The annual doom and gloom articles about the Canadian real estate market are front page news once again. Even the Governor of the Bank of Canada, Stephen Poloz, says that the Canadian real estate market is over-valued by as much as 30%. We have heard this story before, almost every year in the past 15 years. Hasn’t happened yet, and it won’t happen in 2015.
Here’s why:
1. Interest rates will likely stay low in 2015
The record low interest rates that Canadians have enjoyed for the last several years will likely continue in 2015. Although the Canadian government cannot directly control interest rates, you can bet that with an election coming up in the Fall of 2015, the government will use all tools at its disposal to ensure that there is not a real estate meltdown that they could somehow be blamed with.
2. Not enough land to build new homes in GTA
If you look at the prices people pay for homes in New York, Hong Kong, Tokyo or London, England, by comparison Canadian real estate is still a bargain. This is why so many foreigners continue to buy up real estate in Vancouver and Toronto, as they consider this a very safe place for both their children to come and study in university as well as for their own investment needs.
One of the reasons we continue to have bidding wars in the GTA is that fewer homes are put on the market for sale. This has been going on for years now. One of the reasons is that people do not wish to move up or downsize because of the double land transfer tax hit in Toronto. Many people would prefer to stay in their homes and just do the required renovations to retire there, whether building an elevator or a place for a live-in caregiver. Fewer homes on the market will continue to drive up the prices next year.
In almost every doom and gloom analysis, the authors, including Stephen Poloz, admit that at most, there will be a soft landing in the real estate market next year. Let’s be real. 30% over-valued does not mean a soft landing. This admission is almost proof that the doom and gloom writers want to have it both ways, so that if they are once again proven wrong about the real estate market, they can state that it was a “soft’ landing.
If you are able to afford to enter the real estate market in 2015, enjoy the ride. Remember, with real estate, it is not just an investment in your future, it is about a home to build a family and memories for years to come, in one of the greatest cities in the world.