It’s still a good time to buy a new home in Canada

“Global investors fleeing volatility are taking refuge in an unlikely place: a Canadian housing market that some speculators are still betting is a bubble ready to pop,” reads the lead paragraph from a recent Globe and Mail story about global investors snapping up Canadian mortgage-backed bonds.

Seems ironic, given that many are presuming our bubble situation has left us in an imminently volatile situation of our own. But these investors, mostly European and American, have their fortunes at stake, unlike the economists employed by the banks, as educated and intelligent and as well versed in market-watching as they may be. As the saying goes, these investors put their money where their mouths are.

Investors have bought a record $31 billion in mortgage-backed covered bonds this year according to Fitch Ratings, in spite of the record-high home prices and record-low bank rates (and likelihood that the Bank of Canada could drop them again) that are making many economists nervous. Remember that Canada’s lenders has been rated the world’s soundest lenders for seven consecutive years by the World Economic Forum. The bonds, which cover mortgage lending, are selling because the world thinks our housing market is strong.

That means it’s still a good time to buy, in spite of the “sellers’ market” cries of recent months. If you need signs beyond the strength of these bonds, consider that the rental market continues to tighten, especially in Vancouver and Toronto, where home prices are by far the highest. According to its most recent bi-annual Rental Market Report, released in the spring, Ontario vacancy rates edged down to 2.5% over the prior spring, but that balances out some less in demand markets (like Windsor, with a 4.9% vacancy rate) with some of the more in-demand areas like ours, with 1.8% for a one-bedroom unit.

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CMHC and StatsCan say that new rental buildings aren’t keeping pace with the growth of new renter households in Ontario, which helps drive people to the condo market.

That interest rates may go down even further makes buying especially attractive right now, as long as you don’t get in over your head. Some of us are old enough to remember when interest rates hit 21% in the early ‘80s. It wasn’t until the early ‘90s that rates fell to less than 10%. And even that didn’t stop people from buying houses. The average five-year fixed mortgage is between 2% and 3% right now. That alone is pretty irresistible. For those too young to have even experienced rising interest rates, it’s a good idea to remember that they will climb, but the likelihood of their ever getting back to those kinds of levels is remote. The recent globalization of our economy is a good inflation-fighter, and it was rampant inflation that forced the central bank to hike the rates back then. A barrage of cheap imported stuff keeps domestic prices down.

Also, the boomers who were demanding high wages and snapping up real estate then are older now, with less demand for high incomes and less upward pressure for home prices. Economists at TD said recently that even when rates do go up, they’ll go up slowly and their impact will be carefully monitored.

The big fly in the ointment is personal debt relative to income. In the early ‘90s, Canadians owed about 90% of their disposable income. That number has more recently climbed to more than 160%. The good news is that personal debt is all in your hands — you don’t have to listen to experts, read the business pages or even look at a newspaper to know when you’re making bad decisions. Be smart, but don’t be afraid to buy.

Feature image: Chelsea Maple Station via Aspen Ridge Homes