Taking stock of the housing market
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Hey there, time traveller!
This article was published 26/11/2015 (3584 days ago), so information in it may no longer be current.
If you’re paying a mortgage these days, you may have reason to a be a little concerned.
The rate for five-year, fixed rate mortgages have risen since summer, and with an improving economy, they could be headed further north.
That will make the cost of servicing a mortgage more expensive, which isn’t exactly great news for some of the folks who perhaps bought a little more house than they needed.
While expert opinion is worth exactly as much value as you choose to give it, there is a growing chorus of voices that suggest Canadian real estate is overvalued.
It’s a little harder to ignore when one of those voices belongs to the Canada Mortgage and Housing Corp., which says it thinks prices are too high in 11 of the 13 markets it looked at.
The easy answer is to suggest that the CMHC is looking at overheated big-city markets like Toronto, Calgary and Vancouver. And Brandon, with its influx of foreign workers over the last decade has been a bit of a special case. But Winnipeg and Regina were included in that list, with suggestions that there is overbuilding in Saskatoon, which may signal prices will be too high there as well soon.
To decide what’s at risk, the CMHC looks for rising prices, accelerating price growth, overbuilding and excessive demand.
In a survey from outside Canada, The Economist suggested that real estate in Canada, Britain and Australia was all notably overvalued.
Some experts suggest that a bubble has developed and that the market is due for severe correction, but that’s unlikely.
The governor of the Bank of Canada, Stephen Poloz, said that his agency calculated a 20 per cent overvaluation on the housing market but that the amount of building continues to be in line with customer demand.
So if there is a correction, it’s likely to be slight.
All of this is cold comfort to anyone who has their home on the market right now. A lot of signs have been up on front lawns around the city for a long time.
While some experts say that it’s basically a normal market for buyers with an abnormal inventory of homes for sale, desperate sellers are dropping prices in an effort to spark interest from buyers.
A well-defined move in that direction would threaten the market’s value, but again, a major drop is unlikely.
Unless we see a dramatic increase in mortgage rates with a simultaneous drop in property values — the crushing combination of factors that occurred in the 1970s and had people dropping their keys off at the bank — we will ultimately be fine.
Our advice is simple.
Buy a house. Just be sure that you can afford the payments, even if they rise a little bit. But that’s good advice for every purchase.