From prolonged period of historically low interest rates, skyrocketing real estate prices in key areas of the country and a longer than expected worldwide economic recovery, there is simply no precedence for what we Canadians are currently experiencing right now. So how do you make sense of it all? Let me start off with a disclaimer — I don’t contend that I know more than the economists, politicians and builders who bet their livelihoods on accurately predicting short and long-term market conditions.
What I do claim is that there is no ‘one-size-fits-all’ model that seems to be lost in the media coverage these days. As bad as the housing market has been in the US over the past few years as a whole, there have always been and continue to be vast differences with how individual markets are performing. A good example of this in our own backyard can be found by comparing current Vancouver market conditions to Calgary or Edmonton.
Certain fundamentals impact every real estate purchaser, while others are very much specific to the region you live. Job stability and interest rates impact us all, while unemployment rates and existing housing supply are regional issues. The amount of real estate investors is a particular location is a regional issue with fairly large implications; in good times they can elevate a market to new heights, but in more cautious times they tend to deflate a market very quickly. What is left is your average homeowner who buys and sells based on their current needs.
Canada as a whole has experienced amazing real estate market conditions since coming out of the recession in 2009. With that came unrealistic expectations that the type of growth in housing starts and prices was sustainable forever; what we are seeing in many markets now is proof that those areas were running above a healthy equilibrium.
What is important is that we don’t lose track of the fundamentals like our friends down south did a few years back. Those who want to use real estate as an investment should be heavily pre-qualified so that they can withstand downturns and climbing interest rates when they happen; and don’t kid yourselves, they will happen.
This is why the government changed the laws last year to require a 20% down payment for all investment properties, up from the previous 5% — to stop those at high risk of default from speculating.
For me personally, I don’t concern myself with the short term fluctuations unless the fundamentals dictate otherwise. With a stable job and built in capacity to handle higher interest rates, I’m not losing any sleep at night. How about you?