Canadian Housing Market Outlook for 2008

The housing markets of Alberta and British Columbia are definitely bubbles that will burst soon. With the US economy entering recession and the heavy reliance of Canadian economy on the US, there is no way the Alberta and BC housing market can have a soft landing. The bubble burst is on the way.

There was more bad news about the Canadian housing market this week. The Canadian Mortgage and Housing Corporation (CMHC) have warned that the number of property sales could fall as much as 40% this year. The announcement came just days after the Housing Minister Monte Solberg's refusal to attend a national housing meeting with provincial and territorial ministers and then inadvertently revealed that the Government believes there will be a 5% to 10% drop in prices this year "at best". Meanwhile, mostly economists at banks and building societies - believe the falls in prices will be limited to low, single digits. But while the jury's still out on whether there is going to be a crash or a modest decline, there does now seem to be a broad consensus among the experts' that house prices will be lower at the end of the year. So, is it finally time for first-time buyers to crack open the champagne and celebrate? If you're a homeowner, should you be crying tears into your pillow?  Who are the real winners and losers when house prices fall?  The most obvious winners are first-time buyers.  Not only are prices becoming more affordable, but it's a buyer's market now, with properties taking 50% longer to sell than this time last year and asking prices dropping, on average, around 27% before a sale can be agreed.* First-time buyers are in a particularly strong position because they are chain-free buyers. So far, so good. But are all first-time buyers winners when house prices fall? Since the credit crunch, it has become much more difficult to get a mortgage, with lenders pulling deals left, right and centre. Even if you can find a cheap mortgage deal with a low rate, you may not be eligible for it. It all depends on the size of your deposit. Due to the increased risk of negative equity when prices fall, mortgage lenders are becoming increasingly wary of lending to borrowers with small deposits. While you can still get a mortgage with a 5% deposit, you'll have to pay a higher rate. According to the Royal Bank of Canada (RBC), the average two-year fixed rate (taking into account the fees) is now almost 7%, compared to 6.3% last July. On the plus side, those that can save are benefiting from rising savings rates, as banks compete desperately to lure in your cash during this economic downturn. The most obvious losers, you might assume, are homeowners. After all, when prices fall, they lose money.