No bubble, no trouble

Forget about a looming housing crash—it’s not going to happen. But Canada’s real estate market is changing, and both buyers and sellers will need to adapt if they want to thrive.



From the December/January 2013 issue of the magazine.


Like many Torontonians, Dave Pearce and his wife Jennine Profeta are struggling to find an affordable home. They currently live in a one-bedroom apartment with their infant son and it’s getting cramped. “We need more room, and soon,” Pearce says. In the city’s highly competitive real estate market, where bidding wars are still common, home ownership has so far been unfeasible for the couple. But after a decade of staggering growth, the housing market in many Canadian cities is starting to cool—a trend economists and real estate experts suggest will continue through 2014. Prospective buyers like Pearce and Profeta are smelling opportunity, but they’re not sure how to take advantage. “If there’s a downturn coming, what’s our best strategy?” Pearce wonders.

Let’s be clear: despite what some in the media would have you believe, Canada’s housing market is not at the edge of a cliff, ready to plunge into free fall. “There are articles saying we’re going to have the same kind of crash we had in the United States, but that’s not going to happen,” says Jane Londerville, a real estate and housing adviser at the University of Guelph.

James McKellar, academic director of the Real Property Program at York University’s Schulich School of Business, is even more blunt. “First of all, there never was a housing bubble. So it hasn’t burst, because it never existed.”

But even if we’re not headed for an implosion, pundits generally agree we’re returning to a balanced market in which the interests of buyers and sellers are aligning—especially in Toronto and Vancouver where homes cost 4.3 to 7.1 times the average family income, respectively. By comparison, averages for other major real estate markets like Calgary and Ottawa-Gatineau are 2.9 and 3.4, respectively.

Prior to the 2008 global financial crisis, a strong economy, low interest rates and looser lending criteria sparked a rapid appreciation in the value of homes. But recent government interventions have returned some of the rules to normal, says Toronto real estate lawyer Alan Silverstein. Buyers can’t borrow 100% any more, and the maximum amortization is back at 25 years, down from 35. “It’s taken out the people who shouldn’t have been in the market. It’s brought a degree of sanity back but it hasn’t killed the golden goose.”

Like many Canadians, you’re probably wondering what all this means if you’re looking to enter the housing market, sell your home, trade up to a bigger residence, or downsize to a condo. MoneySense will help you navigate all of these scenarios and show you how to profit from the changing nature of Canada’s housing market.

Feels like the first time

The most obvious consequence of a decline in house prices is greater opportunity for first-time buyers like Pearce and Profeta. “Young people are having a tough enough time with getting jobs and earning money, but to see home prices going up at such a rapid clip has been really disconcerting,” says Toronto fee-for-service adviser Jason Heath. “Now, young people will feel like they’re getting less and less behind, and that it’s not an impossible dream to own a home.”

Sonya Gulati, a senior economist with Toronto-Dominion Bank, says we could see a slow 10% decline in house prices in Toronto, Vancouver and Montreal by the end of 2014. “We think those cities are the ones most overvalued.” As of September, year-over-year housing prices were already down 3.8% in the Greater Vancouver Area, according to Gulati. Toronto is now starting the same downward trajectory, she says, despite roughly an 8% increase in sales over the same period. Montreal is following the same pattern, too.

But first-time buyers shouldn’t be overly optimistic, especially outside Canada’s three largest cities. Sylvia Lewis-Havard and her husband are still renting, hoping the changing market might enable them to purchase a home in Ottawa. “I don’t expect a complete crash we can take advantage of,” says Lewis-Havard, but she hopes to find something for 15% less than the current average of $354,000. Gulati says that’s not likely to happen—in fact, she doesn’t expect real estate prices outside Toronto, Vancouver and Montreal to decline much at all. Her opinion is in line with a recent report by RBC Economics predicting “both resale activity and home prices in Canada to be flat or slightly negative in 2013.”

