The Toronto condo market has slowed. It is cooling off after a major boom. However, there is no reason to panic, and some of Canada's leading economists have listed several reasons why.
Here are five reasons from David Rosenberg:
1. Because Canadians pay for health care through taxation, this distorts the visible debt-to-income ratio relative to the US. The current ratio is actually closer to 118% if you factor this in.
2. Neither Canadian debt relative to assets (19%) nor net worth (24%) is at an all-time peak. It would require a 20% drop in the housing market, says Rosenberg, for the ratio to fall in line with that of the US.
3. Canadians have more home equity. They have 69% of the value, compared with 43% in the US. Canadian household net worth/income is over 500%, 35 percentage points higher than in the US.
4. Canadian wages are growing at 4% per year, allowing Canadians to better service their debts. That rise matches the average interest rate they are paying. At the same time, debt growth is the slowest it has been in a decade, improving balance sheets without a lot of painful deleveraging.
5. Canadian interest rates may be 75 basis points higher than the US, but because the debt-servicing ratio is over 7%, the Canadian ability to handle debt has clearly not been hampered.
What many investors and buyers may not realize is that the slowing of the pace and price increases in the condominium and housing markets represents an opportunity. You will always get a better deal when the sales office is empty than when people are lined up around the block to buy.
