Another day, another warning about the state of Canada’s two hottest housing markets.
On June 9th, the Bank of Canada delivered a warning that the continuous rise in house prices in Toronto and Vancouver is becoming unsustainable, outpacing the local economy when it comes to job creation, immigration and income growth.
At a news conference in Ottawa, Governor Stephen Poloz says the central bank is seeing evidence that the markets are being fuelled by self-reinforcing expectations that the trend is going to continue, but these circumstances could actually lead to a decline in prices.
The semi-annual assessment on the state of Canada’s financial stability revealed that there are a number of vulnerabilities on the table, including greater imbalances in regional housing markets and a rise in household debt – both bigger than they were six months ago. These vulnerabilities has the central bank saying that the risk of a decline is possible, although they can’t predict where the actual numbers will go.
A Red Hot Six Months in Toronto, Vancouver
Many prospective homeowners waiting for prices to dip may have thought – and hoped – this would have happened by now, but it’s only become more unaffordable for a lot of these individuals and families. Year-over-year growth in the greater Vancouver area hit 30 per cent in May, while prices in Toronto climbed five per cent between December 2015 and May 2016. This can partially be attributed to foreign demand – although the bank says this type of activity is hard to measure.
The rest of the country isn’t seeing the same type of growth, revealing huge imbalances in regional markets.
What Does this Mean for the Greater Economy?
Poloz says the risk of a trigger such as a recession remains low, but that risk has still increased since the Bank of Canada’s last assessment in December. He says while there are no sudden changes within the country’s housing market, the evidence that we’re heading into risky territory continues to accumulate.
Prior to the BoC’s semi-annual assessment, Federal Finance Minister Bill Morneau announced that Ottawa would start to thoroughly examine the country’s real estate markets to find out what the government would have to do to make sure the majority of Canadians could still afford to buy homes. He also said it plans to examine if foreign buyers really are causing the markets to soar. No announcement was made, though, about how the government will go about this process or what measures it will take.
What Does this Mean for You?
The greater picture hasn’t changed much from six months ago, Poloz said, because greater vulnerabilities in the average Canadian household are being balanced out with ongoing economic recovery. There’s no indication that interest rates will rise when the Bank of Canada has its next meeting in July, although there is still some speculation that we could see a cut. As for a real estate market collapse, the central bank says that’s highly unlikely and what happened in the U.S. in 2007 is not going to repeat itself on the Canadian side of the border.
For the time being, buyers are best keeping their eye on the housing market and taking advantage of low interest rates – if they can find a property that fits within their budget and needs. It’s a bit easier for prospective buyers who don’t live in or near Vancouver or Toronto.
Regardless of the price of your dream home, it’s necessary to get pre-approved for a mortgage prior to beginning your search or making an offer. It’s also helpful for you to write down and budget for different scenarios in the event that interest rates either rise or drop. The more financially prepared you are, the better off you will be when you finally do find the perfect property.
Have your eye on the perfect abode? Get a mortgage that’s affordable and meets your needs. Compare the best rates today!