If you read my last post you’ll know the big question was, will this insanity continue all summer long. Now we know the answer, YES! Activity and prices continue to remain very high.
I don’t like to make predictions and the multitude of “experts” out there who do make them are never held accountable. They just seem to fade into obscurity after their predictions are proven wrong. I hold myself accountable to my clients so I rarely make predictions. Today is different! I will make or at least share predictions from an economist whom I respect tremendously, Benjamin Tal.
Recently the Canadian government tightened up the lending restrictions in a way that will cripple many first time buyers and cause them to stay with parents longer or rent. Other borrowers will be hurt by the new legislation as well, but generally, the property virgin will be hardest hit. My own buyer clients have been hit very hard. One couple had been able to spend $765,000 but now can only qualify for $620,000 causing them to stay put for while and try to save after-tax dollars for a stronger down payment. We all know how difficult it is to save $100,000.
I had the pleasure to hear Benjamin Tal speak about the GTA real estate market and I’d like to share what he said, as most of you will have questions that he has answered. First of all, what will happen now that the new financing legislation? As mentioned, the hardest hit will be the first time buyer. I’ve already seen it first hand with my own buyers. Because they will continue to rent, any rental properties are sitting pretty, real estate investors rejoice. For those of you who are renting, be prepared for rental hikes and a very competitive rental market with multiple offers. It has been very tough out there as a renter and things are only going to get tougher.
The experts seem to over estimate the effects of events, like Brexit, in the short term and under estimate in the long term. We saw a blip of uncertainty with Brexit, and then things were back to normal. We saw it in the fall of 2008 when Canadians were uncertain of the affects of the world economy with banks going bust in other countries. Home owners weren’t selling, buyers weren’t buying, until the pent up demand was so great it burst open and by February we witnessed a surge of activity that seems to never have let up.
Tal predicts that because of the fear of devaluation of Chinese currency even more money will leave China and much of it will be invested here, in GTA real estate. He also says that Canadian interest rates will remain low for at least 3 years.
Many people tell me there is a bubble in GTA real estate and it’s going to burst just like what happened in the US. I’ve been hearing it for years and it really bothers me when someone says that because I know that our situation is very different from the US market conditions at that time. Benjamin Tal says not only is it wrong to compare us to the US, it is irresponsible. Our market is nothing like the market in the US. For example, housing starts are at about 1.0 in Canada meaning for every family buying there was one new house, which is desirable. In the US for 10 years leading to the recession the level was 1.6. That’s just one way we differ, and Mr Tal could tell you more. The message is that we are very different indeed so don’t be fooled by those who say the sky is falling because of what happened south of the border.
I think the most important piece of information that you need to know if you have an inquiring mind, is that the driving force behind the GTA housing prices is…..wait for it…..supply. With the Places to Grow Act of 2006 the amount of land that we are allowed to build on is shrinking, reducing supply especially for low rise. The act affects the entire Golden Horseshoe. Of course that means that prices will continue to hold strong. Tal goes on to say that the Places to Grow Act cannot co-exist with affordable housing.
The message is grim for some and brilliant for others. What does it mean for you? Let’s talk about it, I’m here for you.