Staggering Stats & Room For Improvement

April 12, 2011 § Leave a comment

There have been whispers of Canadian’s obsession with real-estate becoming an unhealthy one (Canadian Business, April 25, 2011).  How could home ownership be unhealthy when their owners meet the financial qualifications? It’s true that Canadians value home ownership dearly – nearly 70% of Canadians are home-owners, but that’s not necessarily a negative thing. The government has had a helping hand in making it possible ever since introducing CMHC in 1946 so that WWII veterans could more easily afford a home. There has always been a reasonable and just banking system in place which has protected against a US-Style housing market crash.

Why is there such a fixation with home ownership in North America? Well, there are a number of reasons: It’s seen as a sound investment; it’s a great way to build net worth over time (accounting for approximately 1/3 of one’s net worth) and of course there is everyone’s goal of having a mortgage/rent free retirement.

From 1999 to the end of 2010, the average resale home value rose 110%. There have been steady increases of 7% each year, and more than 10% between the years of 2002 and 2007. Think that’s just a fluke? It doesn’t seem to be slowing down any despite the recessionary mentality: the average resale price increase of 6% between January 2011 and February 2011 alone.

These staggering stats may explain the so-called “warped perception” of first-time buyers today. All they’ve ever known are easy mortgage approvals, low rates and strong growth. But despite the over-all mentality of society at large, the reasoning is there. For instance, the growth in the Toronto market was ranked #1 in North America, with February sales in the GTA amounting to one-fifth of the total U.S. housing sales in the same month. Calgary, Toronto and Vancouver dominating the top 5 of the “World’s Most Livable Cities” it doesn’t seem unreasonable that the value of real estate should continue to grow at a reasonable pace.

But those of the older generation remember the 1990’s, which were mostly flat by way of property growth – and they also remember sky-high interest rates. It’s them that are calling for tighter mortgage regulations and cooling of the market. It’s true that Canadians should try to save and diversify their assets without relying so heavily on their home equity, but many people lack the discipline to do so without the structure of mortgage payments. Don’t let the nay-sayers spook you off buying. Do so while it’s affordable, and while regulations allow for 5% down payment.

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