attack the market like sharks, and for as long as the rates will remain low (with no recession looming) I just don’t see this stopping on the most part. Mind you some of these gains are also unsustainable and I would never push my clients to make a rush purchase unlike many hungry agents out there. It is important that your Realtor provides you with an honest opinion of the property you might be interested in and doesn’t rush you into the purchase. If you don’t buy something today, you will in couple of weeks or month/s from now. Buying a house shouldn’t be like buying that hot item you found on Ebay!
Most of us have heard about the Property over on Perth street in Toronto which attracted 32 bids and sold nearly $210,000 over asking. The Housing Market is Hot and the upcoming spring in GTA will be berserk. It will be a while before your mainstream media catches up to this fact but it’s already happening and all the indications are there to support it. The 2.99% 5 year fixed (or lower) is only adding fuel to this hot housing market. You’ve read it here first, and all the best!
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