There has been a lot of speculation and talk on the Canadian housing market lately, as a result of the constant stream of negative press flowing from of the US. Firstly let me say, do not believe everything the media tells you. The press thrives on negativity, so if they can spin statistics to paint pictures of Doom & Gloom, that's what they're going to print. "Do not put your faith in what statistics say until you have carefully considered what they do not say". ~William W. Watt If you prefer a more practical insight on the value of statistics consider the following: "The average human has one breast and one testicle." ~Des McHale
That being said, allow me to offer my professional opinion on what is happening in the US, and whether or not it will rear its ugly head in Canada.
I won't be naive or pretend that a major slump in the economy and markets of our country's largest trading partner to the south is not going to have an effect on us. However, there are several key factors differentiating our situation from theirs.
One of the leading causes of the housing crisis in the US is the sub-prime mortgage fiasco that you've likely heard about. Over the past several years, low-interest mortgages were offered to many people with poor credit histories or low incomes. The main problem with this scenario was that the low interest rates were only temporary. The wide usage of Adjustable Rate Mortgages (ARMs), resulted in a significant segments of the buyer's market qualifying for mortgages at low interest rates, which were way out of their range of affordability when the initial rate expired. The Canadian mortgage industry is much more highly regulated than that of the US, and many of the lending practices used to procure mortgages in the US over the last few years are flat out illegal in Canada. It is estimated that 5% of the mortgage market in Canada is made up of Sub-Prime borrowers, while that figure breaches the 25% mark in the US.
In addition to the sub-prime mortgage bomb, the US is also on the verge if a full blown economic recession. In Canada, meantime, the economy is expanding, jobs are being created and interest rates remain at a historical low. To further separate our economic positions, the US is drastically lowering interest rates to try and jump-start their economy. In order to prevent a recklessly soaring loonie, the Bank of Canada is following suit, with most commercial banks expected close behind. Those lower interest rates will help temper the erosion in housing affordability.
To further fuel our economy locally, we have the Olympics on the not too distant horizon. I personally do NOT place a large emphasis on the effect of the Olympics on the housing markets; I don't believe that a 2 week event is going to cause a rapid spike and subsequent decline in or around that period of time. I cannot however ignore the countless upgrades and additions to infrastructure and facilities in the area. This not only increases the desirability of the region, but provides necessary jobs. In addition to all of the projects underway in preparation for the Olympics, the province recently has announced over 14 billion dollars in transportation upgrades supplying work for years to come.
Taking these factors into consideration, along with the reports and forecasts most of the respected analysts, we are anticipating further price gains in the neighbourhood of 5%-7% for 2008.
-Tyler Schacter
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