What's the Deal with Toronto's Housing Market?
One of the most common questions I get asked these days is what is going on with the housing market in the U.S. and can we expect the same thing to happen here? Whatever happens in the U.S. economy will eventually happen here too, right? I'm certainly not an economist, but I will try to answer the question based on what the experts are saying.
Over the past 2 years, the housing market in the U.S. has been hurting-big time. The weak housing market combined with the high Canadian dollar have some people wondering if it would be cheaper to drive down to Detroit, buy a house and have it shipped back to Toronto! While I wouldn't recommend buying anything in Detroit, the disparity between the housing market in the U.S. and in Canada has probably never been greater.
While there have been some recent reports suggesting a slow down may be on the horizon, most of the evidence points to the fact that key differences in lending practices in Canada versus the U.S. means that the struggles going on South of the border are likely not headed here.
In the U.S., the dreaded subprime mortgage market makes up about 20% of all mortgages versus only about 5% here. In the U.S. it is generally much easier to qualify for a mortgage than it is here, and our mortgage insurance policies are also stricter. Also, unlike in Canada, mortgage interest in the U.S. is tax deductible, thereby enticing those who probably should not be buying a house into finding a way to get it done.
Bottom line is our lending practices are strong and demand for housing is very strong. In the short term, we have little reason to believe we are due for a slow-down like the U.S. is currently experiencing.
Photo from Ryan Coleman.
Comments (8)
i'd say it's just as credible as an artist writing up their own gallery opening/artistic event. as far as i know, he's never denied being a real estate agent - and is giving his opinion on the industry. kinda like the fine arts folks (which they too have an interest in promoting) on blogto giving their take on what's going on in the artistic community. i don't see the difference
Signs that a bubble is nigh:
denial - this market is different; old models cannot explain the current
everyone is in on it - taxi drivers, elevator passengers, my mother all discussing investment merits
fundamentalists (read: economists) start changing their positions
Oh and I was describing dotcom implosion.
There may be fewer high-risk mortgages in Canada at the moment, but I'm hearing that no-money-down, 40-year amortization, and interest-only mortgages are all coming, or at least are of great interest to Canadian lenders. They might as well be looking in to handing out grenades, but of course the official terminology is "exotic" and "creative" lending.
One of the key factors driving the Toronto real estate market is CHMC's decision last year to insure 40 year amortization mortgages. First time home buyers who couldn't afford a home with a 25 year mortgage, could suddenly afford to jump on to the ladder with a 40 year mortgage. 2007 really stands out because more homes are being sold than ever before and much of it has to do with these new buyers entering the market. The toronto real estate board is on pace to sell 97,000 homes this year, compared to 83,500 in each of the last three years.
Real estate agents are funny. The only time you'll ever hear them acknowledge that real estate is cyclical is at the bottom of the cycle.
What do you expect a Real Estate Agent will say?
The ruth is that the 40 Year ammoratization is now the most popular in Canada and 0 down mortgages are very common.
Only a maater of time before the Canadian bubble pops.
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