Thinking about buying real estate in Canada this year? Get ready for a carnival. But instead of using bright lights and loud noises to distract would-be customers, the housing market relies on ever-increasing prices and the promise of future wealth to entice and awe.
Leaving a carnival a few bucks short isn’t a big deal, but make the wrong choice in today’s housing market and you could end up in a scary financial place, as sky-high prices continue to climb. Consider the Toronto market: Despite predictions the market would finally cool, sales in Canada’s largest city surged dramatically in the first two months of 2015, with the average home price jumping more than 10% year-over-year.
In a high-stakes market it’s tough to find advice you can trust, but we can help. We know most buyers are primarily concerned about two main things: They don’t want to overpay for their house, and they want to buy in an area where housing prices will keep rising after they buy.
To help you find these rare locales, we developed a proprietary real estate rating system. First we take a long hard look at housing prices in a given area, to make sure homes are reasonably priced compared to those in surrounding areas. Then we look at housing price trends to find places where home prices are most likely to keep rising in the years to come. In the pages that follow, we first apply our ranking system to Canada’s 35 largest cities. Then, for the big four—Vancouver, Calgary, Edmonton, Toronto and Montreal—we drill down deeper, rating every single neighbourhood in each city, so you can find exactly the right place to buy now.
Ranking the top 35 cities
To rank Canada’s largest 35 cities, we collected data from the Canada Mortgage and Housing Corporation, Environics Analytics and other sources in four categories: value, momentum, economic strength and rental income potential. These metrics helped us find cities where homes are reasonably priced, but where the economy is strong enough to ensure that prices will continue to rise.
We want to make sure you don’t overpay for your home, so we started by comparing average rent to average home prices in each city. Experts agree that if a city has a high price-to-rent ratio, then the market is overpriced. Then, we examined each city’s housing affordability. Taking into consideration local wages, we calculated how many years of average household income it would take to buy a typical family home.
Next, we set out to find markets where prices will continue to rise. We looked at whether the real estate market was balanced or not using the sales-to-listings ratio, which measures the balance between supply and demand. If a market has more demand than supply, we know it’s a seller’s market, and prices will likely go up. We also examined how fast home prices have risen over the last year and over the last five years, and how much rents have appreciated over the half decade, as rapidly rising rents indicate a community with a pent-up demand for housing.
After that, we turned our attention to each city’s local economy. By analyzing unemployment rates, gross domestic product estimates and discretionary income levels, we were able to get a read on the local economic strength of each region—important because house prices will only go up if local residents can afford to pay them.
Finally, by ranking each city’s five-year rent appreciation rates and matching that with each city’s current vacancy rate, we were able to rank the rental income potential for each city. This is helpful because a low vacancy rate indicates pent-up housing demand, as well as a strong rental market.
Like the carnival barker’s promise of good news, we’re confident our research will cheer up any house hunter. But we should offer one caution: while our system does a good job of crunching historical data, it can’t factor in rapidly changing situations, such as a sudden housing crash or, as we’re currently seeing in Calgary and Edmonton, the effect of a sudden drop in oil prices or other local economic shock. In markets where things are changing rapidly, you should do your own research and use our recommendations with care.
Canada’s top neighbourhoods
We know that most home buyers aren’t looking to move to a different city—they just want to find the best local neighbourhood to move to. So next we turned our attention to ranking every neighbourhood in Vancouver, Calgary, Edmonton, Toronto and Montreal to find out which areas offered the most value and growth potential.
To determine neighbourhood value, we compared the average home price in each neighbourhood to the average home price in the surrounding area, the metro district, and, finally, in the greater municipality.
But sometimes a neighbourhood is cheap for good reason. We wanted to avoid stagnating, depressed neighbourhoods with poor local economies and social problems, so, as we did for the Top 35 Cities list, we also examined neighbourhood price appreciation over the last five years. The stronger the overall appreciation, the higher these neighbourhoods ranked.
Finally, we wanted to analyze those intangible qualities that make for an enjoyable place to live. Things like the quality of the local schools, community feel, access to transit, and even how easy it is to get a good cup of coffee. For that we turned to our panel of experts. Zoocasa is a national real estate brokerage owned by Rogers (which also owns MoneySense) with a mandate to help home buyers find top-notch realtors. They helped us put together a panel of 10 to 60 local real estate experts in each of the four cities, who helped rank the desirability of each city’s neighbourhoods.
One final note. In the Montreal and Calgary neighbourhood rankings we used average home prices, as supplied by their respective real estate boards. The prices used for the Greater Vancouver and Greater Toronto areas, however, are benchmark prices. Known as the Home Price Index (HPI), this price provides a less volatile measure of average home prices as it eliminates the very expensive or very inexpensive home sales in a neighbourhood—sales that can quickly throw off an average.
When ranking the top neighbourhoods not all metrics were weighted equally. Read our full methodology.
SOURCES: Canada Mortgage and Housing Corporation; Canadian Real Estate Association; Environics Analytics: WealthScapes 2014.
We would like to thank national licensed real estate brokerage Zoocasa for making its experienced realtors available for our expert panel.