While the rest of the world suffered a steep decline in real estate activity and prices, the Canadian real estate market continued onward and upward as if to say: What recession? Bidding wars were the norm.
But now, experts (who are these experts though?) say we’re in a housing bubble that’s ready to pop (hopefully it’ll just deflate a little). Sales in Vancouver dropped 30% in June compared to last year. Sales in Toronto dropped 23%. And Toronto Life magazine recently ran an article claiming that Toronto may be 20% overvalued. With interest rates on the rise, stricter lending rules and the much debated Harmonized Sales Tax (HST) now in place, there’s certainly negative pressure.
Rising interest rates certainly have a downward pressure on prices, but that could also be offset by rising demand (to be the contrarian for a moment). If the recession is in fact over, we may walk away from our crazy bidding wars relatively unscathed. George Carras of RealNet — a Toronto-based real estate analytics firm — argued earlier this year at the Land & Development conference that the magic number for the Toronto area is 40,000 units a year. That’s what is needed to keep pace with growth and immigation. In 2008 and 2009, new home sales fell short of this at around 26,000 and 34,000 units, respectively.
But if a Third Depression is around the corner, then all bets are off.
Image: Flickr
