Despite the economic crash in the States, Canada is still smiling. Why? Some say it’s not because of our Federal government, but because of the US economic recovery plan and low interest rates.
Canada has historically been forced to have lower interest rates than the US, due to the fact that 30% of our GDP is based on exports to the US. In other words, higher interest rates would lead to a much higher Canadian dollar, thus radically effecting our exports to the States. This means that our mortgage debts have been significantly lowered while increasing positive cash flow and enjoying increased appreciation.
Remember when our housing market had a cough when the American market tanked? Since then, Canada has continued upward and does not show any signs of falling apart. There are different theories out there, but what do you think? How did we manage to escape the crisis with flying colors? Check out the article below.
“Loose U.S. monetary policy creating upward swing in Canadian property values & smart real estate investors are big winners”, says prominent real estate investor & educator, Tom Karadza.
Burlington, Ontario (PRWEB) November 14, 2011
Is Canada in a property bubble? Some parts may be, yes. However, selective Canadian real estate investors have found pockets of property just outside the major urban markets that are appreciating steadily and providing healthy monthly rental cash flows.
Three years ago Canadian Real Estate Investors froze like everyone else with their hands in the global financial cookie jar. But instead of the Canadian housing prices crashing, it paused briefly, and then continued its decade long property value climb.
Historically low U.S. interest rates have forced Bank of Canada Governor Mark Carney’s hand to keep Canadian interest rates even lower than those in the U.S. Those low rates combined with a relatively strong economy and low unemployment has resulted in increased foreign investment demand in Canada. The result has been an appreciating Canadian dollar which provides headaches for the Canadian Federal Government and Canada’s central bank, the Bank of Canada.
No Canadian government official enjoys discussing the subject but Canada is stuck between a rock and hard place thanks to the actions of the U.S. Federal Reserve. Canada has had to maintain lower interest rates than the U.S. in order to keep its dollar from appreciating and possibly stalling its export based economy.
Exports account for approximately 30% of Canada’s GDP, over 70% of which are destined for the U.S., according to Statistics Canada. The current historically low interest rates in Canada have left sophisticated real estate investors with increasing monthly cash flows from rental properties along with increasing property values.
Rock Star Real Estate Inc., a Burlington, Ontario based investment real estate brokerage has been reporting monthly positive cash flow increases from $150 per month on single family homes just outside the Greater Toronto Area to $350 per month over the last three years because of falling interest rates.
Not only are positive monthly cash flows for property investors increasing but so are the property values. In 2006, a single family detached home in Hamilton, Ontario sold for $215,000. In 2011 those same properties are selling for as much as $265,000 and there’s no lack of demand.
Often, a nice single family property, suitable as a rental property will have multiple offers on it within days of being listed on the Multiple Listing Service. According to Tom Karadza, co-Founder of Rock Star Real Estate with his brother Nick, “The biggest problem with these good times is that smart investors know it can’t go on forever. Canada is a unique monetary and housing environment produced by the easy money policies of the U.S. Federal Reserve’s Chairman Ben Bernanke. For example, Canadians can get 5-year term mortgages right now at 2.99% or in some cases even lower. We’re sure the Bank of Canada isn’t happy about that, our housing market could use some cooling, but the U.S. has forced Canada’s hand.”
The result? Investors who are buying lower priced rental properties outside the Greater Toronto Area are able to make them produce positive cash flow easily and enjoy appreciating property prices. It’s the perfect economic storm for Canadian real estate investors.
Several communities across Canada are enjoying increasing population growth, relatively high employment and strong income levels. Canadian real estate investors couldn’t ask for much better environments to own single family rental property.
According to Nick, “Investors still have to do their due diligence and choose the right property in the right community. There’s no getting away from following the fundamentals of real estate investing. But as long as you can stay away from some of the obvious bubbles these are very interesting times for Canadian property investors.”
In the global central banking race to devalue currencies opportunities to profit for the individual investor are popping up in unexpected placed, like Canadian housing. For now, Canadian investors have found their niche. With expectations that Canada will not balance its budget in 2014 as expected and talk of further decrease in interest rates in 2012 there’s no signs that this low interest rate environment is going to end in the U.S. or Canada anytime soon.