Doomsday real estate prophecy….enough already!

This pic might best capture the image that comes to mind when I hear the phrase ‘real estate crash’.   Don’t adjust your screen.  This isn’t a hoax.   This 12 story building collapsed in 2009 shortly after it was completed.

Note how the building remained intact after it fell.   That is truly amazing.   Clearly, it was well-built.  But note the hollow concrete piers with no rebar.   This is a great example of how even the best built building will fall if it has a weak foundation.

Our U.S. neighbors to the south learned about weak foundations in 2008.   The U.S. sub-prime mortgage crisis was caused by Banks offering mortgages to anyone with a pulse.   There was little to no qualifying for a mortgage.  You could buy or refinance up 110% of the value of the home!   Mortgages were being given to those that didn’t qualify.  This was the root of the U.S. housing crash.

HOW DOES CANADA STACK UP?

But is this what the future looks like for Canada’s housing market?    We keep hearing reports about the imminent Canadian housing bubble.  It’s coming… soon… no, really.   We’ve heard this continually for the last 5 years.   You just have to wake up and turn on the TV, radio or computer.   It’s full of Doomsday forecasters.   But reality is very different.   Listen to facts and forecasts from proven sources….  Take CMHC’s most recent report released in the 4th quarter of 2012.  They are calling for a stable housing market in 2013.  Average house prices will stop climbing and remain flat.  Rental vacancy rates will stay low.   Click here for CMHC’s Q4 report.

The forecast isn’t calling for any huge price drop as the media would have you believe.  It’s boring news… but that’s good news for us.  CMHC’s historical forecasts have been pretty accurate.  And they probably have more data at their fingertips than any other organization.   The Doomsday forecasters don’t seem to reference this report… but I suggest we give more consideration to accredited reports…

Speaking of Doomsday… I saw a good article in The Financial Post entitled ‘Are we worrying ourselves into a housing crash’?  A great question… and they quote 2 of my favorite Economists and Financial Experts, Moshe Milevsky and Benjamin Tal.   Both believe we won’t see a housing collapse like the U.S. had.  The fundamentals are very different.  But they think that if we keep talking about a crash, then it could  speed up and prolong any housing slowdown.

To me, Canada is like the 12 story building, strong and intact.   The U.S. was like the foundation…hollow and weak.   Let’s make sure understand the differences before we write off our housing market.

As always, I welcome your questions and comments.

Steve Garganis 416 224 0114 steve@mortgagenow.ca