According to Bill Downe, President and CEO of the Bank of Montreal, the current pace of construction as well as the level of price differences between owning and renting houses in cities such as Toronto or Vancouver, has achieved historic shifts. To owe a house is 20 percent more expensive than renting it (BNN, 2012). This particular trend is due to increase in local real estate prices brought about by speculations over the supposed “health” of the Canadian housing market.
The inherent problem with this assumption, as Downe is apt to point out, is that the sheer scale of housing projects that are currently created, starts to mirror the problems that occurred in the U.S. from 2008 to 2009 (Economic Performance, 2010). There are far too many houses being built that people cannot afford to buy so the end result will be an inevitable downturn in the housing market within the coming years.
Ordinarily this wouldn’t be a problem if housing growth matched increases in a country’s population; however, due to slow local population growth it is not the case and as such it is not clear if Canada is setting itself up for a similar crisis that the U.S. experienced a few years ago. From the perspective of Downe, we should all be nervous over housing speculation especially in the booming housing markets of Toronto and Canada (Kirby, 2011).
It may be true that during the start buying a condo early on and then flipping it at a later date could result in a significant profit, but it can only occur if there is a market for it which Downe regards currently as decreasing one which will reach its saturation within the next 5 years.
Reference List
BNN. (2012). Housing market ‘overheated’: Bmo ceo. Web.
Economic performance. (2010). Country Report. Canada, 15(6), 13.
Kirby, J. (2011). What’s the use of saving. Maclean’s, 124(38), 38.