Are we in a real estate bubble?
The number 1 real-estate question Googled is "are we in a bubble?" Buyers are concerned that they will buy a home and then the market will crash, dropping the value of their new investment. Current activity in Canada shows that we are continuing a boom, not a bust. Here are some indicators of a dropping market and my comments on the current reality.
Prices drop when builders are over building.
Today, we are building fewer homes than in the 1990’s even though the demand for new homes is strong.
Prices drop when risky people with low credit ratings buy.
Today, most buyers have stronger credit ratings than last year.
Prices drop when many houses are foreclosed on by banks.
In Canada, buyers must qualify for an interest rate of 5.25% even if they’re currently paying under 2% interest on their mortgages. Qualifying for a higher interest rate ensures if interest rates go up, people can still afford their homes. Which means much fewer foreclosures due to inability to make mortgage payments.
Prices drop when people don't see homes as a good investment.
With disappointing returns in their investment accounts, Canadians have turned to housing as a large part of their investment portfolio.
These are all solid reasons to show that our real estate market is not in a bubble. In fact, prices are increasing due to a strong demand for housing by buyers who can afford higher prices. I would prefer that increases in housing prices slow down, but this will only happen when we start building more new homes. Over the last 40 years, new home building has slowed down because of shortages in materials, trade workers, land, and government incentives.
The question remains: is real estate still a good investment? I say “Yes,” both for your own home and in purchasing rental properties. The attached handout from my real estate coach at Buffini and Company gives a nice, visual overview of how economists see the current state of the Canadian real estate market. Feel free to share it with your friends and family. And if you’re interested in knowing what your home is worth or want to discuss the value of homes in a specific city or neighbourhood, please give me a call so I can resolve any rumours and speculation for you.