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Why You Shouldn’t Care About a Real Estate Bubble, Despite What They Say!

By on Dec 21, 2011 in Canada
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bubble Why You Shouldnt Care About a Real Estate Bubble, Despite What They Say!Here we go talking about a housing bubble in Toronto again, especially in the new condo sector. “Investors rushed to buy Toronto condos in the good times, now there is a worry that they will rush for the exits as the economy weakens and they realize that profits are hard to come by in an overbuilt market” writes Steve Ladurantaye in a great article on the Globe and Mail citing a recent report by Merrill Lynch.

The notion of a real estate bubble in Toronto has been widely discussed for a better part of two years. The problems are that most of these reports are both based on mere assumptions, disputed ones at that, and also ignore the fact that for the educated investor there are opportunities in real estate regardless of the overall conditions.

Merrill Lynch, on the heels of a record breaking year in the condo market thus far, expects a flood of rental units coming into the market, triggering a burst of the all important housing bubble. Looking at Urbanation’s latest report, there seem to in fact be a shortage in the rental units currently available in the market; Q3 also recorded a 79.4% lease-to-listings ratio which demonstrates how basically all units listed are quickly being rented out (in fact they do so in less than 18 days). Urbanation, a company which has monitored the Toronto condo market performance since the early 80’s, in their study predict a healthy rental market in the upcoming year.

Furthermore, the main assumption in the Lynch report is that about 60% of buyers are investors looking to rent out thousands of units at the same time. As mentioned by Mr. Ladurantaye, there is currently no such statistics officially kept. Jim Ritchie, Senior VP of Tridel, contends that in his calculations only 15% of buyers are investors, a number which would nullify the argument put forth by Merrill Lynch and others easily.

Having said all that, at the end of the day the idea of a bubble really should not matter. You have to be a savvy investor and never invest in a market you do not fully understand. I encourage you to watch the following video released by the president of Real Estate Investment Network, and a TheRedPin Wall of Famer, Don Campbell. Here he takes issue with the notion of a real estate bubble, and concludes that:

“it’s not a bubble that’s going to go KABOOM. What it is, is a very readable cycle that has market influencers, and market drivers; and your job is to step back from the frenzy, and when somebody tells you this time it’s different, run away as fast as you can!”

There are opportunities to make sound judgments when you educate yourself in the market you are about to invest in. Go ahead, read the right books and blogs, keep an eye on the right channels, and seek the help of professionals who know the market inside out. Go ahead make it happen!

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About the Author

Sam Hosseini, BA (hons.), MBA, Lead Marketing Strategist at TheRedPin. He writes about Marketing, Real Estate, and everything in between. Follow him on Twitter @Sam_Hosseini
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