Any recent discussion of the housing economy brings out at least one skeptic projecting the impending “crash”: An early ‘90’s style “sell-off” sufficient to wipe out investors and homeowners alike.

After hearing the same arguments a number of times, the brief analysis that follows seemed warranted:

Historically, the average price of a single family home in Toronto shows the 1987-97 “bubble and crash” as an anomaly in a long term trend of stable and predictable growth. The present market is in line with the long term trend.

Selling real estate investments in 1990 brought a painful awareness of the effect of the crash on public confidence.

After the crash investors shunned real estate like the plague. Even investment in home ownership suffered. The ballooning technology and economy was far and away the investment of choice during economic recovery of the 90’s. Predictably (in perfect hindsight) the bubble itself met its inevitable demise. When it did, interest rates were low and day traders had turned the equities markets into a casino. Real estate regained popularity, looking like the only game in town.

The recent influx of investment capital however did not bring the dramatic price increases of the late 80’s. From 1999 aà 2003 the average annual price increase has been only 6.5% (as opposed to 26.1% in the same period preceding the 1989 market peak). Even after the recent increases, the value based argument remains fairly strong: Real estate will produce returns superior to many debt investments while providing a vehicle to build equity and hedge against inflation. Real estate investment also benefits from favourable tax treatment. As long as the numbers work price reductions seem unlikely, even in waning demand.

True, there is a huge supply of new units (perhaps one factor in controlling inflationary pressure on prices). Previously however, the housing stock was aging and rents were at an all time high. Even at rents competitive with older units, many private landlords should be able to meet their investment objectives (themselves less ambitious than those of their institutional counterparts). Rising vacancy rates are however a legitimate concern. The market has also experienced a declining selection of credit-worthy tenants as many have taken advantage of low rates to purchase homes.

There are numerous further arguments to support the current viability of real estate investment and contrarians no doubt have their own arguments. But in terms of an imminent wholesale wipeout, it hasn’t happened yet? and I wouldn’t hold my breath.

The foregoing are the observations and opinions of the writer and are intended for discussion purposes only. They do not constitute and should not be relied upon as investment advice.