Is the Canadian Housing Market in a bubble?
It sure is hot, and has continued to go up over the last few years. With only a minor drop during the 2008 market crash, and a quick recovery, the Canadian housing market hasn’t experienced the same slowdown we’ve seen south of the border. In fact, Canada hasn’t seen a real housing bubble burst since the early 1990s.
Now, in the last few years, it’s hotter than ever with foreign investors coming in and creating a supply and demand problem in Ontario and British Columbia.
So is it wise to invest in the Canadian housing market?
At some point there will be a cool off period, but no one can say for sure when that will be or how significant a drop in prices we could see (or how long the recovery time will be).
Economists can make general predictions by looking for trends and signs of an economic event that could cause a burst, but for the most part, it will happen without much warning.
All that being said, it doesn’t mean you shouldn’t invest in real estate. It’s just important to know the different risks involved in different investment strategies, and which strategies work best should the “bubble” burst.
The market doesn’t go up forever.
That’s why we invest for cash flow. When you invest in cash flow you have a safety net. That doesn’t mean you’re left without risk, but the more cash flow, the thicker the safety net should anything happen.
The price for properties will always go up and down, sometimes it will gradually change, and other times it changes rapidly.
However, in Ontario with rent control, historically rent prices continue in a slow upward trend.
So, if you’re able to rent for a positive cash flow (income left over after all expenses) now, then even if there is a drop in the housing market you’ll at least have an income stream coming in while you wait for the market to go back up.
There are several investing strategies that will consistently prove profitable regardless of the Canadian housing market.
The first is investing in nice single-family homes in nice areas. There will always be a need for rentals. The key is to look for homes in areas that fit 3 main criteria. First, they should be experiencing population growth larger than the provincial average. This means people more people are moving into the area than moving out.
It should also have an average family income greater than the provincial average, which is a good indicator that people have jobs and there are diverse employment opportunities.
Lastly, an area should be experiencing infrastructure or transportation improvements. Things like highway improvements, sewage development, or new GO train stops are all good signs.
Another investing strategy that will continue to be in demand is student rental houses in prime locations near university and college campuses. Students will always need houses to rent in these areas, and if you invest right, you could see a much larger monthly cash flow.
Student rental houses have great potential for a high cash flow because you may have four, five, six or seven students sharing one house. This means your monthly rental income is nice and high.
With rentals you can continue to see positive monthly cash flow, have someone else paying your mortgage, and it allows you to wait out any housing market dips.
These are far from the only strategies you can use to safely invest in the Canadian Housing Market but they are two great long-term investments that will help ensure you’re seeing monthly income and long-term gain.