A housing slowdown in Toronto and Vancouver could affect consumer confidence in regions with strong economic fundamentals like Calgary, Edmonton and Halifax, adds Don Campbell, best-selling author of Real Investing in Canada. But rather than a sharp decline, you’re more likely to see slower rates of price appreciation and home sales, says McKellar. “Overall the economy of Canada compared to other countries is still doing very well,” he says. “Housing markets are a function of the economy. Not the other way around.”

In Toronto, it’s the condo market that may be most vulnerable to a fall in prices, says Gulati. “The most recent statistics show there are more than 100 condos being built in the Greater Toronto Area. By comparison, there are 59 being built in New York City and 22 in Chicago.” Campbell agrees this large supply coming into Toronto in 2013 will outstrip demand, and feels first-time buyers in Toronto may soon find big opportunities in the condo market.

Not everyone agrees with this assessment, however. Many of Vancouver’s condos were bought by Asian investors and remain unoccupied, says McKellar, whereas Toronto’s condos are being bought by non-occupants who immediately rent them out. “Rental vacancy in Toronto is just 1.2%, so all of this stock is not glutting that market.” The long-term growth of Toronto’s condo market is also secured by immigration, adds Silverstein. “A lot of new immigrants come to the GTA,” he says, “and a lot of investors are banking on renting these condos out to young couples or new immigrants.”

The biggest advantage Canada’s changing housing market will offer first-time buyers is the luxury of time. “In places like Toronto you might have a bit more breathing room to look at a place and think about it for 24 hours without having to shove an offer in with six other people and hope you win,” says Jane Londerville. “So it gives you a little time to do some careful thinking.” Even in her town of Guelph, Ont., bids can be aggressive for downtown properties, so buyers in smaller centres can expect to benefit from less competition, too.

Buying newbies should also bear in mind that sellers may be more open to negotiation now, says Marc Lamontagne, a fee-for-service adviser with Ryan Lamontagne in Ottawa. Lamontagne believes there will be opportunities for savings in any region of Canada, provided you’re a patient, aggressive bidder. “A lot of homes that will be staying on the market longer were purchased by developers or flippers. These people are going to be desperate and motivated to sell.”

Just don’t stall too long if you’re interested in buying a home. “Money will remain inexpensive for a few years to come, but it won’t last forever,” says Campbell. Prepare for a rise of at least 1% in interest rates and factor that into your budget. Londerville concurs: “It’s another reason not to delay buying if you’re borrowing. You can get a five-year mortgage at such low rates now that it’s a good time to enter the market if you’re not in it already.”

If buying is still out of your reach in a cooling market, focus on building up a sizable down payment, suggests Heather Franklin, a fee-only planner in Toronto. A 20% down payment will save you thousands in reduced mortgage payments, lower interest rates and mortgage insurance premiums. “For those first-time buyers, just wait it out and build up your payments,” she says.

Another option for those struggling to enter the market is to buy a property and rent out part of it to help you pay the mortgage, says Londerville. “You have to find creative ways to get into the bigger markets.”

The hard sell

Even if the evolving housing market is likely to move the pendulum in buyers’ favour, real estate experts don’t believe sellers are at a disadvantage right now. But they do need to be realistic, says Alan Silverstein. “The house that went for quite a high price a year ago might not get that price nowadays. But you shouldn’t be giving it away either. It just may take longer to sell.”

It helps to understand what type of seller you are: willing, anxious or desperate. “The willing are the ones who are testing the market,” says Silverstein. He advises against anyone doing that now, especially as we head into winter, the slowest season for real estate. “Only the real sellers are in the marketplace right now: the anxious who have a greater need to sell and may have to put the house on the market; and the desperate who have to sell, whether it’s due to divorce, job loss or whatever.” Desperate sellers may be forced to accept a low price, but Londerville notes that if they’re moving to a market that is also down, things could balance out.

“If you really wanted to protect yourself you would sell your property and rent,” adds Lamontagne. Although house prices have risen substantially in the last decade, rents have not. “If home prices do come down quite a bit, that’s an opportunity for you to go back. The issue is the transaction costs. Every time you buy and sell there’s quite a bit of cost involved.”

