Yes I did say that. For the last several years interest rates have been at historical lows. Incredibly, they have just dropped again. For most of my Real Estate Career interest rates have been between 10% and 11.75% generally averaging around 10.75%. With new five year fixed rates at 2.99% and 10 year fixed rates as low as 3.84% rates are roughly 1/3 of what they used to be.
There has been ongoing talk of a “real estate bubble” for the last 7 or 8 years. If the government really thought we were in a bubble I personally don’t believe interest rates would be as low as 3.84% for 10 years. When you can carry a $300,000. first mortgage for $1552.15 guaranteed for 10 years the risk associated with a purchase and a potential bubble has just been diminished.
This takes volatility right out of the Canadian marketplace as we have not yet experienced a down cycle that lasted more than 5-7 years before cycling back up. That same $300,000.00 mortgage at 10% would carry for 2683.46 per month. The key with this type of long term mortgage is portability or the discharge fees in the event that you should want to sell and move out of area and therefore cannot port your mortgage.
Over the past 12 years homes have increased in value on average of 6.2% per year. Is this sustainable? Probably not, but if home value increases drop to only 2-3 % per year on average will it frankly matter? At current rates it will still be cheaper to buy than to rent. The key to buying real estate is to always remember that Real Estate is a long term proposition and shouldn’t be purchased without the consideration of a 5 year time line to account for fluctuations in the marketplace.
Obviously interest rates are one of the factors that have kept our Toronto market so buoyant and contributed to the bidding wars and higher than normal yearly increases in value.
Another factor is the simple lack of supply of properties for sale.
As an example in December of 2008 there were 19,468 homes on the market. In the same period this December of 2011 there were only 12,868 homes on the market.
A total of 4718 units sold in December so that is very roughly 1 out of 3 homes listed are sold (2.73). Compare that to December of 2008 where only 2577 homes sold or roughly one out of every 7.5 homes listed actually sold.
December does generally have a slow down so let’s look back at November of 2011 where there were 15,551 listings and 7092 sales, almost 50% of all homes listed selling. Compare that to November 2008 with 27,037 homes on the market and 3640 sales or only one out of every 8 homes listed selling. The drop in homes available for sale has been gradual over the last 4 years but extremely notable.
This effect is called supply and demand and has been a major factor in keeping prices high.
A combination of low rates, less product to sell and more buyers wanting into the marketplace are the general factors keeping upward pressure on the market even if there is a recession going on.
Obviously with prices as they are the new starter home is generally the Condo which is now about 40% of the marketplace. There are also rumours that we are about to experience a condo glut, which did happen back in the 80’s. The fear is based on the fact that there are approximately 130,000 new condos either on plans or under construction over the next 3-4 years. At the moment we are consuming about 24,000 units (sales) per year. So this would need to increase to avoid a glut in a few years time. That one is a ” wait and see”. However, builders are currently working harder to sell their new units and there are lots of extras available on a purchase. If you have a young family member who wants to get into the new condo market let us know. We can represent their interests to the builder and make sure the development fees ( hidden fees the builder doesn’t tell you about) are capped so there are no last minute shocks to the tune of thousands of dollars. You can find a chart demonstrating historical interest rates for the past 60 years at www.torontoshome.com
Overall the market looks great and I am still convinced there is no better investment than real estate. I am so passionate about this business and always looking for ways I can add value to your life and to your family. If you are thinking of making some changes a move, an addition or renos, or would simply like me to do a mortgage review with you please just give me a call at (416)443-0300 or e-mail me at mytorontohome@gmail.com and I will be happy to set up a time to discuss your portfolio. I am here to help you get the best deal and make the most out of your resources and money.
I can help you to:
1/consolidate debt
2/buy another property or sell your
current home
3/pay off your mortgage faster
4/create more financial flexibility
5/lower your payments and reduce the interest you pay
6/increase your monthly cash flow
7/build more financial security