It seems that the housing market in Canada has "somewhat" stabilized. Interventions to slow down growth and inflation commenced in mid 2016. From the collaboration of the provincial governments to the OSFI (The Office of the Superintendent of Financial Institutions), and the Bank of Canada, this intervention has now materialized into slowing the housing demand. In addition, there have been steady interest rate hikes, the introduction of the mortgage stress test which makes borrowers have to qualify for a mortgage using the current contract rate plus 2%, and taxes on foreign buyers.
There's also been some measures put in place to deter people from keeping properties vacant and some further restrictions on urban construction projects.
On a national scale, however, the Canadian housing market still has a long way to go before it gains the level of housing affordability that it had before the current measures were put in place. There is also a possible risk that higher mortgage rates and the current stress test persisting could hammer down demand in areas such as the Atlantic and Prairie provinces, would could lead to declining prices and less sales.
Due to all of the interventions noted, there have been significantly less overall sales. The only city that is currently experiencing price growth is Toronto after a year of steady declines.
Also, despite the relatively low national inventory-to-sales ratio, the new-home market now faces weaker demand than at any time since the 2009 downturn, and this is showing in the price indexes for new homes, where first Toronto and then Vancouver have slowed drastically and dragged the national price index down with them.
Tight demand relative to supply for condo units is only the start of the story.
Why is there a tight supply for condos?
In Toronto and Vancouver, smaller condos have a more advantageous and profitable use. As a landlord, rent is easier to garnish and tenants are willing to pay more. Single family townhouses in Toronto are also popular as more are for rent than for sale.
What's the outlook?
Bank of Canada will continue to tighten short-term interest rates from now until 2020 and they will do this to head off inflation while also sustaining the value of our Dollar. This tightening will make mortgage interest rates rise, and based on Moody's Analytics, interest rates will be 6% by late 2020.
If you need to refinance large unsecured debt or are planning to move lenders to obtain a better rate, declining house prices will affect your ability to do so based on a max lending amount of 80% loan to value and the ability to qualify.
Understanding the risks of rising interest rates are imperative to weathering the storm in a higher interest rate environment. Speak to me today about steps you can take to save more money in the long term while avoiding payment shock.
Want to know what you should do? Have looming debt you would like to consolidate? Needing to find a way into the real estate market?
Call my office today for a private consultation.
Mortgage Agent Lic. M14000929
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
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Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, FSCO Lic. 10680