Don Campbell’s advice for those selling is simple: “Marketing, marketing, marketing.” In this environment it will no longer be enough to just hand your listing to a realtor and expect a bidding war, he says. Sellers must get involved at all levels of marketing as competition increases thanks to more property choices and fewer desperate buyers. “Learn about staging a property, and visit other properties in your price category to see what the competition is offering,” he advises. “Make sure your realtor has a marketing plan to generate a lot of interest before you list.”

Movin’ on up

If house prices do end up declining in your area, it’s not just first-time buyers who will benefit. “Buying up in a down market” is a strategy in which homeowners sell their smaller property and buy a larger one—the idea being they will come out ahead because the price reduction on the new purchase will be greater than the loss on the sale of the former home.

For example, if prices decline 10% across the board, a house that was formerly valued at $300,000 will fall to $270,000, while one valued at $500,000 will fall to $450,000. That shrinks the price difference from $200,000 to $180,000.

Just be sure to determine how different segments of your market are affected by a price decline, Londerville cautions. “It could be that larger homes are still selling, whereas starter homes are not because new people coming into the market can buy a bigger house than they could before. But as long as both markets are slowing down you can take advantage.”

Of course, homeowners looking to move into larger properties have the same advantage as new homebuyers in a cooling market: less competition. “I’ve got clients who have been looking to move into bigger homes in certain neighbourhoods, but the frenzy of competition has made it almost impossible despite low interest rates,” says Jason Heath. “These buyers are no longer going to be in a position where they’re dealing with multiple bids.”

McKellar warns, however, that those looking to sell their homes and move to a larger property should think carefully. Often, when you consider the costs of moving, your agent’s commission, lawyers and so on, it might be more cost-effective to build an addition or renovate.

Polly Chow and Wilson Luk are contemplating an upward move from their two-bedroom condo in Vancouver, which they purchased in June 2011. “We would like the opportunity to upgrade within the next few years if the housing market cools, and we have saved up a down payment,” says Chow. They’re considering looking at a townhouse or a duplex that could provide a steady rental income to help pay a bigger mortgage. Heath recommends anyone thinking about renting out part of their home or purchasing should keep in mind that any financial rewards will be tempered by the time and energy you devote to your tenants.

Doubling down

It’s been 10 years since Dearl and Sharon Alexander’s two adult children finished university and moved out their mortgage-free home in the Ottawa suburb of Orleans. Now the couple wants to downsize and they’re wondering what to do in the current environment. Should they buy or rent a smaller home or condo? They also wonder whether they should keep their current property and rent it out, which would require repairing the back patio, redoing the kitchen and getting rid of the carpet and linoleum floors. “Is it worth the money and the trouble?” asks Dearl.

If you’re in a situation like the Alexanders’, your first priority should be doing what’s right for your lifestyle, not trying to pick the perfect time to move. “It’s very hard to time the market,” says Jane Londerville. If couples are committed to selling their homes, they shouldn’t hold off for long, she says. If house prices do start to fall, it may be years before they rebound.

Something else homeowners like the Alexanders need to consider is the demographics of their neighbourhood. Is it a bedroom community filled with retirees and empty nesters on the verge of selling? “If there was a potential downsize in my future,” says Heath, “I’d rather be one of the first ones out rather than being in a neighbourhood with a lot of downward pressure because lots of boomers are selling. Likewise, homes in certain neighbourhoods that are close to amenities or public transportation can have upward pressure because they’re very palatable to baby boomers downsizing. So be cognizant of the neighbourhood you’re living in as well as the neighbourhood you want to move to.”

Should the Alexanders rent out their current home instead of selling it? Heath says turning larger family homes into an investment property often means maintenance headaches: the lawn, the roof, a pool in the backyard. “Maybe that’s not a good rental property because there’s so much that can go wrong with it,” he says. “Strictly from a rental point of view, the best kind of property is the simplest and easiest. More often than not that’s a condo.”

