Purchasing a home is still one of the most popular types of investments in Canada. Because of that, it is not a surprise that many Canadians were fearful with the abrupt economy reversal that happened recently.
With the pandemic and the economy hit, the country’s average home prices dropped from 9 to 18%. This is because many Canadians suddenly found themselves facing the uncertainty, with many job losses and with the economy slowing down. The Canada Mortgage and Housing Corporation (CMHC), believes that the housing sector will only return to the same levels as pre-pandemic in 2022.
Specialists predict that big cities like Toronto and Vancouver will suffer the most, specially regarding the condo markets.
These might not be such great news for the those ones who were planning to acquire a new home, or for a buyer that just purchased a house and was planning to resell it in the next couple years. Right now, the best and safest investment is to maintain a sufficient source of income and not put your house on the market if possible.
According to the CMHC, average Canadian house values have increased by over five per cent annually. That includes the 2008 global financial meltdown when predictions for a housing market collapse never materialized.
Many homeowners have already benefited from the pre-pandemic housing boom, and for new homeowners, any decline over the next three years can easily be absorbed once the market gets back on track.
The good news is for potential buyers, since that the next three years will be a good chance to invest in the residential real state market. One of the biggest risks before the pandemic in the housing market was the threat of higher mortgage rates. But, massive government spending and the resulting drag on economic growth mean that borrowing rates will likely remain low for a long time.
A house is a unique form of investment in terms of risk. A short-term theoretical drop in the value of a home is not the same as a drop in the value of a stock or something like bitcoin, for example. In most cases, homes are bought and sold far less frequently, which decreases the risk of making a price decline a real loss and allows time for it to recover.
What really sets a part a home for the other investments it is their intrinsic value. A home is considered real estate. That means it is a real, tangible, asset and will always have a significant basic value. The intrinsic value of a home comes from the fact that it is the only investment you can actually live in. In addition to the potential for it to go up in value with time, a home pays a sort of dividend equal to the cost of rent if you didn’t own a home. A home can also generate income by renting out.
Being a home owner also allows average investors to build equity by borrowing at a low interest rate in the form of a mortgage by using the property as collateral. After some time, that equity can be used to borrow at a low interest rate through a home equity line of credit.
In conclusion, even with the unpredictable upturned economy, there will always be an economy, as long as there is demand for something. Investment trends will always change, but the desire to own a home will always drive demand.
If you are looking to refinance or purchase a home over the next few months, contact us today at 877-296-2696 or email us at info@homemortgageadvice.ca.