With the recently published 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, like the one which happened in the US a few years back. This fear of the housing bubble drove the followers of the market and professional analyzers insane. These same people are now worried sick concerning the opposite happening – an at hand housing market collapse.
What really happened?
i) Canada endured a short, steep fall in home prices as the downturn hit late in 2008. Luckily, this was immediately followed by a steep rebound as it became obvious that the record low interest rates provided by the financial institutions presented an historic opportunity to buy a house cheaply.
ii) Now, just as seasoned analysts had forecast, 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 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 heavy scars. Historically low mortgage rates helped repair the comparatively modest damage to costs inflicted by the decline. Now a more stodgy, almost dreary outlook actually comes into sight: a marketplace where foreseeable market forces affect the sales and costs.
iii) As a result of rising prices, the supply of new listings is growing. At exactly the 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 growing, albeit slowly and by minimal amounts. The HST on new homes will come into effect shortly in Ontario and British Columbia, the country’s hottest markets. Actually, the biggest price increases driving national averages came from Vancouver and Toronto. In Montreal and most of Canada’s other large cities, costs rose modestly so there will not be substantially excess to work off.
In retrospect, the concerns about real estate in Canada following in US footsteps hasn’t materialized. The reason Canada prevented a fall in prices is because the economic and banking basics avoided the disaster that unfolded in the United States and elsewhere. Likewise, there was not much sign of an impending bubble. You can read more about Eddie Yan by going to this website. Prices were being driven up by temporary factors caused by conscious political and economical decisions and not by speculation and foreign buyers as has happened in many markets in the US. What we had experienced was a modest overvaluation with hardly any hint of speculation.
So what is the outlook for the forthcoming 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 big markets such as Montreal will experience a smaller drop – approximately 3-4%. Areas such as the Prairies and Maritimes could even find little gains in the coming year.