Real Estate Investors are Encouraged to Sell Amidst Irrational Exuberance

Calum Ross, a top producing mortgage professional, real estate investor, and author of the book ‘The Real Estate Retirement Plan’ is encouraging real estate investors in Vancouver & Toronto to sell. A rather bold statement from a guy with plenty of skin in the game.

In his recent post titled ‘The Irrational Exuberance & Greed of GTA and Vancouver Real Estate Investors in 2017‘ Mr. Ross highlights two primary reasons for signalling the call to sell.

  1. Yield on Toronto and Vancouver Real Estate Has Diminished: Rising real estate prices in these markets have outstripped the increase in rental rates which has eroded yields. This now means many real estate investors are over-weighted in one asset class, and that many new real estate investments are in reality speculative grade investments because they don’t meet the suggested 3% interest rate cushion to sustain cash flow (a metric outlined in more detail in my recent book on borrowing to invest).
  2. Investors are Demonstrating Irrational Exuberance and Greed Towards Real Estate: I’m deeply concerned by the number of people who believe real estate values will continue to climb at these uncharacteristically high levels. Not only are current appreciation rates unsustainable, but the fact that rental increases are not even close to keeping pace makes real estate investment even less appealing.

Mr. Ross’s comments eerily coincide with a recent Bloomberg survey which found confidence for Canadian real estate recently reached an all time high. Nearly 50% of all Canadians believe home prices will continue to rise, while that number soared to 62.9% in both BC & Ontario.

Meanwhile, a report from Better Dwelling highlights the number of Torontonians buying multiple properties is growing at it’s fastest rate on record. A concerned Ross cautions “Many, if not most, properties in a typical Toronto/Vancouver investor’s portfolio have shifted from investment to speculation grade real estate.”

Agree or disagree, from a statistical point of view there’s never been a better time to sell. The sales/actives ratio, which measures demand, is currently at all time highs for REBGV condos at 85%. This is well above the 10 year average of 23%. The Average days on market also hit a new record low in March.

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