The Canadian housing market – bubble or bust?

Filed under: Headlines,Housing |

Written by African Immigrant Magazine 

The Canadian housing market is one of the most stable markets in the Western world. This is largely due to the checks and balances put in place by regulating agencies. With this stability, it is expected that the market will be over-evaluated, making buyers to spend more on their housing needs and sellers getting more than they asked for in a seemingly endless bidding war.

In many regards, it’s a bidding war to the great advantage of sellers. It is worth noting that the market had a record-breaking year in 2015, particularly, in two of the largest cities in the country, Toronto and Vancouver, which continued their hot streaks, selling far more than expected.

This trend, however, was the reverse in Alberta and Saskatchewan cities which had a decline in their housing sales. This decline, contrary to expectation of real estate pundits, didn’t impact the overall market sales in the country as sales in other parts of the country balanced the market and provided stability. The question then is, what is the outlook for 2016 given the slowing economy and the declining value of the dollar which will inevitably motivate foreign investors to consider the Canadian housing market as a viable option to create wealth?

The answer is simple – the outlook is good as experts expect more of the same trend in 2016 in spite of the economic challenges Canadians are facing. According to these experts, the three major markets (Toronto, Vancouver and Montreal) that currently make up Canada’s real estate market will continue to see growth. This is largely due to a well-known economic principle of demand versus supply.

In other words, when demand is high and supply is down, the price of the commodity goes up as many are chasing few goods. In other parts of the country, especially, in Alberta, housing prices are expected to continue their decline given the falling oil prices and the waves of industry layoffs


that are expected to adversely impact the market. In spite of the robust nature of the housing markets, the worrisome aspect can hardly be ignored. The Bank of Canada (BoC) has stayed action on increasing the interest rate which would have impacted activities in the housing markets across the country and particularly, in those three major markets. The BoC is well aware that increase in interest rate is connected to a host of factors within the economy and globally, as a result, it is committed to maintaining the same rate at 0.5%.

Against this backdrop, it is worth noting that many government agencies have taken initiatives to slow the appreciating housing market. One of those initiatives is the double increase in mortgage premiums by Canada Mortgage and Housing Corporation (CHMC) on what in the industry is known as high loan-to-value mortgage. This increase applies to a situation where a buyer’s down payment is less than 20%, designed primarily to protect the mortgage as it is deemed risky and with higher possibility for default. It is also worth noting that the liberal government of PM Justin Trudeau has instituted a policy that took effect on February 15, 2016 for a 5% minimum down payment for mortgages that are less than $500,000 and 10% on any amount above $500,000.

For example, if a buyer gets a mortgage of $750,000, he/she is expected to deposit 5% on the first $500,000 ($25,000) and 10% on the balance of $250,000 ($25,000). In this example, the buyer’s minimum down payment on a mortgage of $750,000 is $50,000.

Analysts believe that more changes will be introduced as the market continues its stride in 2016. However, they caution that tinkering with the market may have adverse effect as the housing industry remains one of the most viable  in the current economic environment. They further cautioned that the issue is not rate changes, but rather, one of lack of supply.


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