The best time to invest in Canadian real estate was a decade ago, the second best time is now.
For aspiring homeowners in Canada’s major cities, expensive home prices combined with worries that the housing market is in a “bubble” make pulling the trigger on the biggest financial decision of their life stressful to say the least. With the median price of a detached home outpacing the median income over the past 40 years, it’s simply a fact that homeownership has become less affordable for the average Canadian.
At the same time, the seemingly exponential growth of home prices in cities like Toronto and Vancouver have some worried that a monumental crash is just around the corner. Is this worry warranted or does the data suggest otherwise?
Regardless of market conditions, homeownership is a dream for many and like many other Canadians you may prefer the security that comes with owning your home rather than renting. Pulling the trigger on a place to live is a decision that most Canadians make at some point, with the homeownership rate in Canada being 66% in 2021.
In 2022, the value of homes fell across the board in Canada with detached homes in cities like Toronto and Vancouver dropping the most. At the same time, interest rates have been on the rise making mortgage affordability more difficult. Does this spell disaster for your homeownership dreams? Well, if we take a look at some historic data we might start to see a different picture.
Let’s talk about why 2023 may be one of the best times to buy real estate in Canada.
Why the best time to invest in Canadian real estate is right now
Real estate can be a great investment opportunity, especially in a country like Canada where the housing market has traditionally seen a stable trend to the upside. If you’re considering investing in Canadian real estate, now may be the perfect time to do so.
Let’s take a look at the last major recession as an example of what we may have in store for our future. According to Listing.ca, the median price of a home in Toronto was $338,000 in December of 2008, around halfway through the infamous great recession which officially started at the tail end of 2007. 10 years later in December of 2018 that same home would be worth $702,500, over doubling your initial investment. Flash forward another 4 years to today and the median price of a home in Toronto is sitting at $840,000. Looking at any data over the past decades of the Canadian real estate market will show similar trends of gradually rising home prices, marked by the occasional recession which shaves 10-30% off the top. The trend has remained however that homeowners in Canada who have bought and held for any significant amount of time have seen quite a decent return on their investment.
For many Canadians their home is a sort of forced savings account, whereby their mortgage means they are making monthly contributions to an asset that historically has positive long term returns. For better or for worse with the price of homes consistently outpacing the rise of incomes, the importance of already owning real estate becomes a defining factor in the ability for future generations to achieve the dream of homeownership for themselves. It can be said that previous generations dealt with a cheaper market, and our children will likely face a more expensive market than we face today.
Buy when you can afford it
One of the most important factors to consider when investing in real estate is your financial situation. It’s important to have a solid financial foundation and be in a position to afford the investment. Rising interest rates have indeed made it even harder for Canadians to afford their monthly mortgage payments, but at the same time home prices are down from their peak meaning lower down payments and monthly equity payments.
“Owning a home has more costs associated with it than most people think. You have to take into account things like maintenance, utilities, property taxes. Closing costs alone can add another 5% of the home’s value to the cash you’ll need.” – Head of mortgage advisory Ali Hussin
Don’t let interest rates scare you
But just because mortgage rates have been on the rise doesn’t mean they’ll stay high. Looking at the history of interest rates in Canada, periods with interest rates over 5% don’t tend to last longer than a few years and our analysts are predicting that rates could begin to drop as early as Q4 2023.
If you’re able to afford a property and have the necessary funds for a down payment, now may be the ideal time to invest as the prices of homes have decreased from the peak, and when rates begin to come back down you could be left with less monthly mortgage burden than you would have in the recent past, and likely would have otherwise in the near future.
Supply and demand
If you’re a skeptic when it comes to the idea of an increasing real estate market, and historical data isn’t enough to convince you that a massive crash isn’t on the way, it might be a good idea to get a refresher on our microeconomics.
The price of homes in the housing market is largely a function of supply and demand like most markets. The current dip in prices can be attributed to rising interest rates which brings down mortgage affordability and therefore demand. At the same time Canada’s real estate market has held a similar trend to its steadily increasing population. After-all people need a place to live and more people means more demand for housing.
With the Canadian government committing to record increases in immigration to combat labor shortages, it’s easy to imagine why demand will remain high in the future. On the supply side of things however, experts are predicting that the plan for new housing in cities like Toronto won’t be enough to improve affordability.
Time in the market beats timing the market
While it’s always tempting to try and time the market, it’s important to remember that the best approach is often to simply hold onto your investment for the long-term. Real estate has historically shown itself to be a solid investment, with the median price of homes in Canadian cities steadily increasing over time.
In summary, now may be the perfect time to invest in Canadian real estate if homeownership is a goal of yours. If you have the financial resources to do so and are willing to hold onto your investment for the long-term, it could be a great opportunity to build wealth and secure your financial future. If history is doomed to repeat itself then getting in as early as you can afford to the Canadian real estate market will likely be the best option for Canadians going forward.
Our experienced mortgage advisors are ready when you are