When it comes to choosing whether to buy or rent after downsizing, the Alexanders have a lot to think about, too. “There really is no carte blanche answer to that,” says Heather Franklin. For instance, if the couple downsizes in a neighbourhood where rents have stayed consistent, they may want to get out of the housing market altogether, she says. At the same time, they may find renting more costly because they are no longer making mortgage payments on their home. As well, downsizers need to be aware they’ll likely end up buying a smaller property equal in value to the home they’re selling. “For the most part, the people I know who are downsizing are moving into condos that are equally expensive and just have less space. They want the convenience of just walking out the door. So it’s not purely financial.”

Downsizing and renting is also a smart idea if you’re considering moving to a different neighbourhood, says Heath. “Rent for a year or a couple of years and figure out whether that’s really where you want to be.”

As to whether the Alexanders should drop a bundle on upgrading their current home prior to downsizing, that’s something real estate agents typically advise because it makes a house easier to sell, says Heath. Don’t, however, expect to get back every dollar you spend. In particular, upgrades to kitchens or bathroom can backfire because new buyers may have different tastes. Generally speaking, if something is falling apart you fix it, says Heath, but think hard about doing anything else.

However you’re navigating Canada’s housing market—be it as a buyer or seller—take a deep breath if dips or slowdowns are causing you anxiety. “There’s a tremendous misunderstanding of the housing market,” says McKellar. “It’s a long-term market that will always go through short-term adjustments.”

It helps to remember your house should primarily be a place to live, not an investment. That doesn’t change when a hot market starts to cool. “If people can afford the fundamentals, they’ll be fine,” says Silverstein. “A balanced market is the best situation: when you have a balance, buyers and sellers should both be happy at the end of the day.”

35 comments on “No bubble, no trouble

  1. Good article, lots of great advices.


  2. I'm glad to see a thoughtful, balanced article where so many are not. I also look at the number and trend of listings. An increase indicates a bubble may be forming and a very large increase may indicate a bubble is bursting as speculators try to exit. I live in Vancouver where the trend is significantly down, which tells me that homeowners simply aren't interested in selling at the price that buyers want to pay. They don't *have* to sell, so they don't, and prices remain stable, albeit a little soft. Sales activity is generally limited to legitimate sales where a seller *needs* to sell and a buyer finds the price is acceptable. These transactions are currently happening at lower prices, indicating there are more sellers than buyers, but there isn't a rush of selling by scared speculators.


    • Hey Doug, your logic is flawed and not based on facts.


  3. Of course there is no housing bubble, because that has burst and we are now in a long term historic decline that will bring houses down below the acceptable 3 times income. It has happened everywhere else in the world and Canada is unfortunately is the same or worse than most other countries. Look at debt, emergency interest rates, over building, the complete 180 degree turn around that Flaherty and Carney have taken in terms of mortgages and financing.

    The best thing for this economy is for prices of homes to reduce to half what they are. This will free up funds, give people disposable income and spur growth in our economy. The overinflation of this one commodity has been like the Asian Carp in the Southern US.

    Sure the emotional toll of 70% of Canadians seeing their core asset dissolve on a daily basis will be significant, but it is absolutely the only way clear for this country to move forward.


  4. Prices will definitely continue to decline in 2013, as they already have in Vancouver. Most decline will be in Vancouver and Toronto where prices are unrealistic. Toronto will see a BIG decline in the condo price. I have been around real estate all my life and a condo is just another way of saying APARTMENT.
    Physically they are the same thing with just different LABELS on them. Look for a decline in all real estate in all locations in Canada, more so in some locations but never the less a decline every where.


  5. As more boomers age,. they will refinance or sell their homes,and that will accelerate the decline in home prices. Youngsters – save up whatever you can for a downpayment, as it will soon be a buyers paradise


  6. In my opinion..People in Toronto complain too much. Housing price is has gone up, but so did the price in all the big cities in the world.


  7. I've had several Buyers Jump of the fence and Buy in Victoria this month and I'm getting calls and emails with Buyers wanting to Find a home..Many of these Buyers have been in my List of Buyers for many years, yet now they are acting..maybe because interest rates are low and homes for sale in Victoria inventory is low this time of year.


