Home ownership is good
Brad Lamb Monday, June 04, 2012
France, Germany, Switzerland, Canada. What do all these countries have in common? These are the only four countries in the industrialized west that have shown an increase in home pricing from 2007. In essence, these four countries have had their real estate economy recover from the 2008-2009 economic meltdown. Chronic-debtor nations like Spain, Italy, Greece, Portugal, Ireland, the UK, and United States are still mired in a real estate trough — struggling to stimulate their moribund economies.
What do you think will happen to real estate prices in France, Switzerland, Germany, and Canada when the world economies start to truly recover? In this period, we would likely see Canada’s unemployment rate at 6 per cent, inflation at 2 per cent, 5-year mortgage rates at 5 per cent, and economic growth at 3 to 4 per cent. During the recovery, you could expect better economic stats from the three European countries. Does anyone actually believe that real estate prices will fall in such an environment?
So why the concern? A real estate collapse in such a growth period has never happened before. We are clearly heading into better economic times, a time when consumers feel like spending money. A time when more people will buy more real estate. Why are these four countries so lucky? This is very simple. These four countries have the best national balance sheets in the industrialized west. They have the best economies, the safest banks, and more prudent governments that respect the risk of debt. Countries get rewarded for economic prudence by strong economic conditions as do consumers.
Let’s talk about Canadian consumers. Much has been said about the large debt that we have apparently accumulated, largely from mortgage debt. While I acknowledge the numbers speak for themselves, consumers today have more debt than they have had in recent times. They also have a huge amount of net worth, mostly due to huge home equity. This is a good thing. It is hard to generate home equity without accumulating debt first. Most people retire on the equity built up in a lifetime of home ownership. We certainly cannot rely on the government for a comfortable retirement.
Where else can a consumer invest — bonds, stocks? Consumers recognize that a home over the long term is the safest bet. After 25 years, the worst case is that the mortgage has been paid off and a typical Canadian has a $500,000 retirement fund. Home ownership is good. It also brings risks, and it is always a stretch at the start.
We are lucky to be in the exclusive group of four. I suggest that you price out a home in Berlin, Frankfurt, Zurich, or Paris. You will find that Toronto is a bargain.
Brad Lamb is President of Lamb Development Corp., one of the GTA’s largest condominium development companies, and the Broker- President of Brad J. Lamb Realty Inc., one of Toronto’s top condo and loft real estate brokerages. Over the last 20 years, he has led the marketing and sales programs for over 100 condominium projects in Toronto, Ottawa, Montreal and most recently Calgary. torontocondos.com, facebook.com/BradJLamb, Twitter: @BradJLamb