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Ontario Real Estate Collapse? Here's One Stat To Watch...

Playing in the real estate game is such a seesaw of data and emotions.

One minute you're up, the next you're down.

Back in 2008, when the U.S. real estate market exploded into chaos, we found ourselves explaining to new investors that you make money in real estate by surviving "time in" the market, not "timing" the market.  

So that even in 2008, if you could find good properties that paid for themselves, they still made sense to buy.

Forget trying to "time" the market. No one does it.

"Time in" the market is the only way to win.

You get in whenever you can and you survive the inevitable roller coaster of madness, both ups and downs.

This came with all the normal precautions: buy good homes in good areas that cash flow, control your costs, keep a laser sharp eye on interest rate movements, and lock in, even for 10 years, if necessary, etc.

We found ourselves defending the role of real estate as an investing option back in 2008.

And then things changed, prices just kept going up, and up, and up.

By 2012 or 2013 it seemed everyone had decided real estate could do no harm.

Real estate was the be all and end all of investing.

Canadian "flipping" shows started popping up on TV and new real estate boot camps teaching you how to make millions with property started touring the Greater Toronto Area.

When everyone is singing the praises of real estate, like the masses have been for the last five years at least, Nick and I find ourselves telling everyone to "be careful," "buy only cash flowing properties no matter how hard they are to find," "don't overextend yourself," "flipping is much harder than it looks on TV," etc.

It's almost like we're the "no fun" real estate guys.

We went from defending real estate and explaining how great it was, to warning anyone would listen not to get cocky with their investment choices.

Appreciation of 20% a year was not normal.

Heck, appreciation of 7% a year is not normal!

LOL

For several years we've had people tell us we were much too cautious with our "starter homes in good areas" investing philosophy and that we were missing out on the big money moves of new subdivisions, new condos, or high-end flips.

And perhaps we have missed out on some "easy money gains."

But we've been around enough that we know how quickly the market can change.

And people chasing the "easy money" always get hurt the most.

 

Today you can start to see the real estate headlines beginning to change again.

The introduction of the 15% foreign buyers tax in Ontario has definitely softened the market.

And with that, some interesting headlines have started hitting the news.

We hate the headlines and prefer data.  

Headlines are fun but don't always tell us anything of true value.

So with that in mind, here's one data point you can monitor for yourself.

This is a little bit of a lagging indicator but if you watch it closely you'll likely know what's going on before the masses.

The Canadian Bankers Association publishes monthly data on the: Number of Residential Mortgages in Arrears.

Here's the very latest update...

Number of Canadian Mortgages in Arrear from 2013-2019

(Source)

You can see that as of October, 0.24% of Canadian mortgages are in arrears.

If you click on the source and go through the stats you can see that in 1990 it was 0.18% and by 1992, the thick of the last big real estate crisis in the GTA, the rate had gone up to 0.65% before coming back down.

So it tripled.

That gives us a little insight.

If we see this number heading higher on us month-over-month it could be a sign of a major change in the market.

Unfortunately, the data is always behind a few months but it's something worth taking a look at next time you see some "sky is falling" type headlines.

For perspective here is the U.S. 

Delinquency Rate on Single-Family Residential Mortgages

(Source)

 

The U.S. peaked at over 10%.

Crazy.

And when crap started really hitting the fan in the summer of 2007 you can see that the chart began moving up rather sharply.  

The mainstream news wasn't into a full panic until 2008 when Bear Sterns and Lehman Brothers were failing.

So although not a perfect predictor, if you watch this stuff closely enough it can shed a little insight.

In Ontario right now the arrears numbers stand at 0.12%.

In January 1990 it was 0.11%.  (Source)

Eerily similar.

Back then it went up a small amount almost every single month for a year before it started making big jumps and reaching 0.70%, almost a 7x move, in February 1992.  (Source)

Are we headed in the same direction right now?

Who knows, time will tell.

But we'll be watching!

Until next time ... Your Life! Your Terms!

 

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0 comments on “Ontario Real Estate Collapse? Here's One Stat To Watch...”

  1. Always great insight of what is behind the curtain in real estate. Watching these indicators gives all us investors a heads up as to what to expect moving forward and hopefully, keeping ahead of the masses and keeping ourselves out of the headlines. Thanks for all your insights. Always appreciated.

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