Last updated on November 23rd, 2016
Not a day goes by without a reminder of Canada’s heating housing markets.
The Bank of Canada delivered a warning on June 9th recognizing how the soaring house prices in Toronto and Vancouver are becoming unsustainable, surpassing the local economy in job creation, income growth and immigration.
In an Ottawa news conference, Governor Stephen Poloz stated that the Central Bank is noticing how markets are being sustained by self-reinforcing expectations of this growing trend continuing; however, these circumstances may actually go the other direction, into a decline in prices.
Canada’s semi-annual assessment of its financial stability exposed a number of vulnerabilities; this included a number of created imbalances in regional housing markets and a rise in household debt- both of these enlarged in the past six months. These fragile vulnerabilities are causing the central bank to declare that the risk of decline is possible, however, actual number predictions are hard to come by at the time.
Toronto and Vancouver on Fire for Six Months
Over the years, many prospective homeowners have been waiting for prices to drop, and have thought and hoped that it would’ve happen by now; however, for a lot of these people it’s only becoming more unaffordable. In greater Vancouver the year-over-year growth hit 30% in May, while in Toronto prices soared 5% just from December 2015 to May 2016. The bank claims this type of activity is difficult to measure, although it can be partially due to foreign demand.
Huge imbalances in regional markets have been revealed due to the fact that the rest of Canada isn’t seeing this type of growth.
Impact on the Greater Economy?
The risk of something as drastic as a recession is low claims Poloz, however, that risk has increased since the Bank of Canada’s assessment in December. Although there are no sudden changes within Canada’s housing market, there is evidence that we are continuing to head into risky territory, as stated by Poloz.
Before BoC’s semi-annual assessment, Federal Finance Minister Bill Moreau announced that Ottawa was going to start thoroughly examining Canada’s real estate markets to figure out the government’s duty of making sure Canadians can still afford to buy homes. Moreau also promised to look into whether or not foreign buyers are causing the markets to rise. However, it was not stated how the government would go through with this process or what exactly it would do.
Impact on You?
As Poloz stated, the overall picture has not changed much from six months ago, this is because greater problems in a Canadian household are being cancelled out with economic recovery that is ongoing. When the Bank of Canada next meets in July, there is no guarantee that interest rates will go up; however, it is still speculated that there might be a cut. And for the real estate problem Canada is experiencing, the Central Bank claims it is very unlikely to have a collapse, and the situation of the U.S. in 2007 will not be repeated in Canada.
As for right now, buyers are advised to keep their eyes on the housing market and take advantage of low interest rates- that is, after they find a home that fits their budget and needs. It’s definitely easier for buyers living outside of Vancouver and Toronto.
It is, however, necessary to get pre-approved for a mortgage before starting your search for your home or making an offer. Another good tip would be to write down and budget in case of different scenarios to be prepared for interest rates to fluctuate in either direction. You will be so much better off when you find your dream property if you are financially prepared!
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