With the recently published May report from the Canadian Real Estate Association (CREA) that sales of resale homes in Canada are cooling and price increases tapering off, we can put to rest the worry about an imminent housing bubble, similar to the one which happened in the US a few years back. This anxiety of the housing bubble drove the followers of the market and professional analyzers insane. These same people are now worried sick concerning the opposite occurring – an at hand housing market collapse.
What really happened?
i) Canada endured a short, steep fall in house prices as the downturn hit late in 2008. Luckily, this was immediately followed by a steep rebound as it became clear that the record low interest rates offered by the financial institutions presented an historical opportunity to get a house 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 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 endured deep scars. Historically low mortgage rates helped fix the comparatively small damage to prices inflicted by the decline. Now a more stodgy, practically dull prognosis really comes into sight: a marketplace where foreseeable market forces affect 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 dying to snap up property fast now that their window of opportunity is closing. Interest rates are increasing, albeit slowly and by minimal amounts. The HST on new homes will come into effect soon in Ontario and British Columbia, the nation’s hottest markets. Actually, the largest price gains 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 surplus to work off.
In hindsight, the concerns about real estate in Canada following in US footsteps has not materialized. The reason Canada averted a collapse in prices is because the economic and banking basics prevented the disaster that unfolded in the US and elsewhere. Likewise, there was not much sign of an impending bubble. To understand Eddie Yan even better, visit this website. Costs were being driven up by temporary factors brought about by conscious political and economical choices and not by speculation and foreign buyers as has happened in several marketplaces in the US. What we had experienced was a modest overvaluation with hardly any sign of conjecture.
So what’s the outlook for the coming year? Most economists agree on a modest drop in costs in overpriced markets, like Vancouver and Toronto, pulling down the national average cost by an estimated seven per cent. Other big markets for example Montreal will experience a smaller drop – about 3-4%. Areas like the Prairies and Maritimes may even find modest gains in the forthcoming year.