Being a Canadian Homeowner in 2016
In the first quarter of 2015 there was a great deal of discussion around the bubble bursting in Toronto real estate. In fact, some experts considered it a certainty. Looking back on those predictions now they seem a little over cautious. Throughout 2016, the real estate market has continued to be a record breaking year for Toronto and Vancouver. The rest of Canada has seen a return to something of a more stable growth in house prices, with the exception of Alberta and Saskatchewan that have seen the sales of houses slide
So what has being a homeowner in Canada during 2016 been like. Well, it has continued to be a booming time for property owners. Despite an ever decreasing number of naysayers, the property market continues to grow at an unprecedented rate in certain areas. The truth is that cities like Toronto and Vancouver will always continue to expand. As they expand the demand for property continues to outweigh the supply. This is a cornerstone of understanding why these markets continue to grow at such a phenomenal rate while others show more modest growth.
The powers that be are not completely comfortable to let these markets continue to rise without at least some oversight and action. For example the Canada Mortgage and Housing Corporation have raised premiums on mortgages where the buyer puts less than 20% as a down payment. In February of this year, the government announced that houses that have a value of over half a million dollars will require a larger down payment than previously needed. These are all quite responsible measures and show that there is still some concern about the housing market. Memories of the choices made before the crash in the US and how that helped to somewhat insulate Canada from the fallout have reinforced the resolve of those looking to keep the Canadian market safe.
The measures that have been taken over the past 12-18 months are much more relaxed than an interest rate increase. Because of this, there will likely be more measures put in place. As the most recent change being that all new mortgage approvals will require the applicant to undergo a stress test based on an interest rate increase after 5 years. The response to this change has been mixed. Some say that it dramatically reduces the buying power of first time home buyers in a negative way. The counter argument is that this is exactly the point! Making sure that home buyers can afford their homes in the event of a significant interest rate increase is a very protective and seemingly wise measure to take.
Another point of view that is being expressed regarding the state of property in Canada is with all of these changes to the mortgage rules, what is the problem that needs fixing? The changes to the required down payments and other things are useful but they do not address the cause of the rise of home ownership. The supply is simply not meeting the demand in the larger cities and surrounding areas. This of course is a whole different ball game and one that needs to be addressed along with a whole host of other infrastructure problems that growing cities face.
The good news for homeowners is that a significant increase in interest rates is not on the cards any time soon. As mortgage rates are historically tied to inflation the chance of a rise is fairly small for the remainder of 2016. 2017 will probably begin in a similar vein, the government may make some changes and tweaks to the rules to further safeguard against the issuance of "bad" mortgages but any drastic changes to the market seem unlikely.