  8. Very well written article. Arguments both for and against really drive home how diverse the views on the housing bubble is.


  9. I've had several Buyers Jump of the fence and Buy in Victoria this month and I'm getting calls and emails with Buyers wanting to Find a home..Many of these Buyers have been in my List of Buyers for many years, yet now they are acting..maybe because interest rates are low and homes for sale in Victoria inventory is low this time of year.
    Prize Bond Formula


  10. Really, no matter whether your buying or selling real estate it's always good to have a real estate attorney in your corner.


  11. that is why seeking help from the experts is what i can recommend you and now I am sure things can be easier.


  12. This article is so nice and so great advices . so many thanks for sharing it


  13. Thanks for the detailed post… being from Vancouver the bubble debate is always going on!


  14. This is a typical scenario of starting a family life. I agree that first time buyers shouldn't have high optimism if they would buy a home outside Canada’s three largest cities. However, due to tight competition, buyers should always bear in mind that they can always negotiate to meet the price that they can afford when buying a lot. And this is what being practiced in Roofing Bethlehem PA.


  15. of course there is no housing bubble, because that has burst and we are now in a long term historic decline that will bring houses down below the acceptable 3 times income


  16. It has happened everywhere else in the world and Canada is unfortunately is the same or worse than most other countries.


  17. This is exactly the reason why people should think first before buying a house. It needs proper planning and of course, one has to be financially stable before doing such purchase.


  18. Buying a property is a good investment. The value of real estate never depreciates over time. However, investor should consider his capacity to pay. He may consider having it the property to pay for 5 years or he could have it in cash so long as he has a sufficient savings account.


  19. I wonder if this is the right time to sell my property. I don't really have any idea in this field.


  20. I am still having doubts on getting a house loan but I really want to give a house as a present for my parents. After reading your post, I have realized the benefits and disadvantages of getting a house.


  21. Almost everyone aims to have their own place, a property of their own. However, one shouldn't make a decision based on their emotion. One should consider hi financial capacity if he could afford long time monthly dues for the home payment.


  22. Landscaping is a great way to add more value to your property. I try this one with our old house and I'm surprise with the price. It really go up.


  23. The article has actually peaks my interest. After reading your article Love your work, clear!


  24. This is a typical scenario of starting a family life. I agree that first time buyers shouldn't have high optimism if they would buy a home outside Canada’s three largest cities. However, due to tight competition, buyers should always bear in mind that they can always negotiate to meet the price that they can afford when buying a lot.


  25. As more seniors age,. they will re-finance or offer their houses,and that will speed up the decrease in house. Young people – preserve up whatever you can for a deposit, as it will soon be a customers heaven


  26. When it comes to buying a house, there are several factors to consider. That's why it is better if you will seek an advice from the expert. A real estate professional or expert knows the ins ad outs of getting a property.


  27. Really, no matter whether your buying or selling real estate it's always good to have a real estate attorney in your corner. Thanks for the detailed post… being from Vancouver the bubble debate is always going on!


  28. À mon avis .. Les gens de Toronto se plaignent trop. Prix ​​des logements est a augmenté, mais ce fut au prix dans toutes les grandes villes du monde.


  29. I didn't know Canada's housing market was going through such a period. Thanks for the update.


    • This service is in demand, especially companies that have opened branches or working with clients in the major administrative and regional centers. As for individuals, our clients – people who move to another city or want to give things to their relatives, friends or acquaintances.


  30. I never found any decline in the house prices, either the economy is up or down. It seems always an increasing factor.


  31. One of the biggest challenges that face anyone is justifying what one want to do and why it's going to disrupt the status quo — whether it be to give opinion or starting a converstaion. It really helps when reading your material insisted on the matter you have highlighted. Fine tunning the concept you discussed will surely bring new opportunities in this area of interest and brings will result something positive. I appreciate your efforts of taking notice of above discussed matter


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