With the recently released 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 impending housing bubble, like the one that occurred in the US a couple of years ago. This fear of the housing bubble drove the followers of the marketplace and professional analyzers crazy. These same people are now worried sick concerning the opposite happening – an at hand housing market fall.
What actually occurred?
i) Canada suffered a short, steep fall in home prices as the recession hit late in 2008. Luckily, this was immediately followed by a steep rebound as it became obvious the record low interest rates offered by the financial institutions presented an historical opportunity to purchase 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, away from the peak increase 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 relatively modest damage to costs inflicted by the decline. Now a more stodgy, almost dull prognosis actually comes into sight: a marketplace where predictable market forces affect the sales and prices.
iii) As an effect 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 anxious 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. In fact, the biggest price gains driving national averages came from Vancouver and Toronto. In Montreal and most of Canada’s other big cities, prices 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 avoided a collapse in prices is because the economic and banking principles averted the disaster that unfolded in the United States and elsewhere. Similarly, there wasn’t much sign of an impending bubble. Do you want to learn more about Eddie Yan? Check out 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 happened in several markets in the US. What we’d experienced was a small overvaluation with hardly any indication of speculation.
So what is the outlook for the coming year? Most economists agree on a modest fall in prices in overpriced markets, like Vancouver and Toronto, pulling down the national average price by an estimated seven per cent. Other large markets like Montreal will experience a smaller drop – about 3-4%. Areas such as the Prairies and Maritimes could even find little increases in the forthcoming year.