Canadian Real Estate Investing – Whether the numbers justify the hype

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When investing in real estate, an investor must consider the economic indicators of the location in order to determine whether the investment is a solid one. Economic indicators such as population growth, job growth, and unemployment rates will give the investor a better grasp on whether the location’s economy is suitable for investment. However, more often than not, investors start falling into the trap of following the crowds and listening to often-misguided information from individuals who call themselves “Real estate experts”.  Analyzing with your head and looking at key indicators and statistics are imperative in any successful investment. Below we examine the most popular real estate investment locations in Canada and look at whether the hype around these locations are justified by the numbers.

Best Investment Locations

1) Alberta

Alberta has been the center of talks in today’s economy. With its oil and energy sector taking off, Alberta’s economy is absolutely booming and the real estate market is benefiting from this.

TD Bank reported that persistently strong oil prices are giving the economies of resource-rich Prairie Provinces, such as Alberta, a turbo-boost. The bank forecasted that Alberta’s GDP will grow a robust 3.6 per cent this year, well above the 2.2 average of the country. The province added 5,500 new jobs in the month of July alone and its “help-wanted” index rose a staggering 12.6 points. This has pushed unemployment rates to an all time low of 4.6 per cent, which is well below the current national average of 7.3 per cent. Alberta’s migration rate also soared the past months, adding almost 30,000 new residents in the first three months of 2012. In terms of housing starts, Alberta had a total of 31,500 this July and is on pace to have approximately 400 more housings starts in 2013 than 2012.

The numbers clearly justify the hype surrounding Alberta and real estate investors from around the world have taken notice, as the demand for Alberta properties is at an all time high.

2) Toronto

When people think of Canadian real estate, Toronto is usually one of the first locations that come into people’s minds. In the past, Toronto has always been one of Canada’s leading business centers. But recently, investors and analysts alike have started questioning whether the Toronto market is still as good as it used to be…

Based on statistics from RealNet Canada Inc., the 1,242 homes sold in August were down significantly from 3,496 last year, the lowest monthly sales for Toronto since 2009. Through the first eight months of 2012, there have only been 24,301 new home sales, which is down from 30,412 for the same period a year earlier. The condominium market also experienced a staggering 34% downturn in sales, as an increasingly amount of investors are becoming skeptical of the Toronto market. The Royal Bank of Canada also reported that home prices in Toronto are projected to fall between a range of 2% to 7%, as an over supply of housing has put downward pressure on home prices. Housing starts were at an all time low of 21 per cent earlier in the year, and will continue to see progressively slow growths as the Toronto market tries to regulate its supply and demand of housing.

Statistically speaking, the Toronto market is not what it used to be and many investors are starting to realize this. The numbers do not justify the hype in this location and considering the economic indicators of Toronto, Canadian investors should seriously consider looking elsewhere in the nation for better Canadian real estate investment opportunities.

3) Vancouver

Some consider Vancouver to be the most beautiful city in the world, while others describe it as the premium location for Canadian real estate investment. The numbers however, paint a very different story…

In the past, all investors had to do in Vancouver was purchase a property and wait for the property’s value to rise. Those days have long gone, and an increasing amount of analysts have pinned Vancouver’s market as one of the most inflated real estate markets in the world. To be put this into perspective, Metro Vancouver median income currently ranks near the bottom quartile in the country (23rd out of 28 cities), yet there are currently over 5,000 homes in Vancouver metro area for sale over $1 million according to MLS.ca. In comparison, just over 7,000 homes sold in the entire US were sold for over $ 1 million. This means that the Metro Vancouver region has 42 times as many million-dollar mansions per capita than the entire U.S.A, including New York, the Hamptons, and Beverly Hills. To make matters worst, the Vancouver job market has suffered considerably the last few months. In the month of July alone, employment in B.C declined by 15,000 jobs, pushing the unemployment rate up 0.4 percentage points to 7 per cent, according to Statistics Canada. As a result of the slowing economy, average home prices have fallen a staggering 12.4 per cent in Vancouver over the past year. Unit sales were also down, showing a 38 per cent decline since February 2011. This has led to fewer home listings (down 5.4 per cent over the past 12 months) as an increasing amount of homeowners are starting to doubt whether they could sell their houses for the “sky-high” prices of the past.

As beautiful as Vancouver, the statistics clearly show that Vancouver’s hype is not justified by its numbers. Although it is one of the most beautiful places in the world, its beauty comes with a hefty price, and a price, which most real estate investors should look to avoid.

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