You’ve heard the predictions, I’m sure. From the subway to the water cooler at work to the Sunday barbecue at your neighbour’s:
- Condo and housing prices are ridiculous!”
- “So many people are going to lose so much money!”
- “It’s only a matter of time before this real-estate market crashes back down to earth.”
Are they right? Since no one I know has a crystal ball, I’m forced to rely on facts and logic. Here is a factual and logical explanation of today’s real-estate market in the GTA.
Interest rates are indeed rising. However, these rates remain below the numbers of just a few years ago when this whole surge began, and also remain well below historical averages. In addition, the government continues to make buying real estate easier than ever.
For instance, the minimum down payment to avoid paying insurance on your mortgage recently fell from 25 per cent to 20 per cent, and amortization periods of 40 years have been made available. It would be one thing if prices were increasing and the rest of the economy was suffering, but we are in the midst of a very healthy economy. Torontonians have money and, contrary to popular belief, are not necessarily spending a great deal more. Consider that on a modestly priced home ($300,000), the five per cent drop in an insurance-free mortgage means a savings of about $2,500 for the new home buyer.
Another fact — by the year 2031, it’s expected that Toronto will be home to an additional two million people. You can bet they’ll need a place to live.
You see, understanding Toronto’s real estate means understanding Canada’s real-estate market. I would argue that there is no logical reason for Toronto’s real estate to be any less expensive than that of Vancouver, Edmonton or Calgary. So while we might feel that prices are through the roof, citizens of some comparable cities would jump at the chance of delving into our affordable market.
Also consider that in May, 11,146 homes changed hands in the GTA, making it the highest total ever recorded — an 18 per cent increase from May 2006. New homes and condos are sprouting up faster than buds in spring, but not faster than they are being sold. The fact that’s lost on many is that the important thing is not how fast prices have been rising in the past, but what the future seems to hold.
Please don’t misunderstand — my intention is not to suggest that the market will continue to routinely break records for the next 100 years. Nor is it to suggest that every area is, or will, grow at the pace of record numbers. The point is that this market is grounded by a healthy economy and not sailing carelessly in a balloon of hot air, ready to burst.
Someone once said that if something looks too good to be true, it probably is. A very wise observer of today’s GTA real-estate market would be keen to advise that this market is not too good to be true, but rather logical, based on the circumstances of our economy. It would be misguided to ignore the facts and logic, and predict fire where there is no smoke.
Amit is a Realtor, developer and partner with Re/Max Commercial. Feel free to e-mail him at firstname.lastname@example.org.