When looking at virtually any valuation metric, real estate prices are expensive in Canada. They’re especially nuts in Toronto and Vancouver, with detached properties in both cities going for more than $1 million.
Bulls point to plenty of reasons for this bull market. Interest rates are low and recent returns have been high, and both investor and homeowner demand remains strong.
Both cities are also facing supply crunches. There simply isn’t enough construction to keep up with demand. Buyers are either forced to settle for condos or move to the suburbs, trading cheaper housing prices for a longer commute.
On the other side of the coin, bears can point to many potential pitfalls that can prick the bubble. Interest rates could easily go up. Canada’s record high debt levels should act as an anchor on consumer spending. And the government has made it clear it’s interested in taking steps to make homes more affordable in Canada’s largest metros.
A number of factors should be analyzed before taking on the commitment of buying a property. Cost is one, of course. Others include possible lifestyle changes later on and the future of the market. Can homeowners really expect prices to continue going up 5-10% annually?
With investors in Toronto and Vancouver willing to accept anemic returns for their properties, it’s cheaper than ever to rent. Renters also gain a great deal of flexibility over homeowners. It’s much easier for a renter to chase a better job in a different city.
Everything comes down to circumstances, of course. But the case to rent is perhaps the strongest it’s ever been.
