Reasons why the Canadian property market refuses to fall: Don Pittis

It isn't just Canadians waiting to see tomorrow's latest real estate numbers.

On Wednesday when the Canadian Real Estate Association releases the latest sales statistics and prices for resale homes, it willfeellike the whole world is watching.

At the end of last month the Swiss banking giant UBSput both Toronto and Vancouver in the top five of its international bad boy list.

Toronto had the distinction of placing number one on the company's worst global bubble risk,beating out Hong Kong, London and Amsterdam. Vancouver wasn't far behind.

'Fear of missing out'

"Annual price-increase rates of 10 per cent correspond to a doubling of house prices every seven years, which is not sustainable," said the UBS report. "Nevertheless, the fear of missing out on further appreciation predominates among home buyers."

If there's a bubble about to burst, nobody's convinced Canadian buyers or builders.

A walk past a Torontoopen house this weekend was like watching a sugar bowl attacked by ants. The interior of the newly renovated house glowedinthe grey afternoon light like a film set aswell-off looking couples dipped in for a taste and headed back to their expensive cars.

By the next day a sold sign indicated one set of lucky buyers was now likely saddled with a million-dollarmortgage.

There may besome justification for bidding up the price of a detached brick housenear good public transportation. The supply is limited.

But not far away, construction cranes tower into the sky asworkers build more condos. The builders insist they areselling.

Montreal hot too

And Toronto and Vancouver aren't the only hot spots. After provincial governments used a tax onforeign buyers to try to slow overseas demand in those two cities, Montreal has seen a condo sales explosion of its own.

Powered by a surging Quebececonomy that has made it a target for foreign cash diverted away from B.C. and Ontario,real estate in the province's business capitalisplaying catch-up.

So why isn't the latest round of warnings, includingone from theCanada Mortgage and Housing Corporation thatthe Canadian market was "highly vulnerable," having an effect?

Certainly hot international money looking for a safe home must still be having an impact. For example, some analysts have pointed to a resurgencein overseas buying in Vancouver as investorsfind ways around the tax or merely chalkit up as a cost of doing business.

Safer than bitcoin

If bitcoin, an imagined currency that has no floor value, can continue to attract investors in spite of this past weekend's heart-stopping plunge and recovery, it's no wonder overseas money thinks ofCanadian property as a secure investment.

Maybe it's a sign of dangerous times to use bitcoin as a comparison, but if you are choosing between the two, Canadian property easily comes down as the blue chip investment. If the worstwere to happen, bitcoin's billions could disappear in a cloud ofsmoke, but Canadian homes would retain a long-term value.

Whether it'sbecause investors are sitting on unrented properties or due to soaring domesticneed, markets continue to showplenty of unsatisfied demand, especially in areas closer to citycentres and near good public transit.

Canada's surging economy continues to crank out good quality jobs and well-employed people demand quality accommodation. Besides, people hired in one of Canada's big cities need to find someplace to live whatever the price or quality.

And even if a bubble were to pop and Canadian houses were to experience a real bear market, with a million new immigrantsscheduled to arrive in the next three years, there is every reason to expect a long-term return to value.

Cheap rates are getting expensive

As UBSnotes in its warning, fear of missing out continues to drive buyers, convincedfrom years of experience that property prices only go one way up. Of course if they look back at about adecade's worth of previous warnings they would quickly come to a conclusion warnings are not to be trusted.

Perhaps most important for the prospective homeowner trying to get into this market is that borrowing to buy a house or condoremains dirt cheap. Floating rates remain in the order of twoper cent and five-year fixed rates can beas little as threeper cent a year.

Those low rates are deceptive because houses are growing less affordablerelative to income as prices continue to rise.

Global inflation is weak and after, two recent increases, Canadian interest rate rises appear to beon hold, so Canadianbuyers are getting very little discipline from the market.

Until that happens and despite the potential consequences it is unlikely Canadian property buyers will be able to discipline themselves. We'll see tomorrow.

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