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"Why the Housing Market Won't Crash"

January 8, 2013 - Updated: January 8, 2013

Mark Weisleder, a real estate lawyer and contibutor to the Toronto Star recently outlined some points as to why he disagrees with some of the economists who were predicting a local real estate crash in 2012, with prices falling by as much as 25 per cent and why he thinks it won't happen in 2013 as well.

 

Here are some of his arguments:

 

1.  Homes are more affordable.  Toronto experienced a huge market correction in 1990 when GTA homes cost half of what it does today.  Main big difference is that interest rates were 12 per cent for a five-year term.  Doing the math, if a two bedroom condo cost $250,000 in 1990,  the monthly carrying cost was about $2,500.    The average monthly rental for a similar unit at that time was $1,100.  Presently, even with a price of $500,000 but with today's low interest rates, the monthly carrying cost would also be $2,500.  In downtown Toronto, the average monthly rent for a similar unit is $2,500.  Most tenants who can afford to pay $2,500 can probably afford to buy a home now if they have 10 per cent down payment or more.

 

2.  Impact of Mortgage Rule changes is minor.  When the government lowered the amortization period to 25 years if you were paying less than 20 per cent down, buyers who would have purchased in the late summer or fall are postponing their purchases to the spring resulting to first time buyers continuing to rent, resulting in low rental vacancy rates. 

 

3.  Toronto condo vacancy rates are 1.7 per cent so this means that for those investors who cannot sell their condos, there are plenty of renters who can cover their monthly costs.

 

4.  Debt-to-income ratio not relevant.  There's a lot of talk about Canadians taking in too much debt with the ratio now at 164 per cent.  What this means is that the average Canadian household with an income of $100,000 has a total debt of $164,000 (of which their real estate debt is about 2/3)   With interest rates at 3 per cent, this is not a dangerous problem.  If interest rates were 12 percent like in the 1990s, or if all of your debt was in credit cards with interest rates averaging 18 per cent, then this would be a serious problem.  Note to readers:  pay down or eliminate your credit card debt in 2013.

 

5.  Interest rates may not rise until 2015.  Canadian rates are very much tied up with US interest rates and the U.S. Federal Reserve is now saying they won't raise rates until 2015.

 

Having said all of the above, the writer says that  somebody has been predicting a Canadian real estate market collapse for the past 12 years.  "It hasn't happened yet and won't happen in 2013".  Mark Weisleder,  mark@markweileder.com


Tagged with: real estate homes toronto gta interest rates
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