Tuesday, January 9, 2018
A Wild Ride – The Canadian Housing Market in 2018
The past few years have seen the Canadian Housing Market go through “stock market” like growth. The whole country was intrigued and perplexed as we saw home prices skyrocket, especially in the major urban markets like Toronto and Vancouver. The market became a feeding frenzy with houses receiving dozens of offers and getting bids well above asking price. This seller’s market saw people unloading their homes without a place to move into, just because a hefty profit would be made. While home ownership is still the bedrock of Canadian society, this market volatility changed that forever in my opinion. There are everlasting repercussions from has happened over the past few years, and in this post, I will delve into what the real estate market in Canada has become. Homeowners and renters alike will feel the effects of the strong changes in Canada’s Housing market.
What happened?
2017 was a banner year in the Canadian housing market. Massive amounts of homes were being purchased over the course of the year. March turned out to be the month with the largest growth with over 46,000 homes sold across Canada. The worst month last year July, was still very productive with over 39,000 homes sold countrywide. Even more perplexing was the cost at which these homes were selling for. The average price for a home sold in November of 2017 was just under $504,000. The markets in Toronto and Vancouver bump that number up dramatically. If you exclude those 2 markets from the number Canadian homes still sold for around $380,000. These amounts are up about 3% from a year earlier and across Canada, houses are worth on average 21% more than they were in 2012. On the ground level, I saw remarkable growth in the London market. Houses were being sold with double-digit bidders and final offers were coming in well above asking price, often with no conditions of sale. It was a seller’s market to a tee and even gained international attention because of it.
My 5 Point Home Buying Checklist – Budget Boss
A new set of rules
Starting January 1st, 2018, a new set of mortgage rules came into place in Canada. The government of Canada has implemented a “stress-test” on any new mortgages, even those where the owner puts more than 20% as a down payment. Before this year that test was only put on home buyers who did not have the 20% down payment. Those buyers had to purchase mortgage loan insurance to secure their loan. This stress test is fairly simple. Home buyers now must qualify for a mortgage with an interest rate 2 points higher than the contracted rate or Bank of Canada’s key interest rate. For example, if you receive an offer from your mortgage provider of 4.5% on your new mortgage, you must financially qualify for a mortgage at 6.5% to meet these new guidelines. This means that you must be able to service this mortgage as if it was 2% higher, including your earnings, debt ratio and mortgage amount. What analysts believe this will amount to is fewer people being able to enter the mortgage market while others will have to buy a cheaper home to meet the guidelines. These measures are meant to deter people from overburdening themselves with a home they cannot afford. Time will tell how this affects the housing market in 2018.
New mortgage rules 2018: A practical guide – Global News
What I worry about
With the absolute frenzy of home buying and housing values in 2017, I have several worries. Firstly, I worry that many people “over-bought” when it comes to the value of their home. What this may cause is out-stretched budgets as the mortgage payments roll in and interest rates rise. While numbers on a piece of paper seem achievable, when it comes down to everyday life, the budget might be too thin to make payments for a house that costs far too much. I also worry about home values. As mentioned, the average cost of a home in Canada has risen dramatically over the past several years. While this is seen as a good thing, and it generally is, it could be a problem for the next several years. Over history, we have seen dramatic rises in home values in Canada. What usually follows is a period of stagnation or even negative value. This was seen during the late eighties and into the nineties as prices boomed in the early 1980’s then cooled off dramatically come the 1990’s. For those able to service their mortgage, it doesn’t matter as much because they are in it for the long haul. For others who may have a problem servicing their mortgage, having a home worth less than what you paid for it is a daunting reality. If one had to exit this mortgage, they would often lose thousands of dollars and it could cause bankruptcy in some cases. This is why the “stress-test” might be a positive, albeit not for housing sales growth. Another reason to never buy more house than you can afford. I also worry that many people have been priced out of the housing market, especially in major urban areas. This could create an even bigger gap between the rich and the poor.
Business News Network – Real Estate and Housing Page
What I am excited about
With the markets in Toronto and Vancouver blowing up in past few years, a new order has taken place. When you travel to major cities around the world you see that for the most part, only the affluent live in the cities core. Surrounded by that core are suburban areas that house the people who cannot, or do not wish to live in the cities urban hub. What this creates is tremendous value within the city, but also just outside the city as well. Areas like Mississauga, Brampton, Oakville and even as far away as Kitchener-Waterloo and London have seen home values rise. This cements the investment of those already living in these areas. This extra money can provide retirement income or even a legacy to leave to their loved ones. What also excites me is the potential of Canada’s major urban hubs becoming similar to other cities around the world. Toronto appears to me to be on its way to become a tech hub in North America. With an influx of people, comes an influx of new jobs. These new jobs mean more money flowing into the economy and therefore other industries will also benefit. I am thrilled to see Canada’s major cities enter into the Manhattan’s and Chicago’s realm of North American city stature. This kind of growth will have a great effect on the whole of Southern Ontario and areas surrounding Vancouver, Calgary, Montreal, and others.
We are truly in an interesting time in Canadian history. I believe we are on the borderline of what could be a major economic boom in Canada. While we have always been resource-rich, I feel we are adding to that technology and the service economy as well. What this means is more and more jobs will be created and on a whole, incomes should rise. Recent jobs reports have our unemployment rate at an all-time low and new jobs added the highest in decades. Part of this growth is definitely in the housing sector, with new homes needed to be built, sold and of course financed. 2018 will definitely be a year to watch in Canada.
Thanks for tuning in today as 2018 Trends Week Continues at Budget Boss. Don’t forget to join us tomorrow as we jump in investment trends for the upcoming year. If you would like to discuss mortgage affordability and budgets, please feel free to message me at joe@budgetboss.ca. Have a great day Bosses!
“It’s easy to underestimate the real cost of homeownership.” – Suze Orman
Email – joe@budgetboss.ca
Follow Budget Boss on – Facebook LinkedIn Twitter Instagram Pinterest Quora