Housing Bubble or Media Hype?

 

Seeing an article on the out-of-control housing markets in Canada has become as much a part of my daily life as my morning coffee.  Over the past nine months I have read all about how the market is spiralling out of control.  Various outlets and pundits have warned of impending fiscal doom if drastic actions weren’t taken.  But we also live in a world where world leaders spew “alternate facts” daily.  Media sources, be they online or print, are less in the business of dispersing information and more in the business of attracting eyeballs to their ads.  After all, informing the public doesn’t exactly pay the same as selling banners on your website.  With this in mind, I decided to do something unique.  I stopped reading the articles, and started trusting my eyes and ears.  I spoke with people, like myself, who work in the industry, and here is what I found…

Firstly, let’s look at what we were experiencing nine months ago: Realtors were receiving multiple offers on properties, resulting in successful offers having to have fewer conditions and be (well) above asking price.  Buyers were able to get a 5-year fixed mortgage rate of 2.44%.  Since then, the government instituted a ‘stress-test’, making all insured mortgages qualify at the 4.64% posted rate.  Foreign buyer’s taxes have been introduced in Vancouver and most of southwestern Ontario.  As a result: Realtors are receiving multiple offers on properties, resulting in successful offers having to have fewer conditions and be (well) above asking price.  Buyers are able to get a 5-year fixed mortgage rate of 2.44%.

Hmmm….

So why, with all the expert warning and government measures, have we not seen a change?  Simple.  It’s a matter of supply and demand.  We have an immense demand for housing right now.  All you need to do is drive around and see the sheer number of new developments being built.  These projects wouldn’t happen if there wasn’t a need.  Builders don’t take on these massive projects if there is a risk they will sit empty.  The only way things slow is when the number of buyers is at the same level as the number of available properties.  For that to happen, we need more properties, or less buyers.

The ‘more properties’ side of that equation is being taken care of by the new builds, but they take time.  The ‘less buyers’ part happens when owneing become less affordable than renting.  While we are getting closer to that, the fact that interest rates are still extremely low makes buying very attractive and affordable.  Could rates go up?  Of course.  But it isn’t going to happen in a significant way overnight.  It simply can’t.  You see, rates don’t go up in a bad economy when people have less money.  They go up in a strong economy when people can afford it.  Last time I check, our dollar wasn’t doing so well, and we are still waiting to see the full impact our dairy and lumber industries are going to feel from recent tariffs.

Ultimately (in my humble-and-not-trying-to-sell-ad-space- opinion), what we are experiencing is a new short-term reality to our market.  Changes won’t be sudden.  They will be slow and calculated, so as not to negatively impact the mortgage market (i.e. cause people to default by having a renewal rate significantly higher than their original purchase rate).  If you want to get a real idea of how the market is going, trust your eyes.  Look to see if construction is still happening and if mortgage rates are still low.  If so, then there likely is little that the housing market has changed.

As always, if you have any questions or comments, feel free to email me at jvasey@royalcitymortgage.com.  And please “like” and “share” this post.  You never know who it may help.