Here's the macro picture of Real Estate in Canada.
In many parts of Canada housing has been white hot. The data is rather shocking from an investment standpoint. Let's take a look at some numbers.
Canadian house sale prices on average, rose by 8.2% year over year.
Two Story single family home prices alone rose by 21%
Townhouse/row unit prices rose by 17.9%
One-story single family homes rose by 16.6%
Apartment/condo units rose by (16.3%)
http://creastats.crea.ca/natl/index.html
Toronto and Vancouver remain Canada's lava-like hot spots for housing. If you bought a single family home five years ago in Toronto, chances are you are now sitting on a 70%+ gain. That's INSANE! Real estate doesn't produce those kinds of gains so quickly in a normal market. Usually, you could expect your property to gain 2-3% per year. Not 15-20%.
What we are seeing in Toronto and Vancouver is a red-hot, white streak, run away housing market, which is creating a housing bubble. And it started with Canada's exemplary financial system. After the crash of 08, Canadians realized that our banking system had protections in place which prevented us from being shocked like the US by housing. One of those protections was our limited exposure to sub prime mortgage securities, and strict mortgage lending rules.
Well, those strict mortgage lending rules are no big deal for the wealthy folks migrating over from Asia, who have been snapping up real estate in Vancouver and Toronto for years, driving up prices in the process. So as far as people who were born and raised in Canada, the rules generally work, but that's also the problem. The same rules that work for Canadians to keep a lid on our housing market make no difference or impact on the ability of wealthy foreigners to drive up prices with foreign funds while us working stiffs are stuck renting (which is also becoming ridiculously over-priced), or living an hour (or more!) commute from work through mile after mile of snarling traffic.
On top of this, mortgage rates have stayed at near all time lows. Today, a $500k mortgage will set you back $2,000 per month if you opt for the monthly payment plan. If you make over $100k a year, it's doable. But if you are like the rest of us and make less than that, it's not feasible unless you rent out the basement and most rooms in the house.
If you own a home in Vancouver or Greater Toronto (or a second rental property), the advice I'm getting is that it's a fine time to sell and move someplace that isn't jam packed with people, smog, and a cost of living so high that you can be house poor even if you make 100k a year and live in a modest townhouse. In fact, the time may be quickly passing to jump ship out of the GTA and Greater Vancouver housing bubbles since both Ontario and BC have passed/are about to pass new laws which restrict the ability of foreign buyers to purchase property. This is going to put a hard lid on housing prices going forward.
Still, could prices climb higher? Yes, they most certainly could. At the height of Japan's housing bubble, it was said "the value of the Imperial Palace in Tokyo exceeded the value of all the real-estate in California". So yeah, prices could still go higher. The question is, do you have the guts to get out when things hit the roof? If you don't, you'll likely go bankrupt if you can't wait out the carnage.
So what am I doing? I have decided to sell. I have two properties. I will be selling one, and using the proceeds to pay off a second mortgage, effectively taking my exposure to a housing market shock to zero. Since I'll be living in the second property, it doesn't matter if the price crashes by 80% ... because I need to live somewhere and I'm young enough to be able to wait out a recovery.
Although I would strongly like to get into the market in Southwestern Ontario, I'm staying far away until I can actually afford the housing there (which might be never, and that's OK).
