Sorry To Burst Your Bubble, Our Housing Market Is Fine

Housing bubble headlines have once again become prevalent in the media, as home prices continue to climb in Canada and new reports weigh in with alarming findings. In some cases, experts predict home prices could fall as far as 50 per cent when said bubble pops. And, while Canada’s own Finance Minister Joe Oliver refuses to buy into bubble claims, even bigger authorities such as the International Monetary Fund have fueled fears stating our housing market is overheated by 10 per cent. This is frightening news for homeowners who have been sitting comfortably on their real estate investments, assuming their value will continue to rise. If you own real estate or are in the market to buy a home, there a few specifics to be aware of. However, I disagree that we are facing housing bubble – here’s why.

Investment Properties 101

Knowing what property to acquire remains one of the more difficult decisions for any investor. The good landlord looks at the financial numbers and tries to make decisions based on facts, and attempts to keep emotions in check.

The common way to evaluate different investment properties is through comparing CAP rates. CAP rates are determined by factoring all of the investment’s expenses (but not finance) and calculate that against the projected revenue. Too often, property management, repairs, maintenance and vacancy expenses are left out in determining a proper CAP figure.

But CAP shouldn’t tell the whole story in evaluating properties. An in-depth analysis should consider projected appreciation which will lead to a superior return on investment (ROI). Suppose you are offered two investment opportunities. One is located in Windsor Ont. and offers a true CAP rate of 8 per cent and another in Toronto that offers a CAP of less than 6 per cent. If CAP is the only component to consider, it is a no brainer. You buy the Windsor property.


Meet Our Team

Maison Valley consists of Mase Dhirani and Sam Valimohamed, two top-producing RE/MAX Ultimate agents, who specialize in the various aspects of both residential and commercial real estate including selling properties, acquiring for buyers, investments & property management.

Sales Representative, RE/MAX Ultimate
Sales Representative, RE/MAX Ultimate