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13 Nov

‘CANADA’S HOUSING BUBBLE HAS VANISHED…’

General

Posted by: Tracy Luciani Price

‘…Without a crash landing’, say economists according to an August 16 th article in the Financial Post.

Not only that but the article goes on to say that the real estate market has already readjusted to an almost perfectly balanced one.

Economists say the Canadian housing bubble – long feared to be vulnerable to a dangerous ‘pop’ is now officially dead.

That was fast, very fast, in fact this happened just in the last four months when the market started to level off.

The definition of a ‘balanced’ market is one where the supply and demand for real estate is more or less equal as the supply of inventory has increased significantly. Locally the supply is still at this point slightly below the traditional norm but it’s on its way up.

This is wonderful news for home owners and prospective home buyers as it would suggest that current real estate values are sustainable.

Economists further predict that price growth remains in the cards at between two and four per cent next year, outside of the Toronto and Vancouver markets.

While real estate looks rosy, the mortgage and affordability side is less rosy as recent tightening regulations has impacted high ratio insured loans making them more difficult to qualify.

It now appears imminent that the same tightening is going to be applied to the low ratio, uninsured market which represents 80 per cent of total mortgages. In other words, OSFI’s current proposals when enacted will make it that much more difficult for (all) Canadians with 20% equity/down payment to refinance and purchase than before.

In short, making it more difficult for the entire market to qualify for a mortgage will, in turn, have a further impact on housing market activity, which could serve to dampen real estate in general.

What we are seeing is a continued intervention in the mortgage/real estate market by government introducing regulations designed to reduce future ‘risk’ and exposure at a time where mortgage default is at an all-time low as is unemployment.

In the past, the only intervention was done by the Bank of Canada raising interests, but was in high inflationary times. Not so today. So why is government intervention even happening?

Now it is government meddling with the market which is ultimately going to hurt, if not marginalize many more Canadians, as it appears, in the coming months ahead.

Buckle up your seat belts folks, and stay tuned!

Next week’s article will be centered specifically on who will be impacted the most, with financial examples of how the next round of tightening will look compared to the present framework.