5 reasons why Waterloo Region’s house market won’t crash

crashOften when I’m talking with people about real estate (everyone loves talking about real estate) someone will say something like “the housing market is going to crash”.
I always have to disagree. And here’s why.

1) We are the USA. Things crashed there, especially in Florida and parts of Arizona and California. The subprime mortgages offered in the USA was much more aggressive (dodgy) than what our banks and other lenders will offer here. Furthermore, lenders have better recourse to go after people who walk away from their mortgages. We get a lot of news filtering in from the USA. It does not apply to us.

2) Some people argue that when (if) interest rates rise, a lot of people will get caught in a credit crunch and wont be able to afford their mortgages. This will cause sudden and severe downward price pressure on housing prices. Sounds reasonable. There has been a lot of news about Canadians spending beyond our means. But if you’re paying attention, you’ll notice that the Bank of Canada is holding the rate down, allowing it to climb slowly with economic activity, job growth and income levels.
3) In real estate, we like to say the three most important things are location, location and location. In two cities – Toronto and Vancouver there is a bit of a housing bubble taking place (especially in the condo market) and the regulators are trying to let the air out of these markets slowly. But in Waterloo Region we have a very stable market where houses priced right sell within 60 days and multiple offers occur, but not as often as a few years ago.

4) Price-to-rent and price-to-income ratios show over-valuation in the Canadian market, but valuation levels are not usually good indicators of turning points. Over- and under-valuation can persist for years in currency and financial markets. Indeed, the U.S stock market has been over-valued for more than a decade going by several yardsticks—yet it’s still holding up.

5) It’s wishful thinking. Many first time homebuyers would love to see housing prices fall by 30% overnight. Buying a house seems so much more expensive than it was ten years ago – because it is. Since 2000, housing prices nearly doubled but wages remained about the same. Hope is not a plan. House prices will not crash simply because you want them to.

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