Once again the mortgage market are abuzz with interest rate changes and what is happening in the Canadian real estate market. Is it a bubble, soft landings, bursts....etc....
As well I couldn't help but notice in todays Financial Post how Spain is on an eviction tear and thousands and thousands are being evicted because they can no longer afford the mortgages they once had.
Although I am not the sharpest knife in the drawer, I tried to put recent news items together, when over the past few months I have been reading about how the Canadian market is in a bubble and that we are in for a US style correction.
So as I contemplate what is happening in Spain, Ireland andy US where foreclosures and decreases in property values are rampant, I can't help but go back to my basic real estate investing training 101 and read the fine print in the rash of negative news headlines on real estate.
What I uncovered is that in all cases where we have sudden drops in property values as in Spain Ireland and the US, we had clear evidence of predatory lenders. That is, the lending business or mortgage market was overly enthusiastic on lending to people with poor credit. Hence the environment was rife for property values to escalate without the basic economic fundamentals being there to support it.
So again I am not the sharpest knife, but to be fair I ask the same questions for the Canadian real estate market.... Does Canada have a predatory mortgage lending market, and are our fundamental economics not there supporting arising prices?
Well I can safely say that our mortgage lending practices are nowhere near what Spain, Ireland, and the US were. However on the economic fundamental front things are not necessarily all that strong. But they are not bad. So with our economic fundementals running flat, I always fall back on is the housing affordability index. This factor of all the economic fundamentals statistics is probably bedrock to determining if our rising real estate values are supported and ultimately sustained in the long run. What it basically shows is our ability to afford homes based on income. Well Vancouver is totally out of the picture ( thank you China), Toronto, well...Edmonton, Calgary....it seems that with housing affordability inching over the 40% mark, things need to slow down and we need to let the other side of the affordability equation catch up. Simply put, we need to see household incomes start to increase and house prices stabilize before the index starts to drop.
And that my friends, is the magic question...when will that happen, how much longer can house prices keep rising, and should i still be investing....If I knew the answers to these I would have a crystal ball. i dont and I can only say that yes I am still putting my money in real estate because the so called Canadian real estate bubble is not the same as what happened in Spain, Ireland or the US recently. The mortgage lending landscape is very different in Canada.
For more information on Real Estate Investing, Developments and Investment Funds for Toronto, Barrie and the GTA, Ontario, visit Mana Investments or call Mark Directly at 416-779-2897.
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