With the recently released May report from the Canadian Real Estate Association (CREA) that income of resale homes in Canada are cooling and price increases tapering off, we can put to rest the worry about an imminent housing bubble, like the one which occurred in the US a couple of years ago. This anxiety of the housing bubble drove the followers of the market and professional analysts crazy. These same individuals are now worried sick concerning the opposite occurring – an imminent housing market fall.
What actually occurred?
i) Canada endured a short, steep drop in house prices as the downturn hit late in 2008. Fortunately, this was instantly followed by a steep rebound as it became clear that the record low interest rates supplied by the financial institutions presented an historic opportunity to buy a house cheaply.
ii) Now, just as experienced analysts had predicted, the rebound is being replaced by a more stable price environment. The number of homes sold in May dropped by 9.5 per cent, while year-over-year price increases moderated to 8.4 per cent, off from the peak increase of 16 per cent in March. Our real estate rebound was possible because Canada’s banking system remained in good health, unlike in the U.S. which has endured heavy scars. Historically low mortgage rates helped repair the relatively small damage to prices inflicted by the downturn. Now a more stodgy, practically boring outlook actually comes into sight: a market where predictable market forces affect the sales and costs.
iii) As a result of rising prices, the supply of new listings is growing. At the exact same time, overheated demand of the first 4 months of 2010 is ending. Fewer buyers are dying to snap up property fast now that their window of opportunity is closing. Interest rates are rising, albeit slowly and by minimal sums. The HST on new homes will come into effect shortly in Ontario and British Columbia, the nation’s hottest markets. Actually, the biggest cost increases driving national averages came from Vancouver and Toronto. In Montreal and many of Canada’s other large cities, costs rose modestly so there will not be much excess to work off.
In retrospect, the concerns about real estate in Canada following in US footsteps has not materialized. The reason Canada prevented a collapse in prices is as the economic and banking basics avoided the disaster that unfolded in the United States and elsewhere. Similarly, there wasn’t much indication of an impending bubble. We recommend visiting this source for more information on this Eddie Yan. Costs were being driven up by temporary factors brought about by conscious political and economic decisions and not by speculation and overseas buyers as has occurred in many marketplaces in the US. What we had experienced was a modest overvaluation with very little hint of speculation.
So what’s the outlook for the coming year? Most economists agree on a small fall in costs in overpriced markets, like Vancouver and Toronto, pulling down the national average cost by an estimated seven per cent. Other large markets like Montreal will experience a smaller drop – approximately 3-4%. Areas like the Prairies and Maritimes could even find little gains in the coming year.