Everywhere you look someone’s talking about the real estate market. What do you make of this quote from a recent article in the Globe & Mail (Feb. 25, 2013):

“Manhattan is in the throes of a boom in ultra high-end condos that has drawn wealthy people from around the globe and shattered previous sales records. The four most expensive home sales in New York’s history have all taken place in the last 14 months – one for $70-million, one for $88-million and two others for more than $90-million….Many of these purchasers are looking for a safe place to park their cash in an uncertain world.”

My first thought as I read this article was that some people have a whole lot of cash. But then I started thinking about how what’s happening in New York might apply to our market here in Toronto. Needless to say, I don’t think anyone will pay those kinds of prices for condos in Toronto in the near future, but there ARE lessons to be learned.

We’ve been hearing a lot of negative talk lately about the real estate market in Canada and that the bubble has to burst because of global economic uncertainty, increasing interest rates, higher unemployment, shaky stock markets, etc. But real estate has long been considered to be a safe, long term investment. When other markets, such as the stock market or the commodities market, appear unstable, investors often move their money into real estate to protect it. As they say, you can’t live in a stock portfolio, but you can live in a house. That appears to be what’s happening in New York.

So if the naysayers are correct and our economy softens, will the real estate market necessarily collapse? I don’t think so. Isn’t it possible that this is how things will unfold: Money will flow into real estate and provide price support. Interest rates will be kept low to help stimulate the economy, thereby keeping mortgage payments low. Sellers who MUST sell will do so at lower prices, but most people will put their plans to move on hold so there will be fewer sellers and buyers. There won’t be a fire sale on homes in Toronto because people will still need a place to live. There also won’t be a lot of homes on the market so buyers waiting for a collapse will be disappointed. Prices will be lower because only desperate sellers will be selling, but essentially the market will go into a type of holding pattern. During this time, pent up demand for homes will steadily increase because people will continue to get married, have children, want a change in lifestyle, etc., so that when the economy stabilizes, the market will take off (explode is probably too strong a word). This is more or less exactly what happened in 2008-2009.

So take a lesson from some of the wealthiest people in the world. Real estate is a solid investment.