GUEST POST: Buy In Toronto? Experts Say: Proceed With Caution

The Canadian housing market seems to have been bolstered with nods from ‘real estate investment advisers’, saying that “there’s never a better time to buy in Canada”.  However, one of the main reasons why this is the case is because, the Canadian housing industry is a few years behind the US housing bubble burst in 2008.  This is leaving economists feeling uneasy about the solvency of the housing market as we march forward into 2014.

On a more practical note, there is always money to be made in the housing industry.  The questions we want to tackle are simple: what is the best way to invest in the Canadian housing industry, how do we hedge our bets against market changes, and ultimately, where will we live while in the buying and selling process? 

Investing the Safe Way

Why Toronto?  The whole point of investing is for making a profit.  Usually, sticking with major cities is a great way to go where the potential buyers and sellers are.  Also, Toronto is one of Canada’s most iconic, diverse, and strongest cities for real estate investing.  According to an Oct 2013 article from Susan Pigg of TheStar.com:

“Housing sales remain strong across the GTA — and so does the unrelenting demand for rental condos — halfway through the month of October, according to figures released Wednesday by the Toronto Real Estate Board.

House sales were up 21 per cent mid-month compared to the same period in 2012. That’s some 13 per cent higher than the 10-year average for sales in October, TREB noted.”

Despite growing market concerns about Canada’s housing bubble, Toronto appears to be one of the country’s strongest cities in the real estate market.  Unfortunately, many economists, and even politicians, have taken note about Canada’s housing bubble, saying that it is reaching the point when it has become ‘unaffordable’.  However, the city offers both a comparatively vibrant real estate market, and apartment rentals in Toronto will offer an inexpensive, yet upscale living situation while buying and selling property in Canada.

Hedging Bets

According to an article from Adam Peterson of TheStar.com, Canada’s political and banking institutions have sounded the alarm about the country’s inflated housing market:

“Canadian lawmakers and institutional stakeholders have taken notice and are positioning themselves defensively. The finance minister, the Bank of Canada and CMHC have tightened and continue to tighten lending standards to “cool” the housing market. CIBC shuttered its mortgage broker lending arm, FirstLine, and is considering selling its mortgage broker franchisor, Mortgage Center Canada.

Those closest to the industry are pulling back on the reins. Coincidence?

There are two primary issues:

·         Home prices are so high relative to incomes that average households are very vulnerable to rate or income movements.

·         Housing is such a big part of the Canadian economy that any small shift can be problematic.”

Does this mean that you should simply not invest in real estate in Canada?  I wouldn’t put on the brakes just yet.  Canada has an interesting advantage, because it appears as if they already know what’s coming, they have a historical perspective concerning what happened to the US real estate market, and they plan to diffuse the situation slowly.  Peterson continues:

“Although housing corrections are brutal, Canada could handle its correction in a more orderly manner because:

·         It will (hopefully) not be accompanied by a meltdown in global credit.

·         The system is not as fraught with fraud and the complications of securitization.

·         The banking industry is far more consolidated and co-ordinated with the central bank.

·         Lawmakers see it coming more clearly.”

 

Instead of a housing bubble burst, the way it happened in the US, economists say that Canada can stave off a similar disaster by having a slower, more organized deflation.

If you were to play your cards correctly, keeping these market changes in mind before you invest could result in coming out on top, once the trend reverses.

Keeping Living Costs In Mind

With Toronto being stronger on average than the majority of the country, real estate investing is still a possible course of action.  However, it is important that you keep the total costs in mind.  If you are based in the US, it may be a financially sound strategy to find apartment rentals in Toronto.  Especially since the time and cost of round trips can cut into your investment, it may be a better solution to keep a local residence and mailing address while in the buying and selling process.

Guest post contributed by the editors at Toronto Suites. They offer comfortable, affordable extended stay suites, corporate housing, and furnished condos in Toronto, Ontario.