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I would like to wish everyone a Very Happy and Prosperous New Year in 2015.  As we begin the year I thought it might be interesting to share with you some of my observations about our real estate market in the GTA.  As I look around and chat with private lenders, bankers and investors in general, I am finding that most people are optimistic about the market being stable and possibly seeing a modest rise in value.   I personally look at the market and see some upside and downside risks.

On the upside we continue to have support from our immigration policy.  New Canadians are meant to open a business, buy real estate and start contributing to the economy right away.  We also have many investors from all over the world, cash rich and making firm offers to purchase unconditional which is also keeping our market hot.  Low interest rates make it affordable to borrow and I don’t see the Bank of Canada raising rates, especially considering the massive drop in oil prices.  Toronto also recently announced a Yuan currency hub for direct exchange in Chinese currency and CAD $.  So thats very attractive for investors.

On the downside we have a very serious central bank insolvency problem in Europe, USA, Japan, and the UK.   The Bank of Canada currency swaps are hovering around 700 billion.  I worry about the interbank connections and how a shock or black swan in the global financial market will affect Canada.  The derivatives (rumoured to be in the trillions) that financed the shale boom are at risk because of the huge drop in oil prices.  How those derivatives unwind and affect the banks could be potentially devastating.  Most people have no clue how they work, who ultimately has the collateral security, or how much the security has been leveraged up, so the risk is almost impossible to calculate or even understand.  Also the new underwriting guidelines that banks and alternative lenders are using demand that borrowers can only qualify for PROVEN INCOME.  So this will dampen the market because it will be much more difficult to qualify for financing.  In fact some new bank clauses can trigger the bank to call your loan.  If a borrower tries to refinance and the income is not supporting the current mortgage you could see the bank call your loan.  Many of those loans were approved with self declared income before the new underwriting guidelines.  So people should be careful when refinancing.

I think for me the most comforting speculation came from Dr. Jim Willie, the Golden Jackass when he talked about the possible scenarios that could potentially happen in the event of a black swan on the global financial markets is that many many dollars will look for safe haven.  I suspect that real estate in Toronto would be one destination for those trillions of dollars.  Links supplied below for your consideration.