I thought about making those two words the entirety of this blogpost, but I suppose that isn’t my style. I understand that not everyone works in real estate and not everyone understands the factors that shape the market. You may have stumbled upon this blog looking for answers and those two words wouldn’t have satisfied your curiosity.
But, if you’re a dedicated reader of this blog you will know that I answer this question frequently. Despite the incessant waves of bubble/crash stories from the mainstream media (who doesn’t like a good apocalyptic story?), there’s been no pop or burst to follow in the 15+ years we’ve heard these folktales told.
So, I’m going to take a few brief moments to explain the reasons why there isn’t a crash coming any time in the near future. I won’t go into a massive amount of detail for each, since each could be their own article. But, feel free to use these talking points with the like-minded, equally appalled neighbour or parent on your kid’s soccer team.
Top 5 Reasons There Won’t be a Market Crash
1. There is an historically low supply of homes on the market.
You know how you say to yourself “who the hell can afford these places?”, well there are lots of people who can and the demand far, far outweighs the supply. Simply put, this is far and away the #1 reason why the market is bananas right now.
2. Not enough new homes are being built.
This is a part of the larger supply issue faced in #1. There simply isn’t the space to build out anymore. The Greenbelt won’t be touched and there just isn’t any land left in the GTA to build single-family homes. Developers are building up and realizing they can make way more money building a 600 unit condo than 25 townhomes without a lot less risk than before.
3. Interest rates are still historically low.
This isn’t the main driver of the market like a lot of people believe. The rates we’re seeing today have been around for awhile and look here to stay for at least the immediate future. While the government has tried to make lending more difficult (mostly for private lenders and not the big banks), low rates help people stretch their budgets.
The GTA is the most attractive place for people to immigrate because Toronto is the financial capital of Canada. Immigration numbers have exploded and on top of that young, Canadian-born millenials are flocking to the city for better job prospects. That is sustaining the condo market and pushing the freehold market into the stratosphere. As Toronto becomes unaffordable for most, we’re seeing the money spread into the suburbs as people chase affordability.
5. Toronto & GTA real estate is cheap
Yes, you read that right. This sounds crazy but for people from all over the world, the real estate here is still cheap. They see a young, blossoming city with affordable homes and condos they couldn’t dream about in other major cities around the globe. We’re also a safe, stable country to house money in the short and long term.
When Will it Crash?
Ask yourself…when’s the last time anyone worried about the prices in New York, London or Paris? Granted, Toronto is not on the level of those cities right now, but it is seen as an up-and-coming city with cheap real estate in a safe, stable country.
Also remember that while Canadian household debt is at an all-time high, Canadians pay their mortgages. Our default rates are insanely low. Our “in arrears” rate are stupefying low as well.
If you’ve been waiting on the sideline, you’re going to be waiting longer. And by the time an actual crash or correction comes, the prices will likely still be very far out of reach.
My advice? Either get in or get used to the way things are. If you’re not comfortable with it then get yourself locked into a nice rental and start enjoying your life rather than reading yet another story about the real estate market.
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