The Real Estate Market in Toronto
Across all of the major markets in Canada (Toronto and Mississauga, Ottawa, Calgary, Edmonton, and Vancouver), real estate in Toronto has proved to be one of the most resilient markets to be a part of. Through various economic cycles and recessions, any period of downturn has largely been temporary and followed by a sharp rebound. Case in point: 2008. In the aftermath of the global financial crisis, freehold properties were selling for around $430,000 on average and condos were being sold for $295,000. Within 10 years, these same markets had touched peaks of $940,000 for stand alone houses in Toronto and $565,000 for Toronto condos. In other words, on a compounded annual growth rate (CAGR) basis, freehold properties grew 8.1% annually over 10 years while the corresponding figure for condos was 6.7%. While these are staggering numbers by any metric, it is worthwhile to explore what they can mean to different types of buyers.
For the first-time homebuyer, it goes to show that for the most part there is no better time than the present to get into the real estate market especially in major cities like Toronto, Mississauga, Vancouver, Calgary, and Ottawa, but the same goes for suburbs surround those cities. Suburbs near the Greater Toronto Area (GTA) such as Maple, Aurora, Woodbridge, Thornhill, Markham, Vaughan, Richmond Hill and other parts of York Region are considered by many to be strong markets to purchase homes and commercial properties in. So are Etobicoke, Mississauga, Brampton, Burlington, Hamilton, Barrie, Scarborough, Pickering Ajax, Durham Region, and more. While careful due diligence is advised on the timing of the entry point, the location, and pricing, the property markets generally are considered to represent a stable way to build equity over time and achieve solid returns.
But what about non-first-time buyers?
As the saying goes, a rising tide lifts all boats. Hence, for a non-first-time homebuyer, a rising housing market represents opportunities that can be taken advantage of. When property values increase, options such as a second mortgage or a full mortgage refinance become more attractive to pursue. A second mortgage, also known as a home equity loan, is essentially a loan that uses the value of the underlying property as collateral. However, the reason it is called a ‘second’ mortgage is because this property would already have a loan taken out against it (i.e. the ‘first’ mortgage that the borrower took out initially to purchase the home). In the worst-case scenario, if the borrower defaults on both the first and the second mortgage, the home is foreclosed upon and the first mortgage is paid off first before the remaining proceeds are used to pay off the second loan.
In the case of a borrower with a healthy financial profile though, the second mortgage is an opportunity to gain extra liquidity by monetizing the equity in the home. By taking out a second mortgage, the lender will provide the borrower a lump sum of cash that is based on the value of the home pledged as collateral. Hence, the higher the value and available equity, the higher the lump sum available. This lump sum can then be used to pay down other debts with higher interest rates such as credit card debt, or for investing, or for a rainy-day emergency fund, or for a plethora of other purposes. The possibilities are truly endless. Before pursuing options like these though, it is important to assess your personal capacity to take on additional debt and/or speak with a financial advisor or other trustworthy financial expert.
