The Sky Is Not Falling; Why You Wonít See an American Style Housing Crash in Canada
Many analysts are currently predicting a large housing crash throughout Canada; but you wonít see this Ė what you will see is a reality check for the housing market.
If you take a look at the last 3 years to see that there been many doom and gloom predictions that the Canadian housing market is going to crash, but it still hasnít.
Bubble or not, the demand for new homes is beginning to cool. Baby Boomers that were expected to sell their homes and and buy new ones are staying put. More and more borrowers that did want to buy couldnít qualify because of the new mortgage rules, and people trapped in the middle canít find a home to buy.
Appreciation Rates Coming Back down to Earth
Itís expected that home appreciation levels will go back down to 2% per annum; over the last four years many Canadian markets have seen a jump of 10% a year. More and more Canadians are going to have to get acquainted with realistic appreciation levels - which may curb speculation, but that could hurt the housing market in the long run. Mortgage changes earlier last year have made it harder for some people to buy homes, but they are doing their job. Even if 9% of Canadians have to wait to buy a home, this is entirely a not bad thing. The last thing you want is for Canadians to tap out all of their equity.
Low Interest Rates Canít Last Forever
Letís face it, low interest rates just canít last forever. Inflation is eventually going to hit Canada, and when it does, we want the landing to be soft as possible. In 2014 interest rates are expected to spike 1 to 2% in tandem with US interest rates. Canadian interest rates and American interest rates have long been tied in tandem.
The economy canít grow with really low interest rates; eventually everything has go back up at some point. Itís important for growth to happen, and while Canadian interest rates have remained low and the sales of real estate, especially luxury real estate have fared fairly well, eventually everything is going to go up. But this isnít bad, weíve recognize the problem before itís too late. The Americans didnít have this, and thatís why they had such a bad crash. More Canadians own more of their homes; many pay down thirty-year mortgages within 12 years and havenít borrowed much against their equity.
A Soft Landing for Canada?
Only time will tell. While Canadian consumer debt levels remain high, more and more Canadians are paying off their debts. You wonít find many Canadians completely tapped out Ė a problem the Americans had. Canadians are not spendthrifts, something that hasnít changed in the last 60 years.
When it comes to real estate, even luxury homes for sale, the market isnít going to bottom out anytime soon. There will be some growing pains, this is to be expected in a growing economy. We wonít see an American style housing crash here.
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