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 impending housing bubble, similar to the one which occurred in the US a few years back. This fear of the housing bubble drove the followers of the market and professional analysts crazy. These same people are now worried sick concerning the opposite occurring – an impending housing market collapse.
What actually occurred?
i) Canada endured a short, steep fall in home prices as the recession hit late in 2008. Fortunately, this was instantly followed by a steep rebound as it became obvious that the record low interest rates offered by the financial institutions presented an historic opportunity to buy a dwelling cheaply.
ii) Now, just as seasoned 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 gains moderated to 8.4 per cent, off from the peak gain of 16 per cent in March. Our real estate rebound was possible because Canada’s banking system stayed in good health, unlike in the U.S. which has suffered deep scars. Historically low mortgage rates helped repair the comparatively modest damage to costs inflicted by the downturn. Now a more stodgy, nearly dreary outlook actually comes into sight: a marketplace where foreseeable market forces have an effect on the sales and costs.
iii) as a consequence of rising prices, the supply of new listings is growing. At the same time, overheated demand of the first 4 months of 2010 is finishing. Fewer buyers are anxious to snap up property fast now that their window of opportunity is closing. Interest rates are increasing, 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 largest price increases driving national averages came from Vancouver and Toronto. In Montreal and most of Canada’s other large cities, prices rose modestly so there won’t be substantially surplus to work off.
In retrospect, the concerns about real estate in Canada following in US footsteps hasn’t materialized. The reason Canada avoided a collapse in prices is because the economic and banking principles avoided the disaster that unfolded in the US and elsewhere. Similarly, there wasn’t much indication of an impending bubble. If you are looking to learn more about Eddie Yan visit this page. Costs were being driven up by temporary factors caused by conscious political and economical choices and not by conjecture and foreign buyers as has occurred in several marketplaces in the US. What we had experienced was a small overvaluation with very little sign of speculation.
So what’s the prognosis for the coming year? Most economists agree on a modest 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 including Montreal will experience a smaller drop – approximately 3-4%. Regions including the Prairies and Maritimes may even find little gains in the coming year.