The Canadian housing market is a headache. 5 things you need to know.

Analysis: “Fear of missing” has replaced “fear of being screwed in,” says one mortgage broker.

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It’s hard to keep up with everything that has turned over since the runaway homes engrossed in Canada’s COVID.

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A pandemic spill to a spacious suburban home has collapsed. Mortgage rates have risen dramatically to counter the excessive stimulus that the government has pushed into the economy. There is a possibility of recession.

Home sales are declining rapidly and housing projects have been cancelled. Many buyers are waiting for low price purchases.

But, as mortgage broker Ron Butler equipped, the “fear of missing”, or FOMO, has been replaced by the “fear of failure.”

And while there are housing issues in many countries right now, don’t assume that Canada is like any other country. The price surge here was more extreme. So now everyone is vulnerable to bubbles.

Here are five things you need to know about the recent conversion of Canadian housing.

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Looking for a bargain

“Vancouver home sales in May fell 32% year-on-year,” said real estate analyst Steve Saletsky.

“Affordability is already a problem, and rising interest rates have only exacerbated this. Many buyers are now waiting for prices to fall (and) … hoping to offset the cost of borrowing. I’m out. “

Robert Kavcic, Senior Economist at the Bank of Montreal, said: There is no more widespread speculation, pre-construction quota reversals, or FOMO purchases. “

In some suburbs of Vancouver and Toronto, prices have already fallen by 15-25%. Even though urban Canadians are accustomed to decades of strong demand from domestic and foreign buyers and speculators, the core of a big city has the following possibilities:

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With the Bank of Canada raising lending rates in recent months, typical 5-year fixed rate mortgages have jumped from about 1.75 percent to over 5 percent. Many people who have grown too far to go all-in may soon feel burned.

“Home sales in Metro Vancouver fell 32% year-on-year in May,” says real estate analyst Steve Saletsky. Prices could follow, and some say 2023 could be rough. (The graph shows the average price of Greater Vancouver.)
“Home sales in Metro Vancouver fell 32% year-on-year in May,” says real estate analyst Steve Saletsky. Prices could follow, and some say 2023 could be rough. (The graph shows the average price of Greater Vancouver.)

The needy seller is already on the market in the Greater Toronto Area. And, as specialist John Pasalis points out, even the Bank of Canada does not expect the full impact of rate hikes to be felt for 18 to 24 months.

“If rates remain high and there is a real recession and unemployment, 2023 can be difficult for highly leveraged households,” says Pasaris. “At that time, Canada really felt the downside of having much of its economic growth based on rising household debt.”

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The crisis is getting worse in Canada

Some politicians and realtors are trying to minimize Canada’s housing emergencies by pointing out that many developed country residents are suffering from housing costs. But don’t be distracted.

Even economists have focused on Canada’s problems: “Comparison between Canada and other developed countries should raise some concerns. Since 2000, Canada’s average home prices have more than tripled. In contrast, it has risen by about 60% in Canada. “

Canada’s housing sector is huge, consuming 37% of its investment capital, much higher than a more diversified economy. And Canada’s household debt is 185% of disposable income, which is more worrisome than most countries.

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Canadian market is supercharged by investors

Finally, 22% of Canada’s mortgages were owned by private investors who bought the second, third and fourth units for rent or inside out.

When mortgages were solid, many rented their own homes and bought them enthusiastically. Pandemic investors offer some homes, even though Vancouver and Toronto residents suffer from some of the world’s most affordable real estate (typically $ 1.26 million in Greater Vancouver) And squeezed out the first buyers again.

The government did nothing to stop the speculation. And it’s unclear if their negligence is related to the large number of Liberal Party Cabinet Ministers and MPs of Ottawa (and MLA in Victoria) among those investors.

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Two factors will still put upward pressure on housing

Higher mortgage rates will lower demand and potential prices.

But not all pressure disappears from the market. Many developers are starting to withdraw from huge projects due to lower profit margins, which could lead to fewer homes available in the future.

And with the opening of the border, Canada is expected to reach a record 500,000 immigrants this year. They have a new stream of 140,000 international students and about 450,000 guest workers. They put more pressure on rents in cities that are already skyrocketing, and many seek to buy real estate.

How about a mortgage?

Eighteen percent of Canadians recently told Manulife that they couldn’t afford their home. But again, only 35% of Canadians usually have different types of mortgages.

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“Many people ask me what to do. Do you stick to fixed rate mortgages or floating rates?” Saletsky said.

“If you know for sure that you will stay in real estate for the next five years, then fixed is usually the way to go. However, more than 50% of Canadians cancel their five-year mortgage before their term expires. As a result, it often costs a huge fee to cancel the term early. “

And that’s just one of the key factors. Even in this softening market, it remains a buyer’s watchful eye.

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The Canadian housing market is a headache. 5 things you need to know.

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