Canada’s housing market more like a balloon than a bubble: report
Concerned about a big drop in home prices? Quit worrying.
Canada’s housing market is more like a balloon than a bubble, maintains BMO Capital Markets in a recent report.
While bubbles always burst, a balloon often deflates slowly in the absence of a “pin”.
In most regions then, where valuations are just moderately high, the air should seep out slowly, as rising incomes catch up with higher prices, allowing valuations to normalize before interest rates do.
What would constitute a balloon-bursting pin? If interest rates were to spike by about four percentage points, for instance, the affordability of homes would quickly drop. Same with a severe recession.
But the chance of either of those events happening is unlikely, the report says, given an outlook for restrained economic growth and low inflation in the advanced economies.
Too much easy credit? Nope. Although growing debts are a concern, BMO doesn't feel that most households are even close to an American-style “debt wall”, or that they will run into one when rates climb.
That said, Canada’s ratio of household debt to disposable income has risen by 40% in the past decade. And the ratio of house prices to income is now 30% above its historical average.
But that's still manageable. Two-thirds of mortgages in Canada are fixed term, the report says, which means most homeowners with variable rates will be able to lock in well before rates start to climb.
"Except for a few remaining hot spots, the national housing boom has already cooled. Sales and price growth has moderated this year, and there are few signs of market imbalances or overbuilding," BMO observes.
Could the balloon get bigger as long money stays cheap? Or do you expect a fully fledged bubble after all?
By Gordon Powers, MSN Money
Posted by: Northern Ontario | Feb 8, 2022 8:39:22 AM
Pricing might drop by 5% but will eventually rise again. In many blogs, most fear immigration as being a culprit in our society. Very far from the truth. As long as the government continues accepting 225k-300k people per year, it provides us a larger pool of people requiring housing that keeps supply and demand going. Immigrants have different level of income and savings when coming to Canada. Many do not live in social housing like most of you claim. Many buy entry level homes which pushes those homeowners up the latter of homes. It's a snowball effect.
Don't treat your home like an investment. You purchase one because it gives you that sense of accomplishment and where your family circle can make memories. Your inner peace away from all the stresses in your life. When you are ready to sell, you will hopefully secure the best price you can.
When you buy a car and add all those repairs, do you recover everything you paid for over the 10 year period? NO but you received tremendous gratification from it. No difference
Posted by: Helene | Feb 8, 2022 10:00:22 AM
Interest rates won't remain low...maybe for the near future, but it will go up drastically at some point. My advice is this: can you pay double of your actual morgage payments, if yes, then keep your house, if no, then consider selling when you can make a profit.
Posted by: Kai | Feb 8, 2022 10:37:28 AM
Could someone please name one housing "balloon" that slowly deflated? It's a bubble, plain and simple.
Posted by: Logan | Feb 8, 2022 11:12:05 AM
Yeah... go ahead and trust this BMO report! Banks are the ones who are trying to shove more mortgages down the throat of those uneducated, brainwashed borrowers. Toronto and Vancouver housing prices are more than Manhattan’s. But look at those two cities! Their transit infrastructures are not even comparable. It’s a bubble, stop lying to yourself! Sell while you still can!
Posted by: Cuckholddon | Feb 8, 2022 11:45:11 AM
Kia& Logan-have it right!
The whole ideal of a bank is to Loan more money however they can,so of course they are going to try&Comfort us about the future!
When buying a house--Buy LESS of a home than you can afford--So, No matter what happens you don't loose it--You can allways upgrade later!
It's not as much the job situation as folks are using way too much credit nowadays!
And the banks/credit card companies just LOVE it!!!!!
Posted by: DR | Feb 8, 2022 11:49:45 AM
Vancouver is safe. Prices have nothing to do with value. The reality that new wealthy immigrants flock to Richmond and pay the prices asked underpins all real estate in the region. Once that stops, sure crash city but is that ending soon?
Second, on interest rates, for as long as I can recall the idiots in the know are talking about interest rates rising and sharply yet year over year we see the same low interest rate environment. The trend is low rates and this is likely the new normal. Why? The US is in big trouble and will be for years, if they keep rates low as they have promised to do well into the future, we cannot raise ours due to the negative economic ramifications of a sharply higher C dollar.
Posted by: SG | Feb 8, 2022 4:30:49 PM
The simple plain truth of it all is BANKS LIE!!! The banks caused the problems in the U.S. in the first place, and are doing so again in Canada. Housing prices are ridiculous here and continue to keep many people from purchasing. There are NOT enough affordable homes to the over priced new homes. And don't forget, you get to pay HST on a new home too! I have had my house for just about 3 years, and the market price has risen $30k. For what? I addeda couple fo gardens... Thats a bloody outrage. Whether you will make money or not on the sale, fact is you gotta buy another, and you will pay the waaaay inflated cost for it too, so in the end, you're not really that better off. Interest rates are low because the banks already have all your money in credit cards. Any increase in interest rates in the next 5 years will force a great deal of people out of their homes they could afford. As one poster mentioned, buy less than you can afford. Prtoect yourself! The banks nor the government will! Oh, and get over the immigrants are buying.... Check the stats, most come penniless!
Posted by: AM103 | Feb 8, 2022 5:07:33 PM
Banks do not always tell the truth, but on the other hand they do not want to lend you a quarter million dollars for the purchase of your home to have you default on the loan and then the bank has to repossess the house/property and pay the 5% realtor fee on the sale price of whatever they get for it on the open market then pay the lawyer fees and after that they hopefully regain what they loaned the defaulted individual.
Canadian Banks are ranked the best in the world, their lending rules are fantastic for not just the people they are lending to but mostly to protect themselves (They are not going to lend you a nickel if they think there is a chance that you will default on repayment.
Yes prices are high in Toronto and Vancouver.....but for a reason.....Demand, people are buying them faster then they are coming for sale because those are the hottest places to be and live in and there is only so much space!
You dont have to pay HST at all, just dont buy brand new, buy 3 years old. Its real estate you will always do well:) Make it your home and relax, to all of you naysayers on the sidelines: enjoy paying down your landlords mortgage while we gain large wealth.
If you can afford it with ease buy it and enjoy it.
Posted by: Jen | Feb 8, 2022 5:32:26 PM
There will be no bubble to burst, it is what is is. Vancouver is a beautiful country and why wouldn't anyone want to settle here? The hosusing prices you are seeing now is simply an adjustment to the global value.
One of the biggest worry poeple have is how the heck are their kids going to afford a mortgage. Well, how did the folks before us afford it? the interest rate they paid was mountain high compared to now, not like they had it easy. By the time your kids are ready to buy a house, $800K is probably not as big as a numebr anymore.
Posted by: AM103 | Feb 8, 2022 6:01:09 PM
In addtion to what I previously posted at 5:07pm i'd like to add something to the fact that you do not have to pay HST at all by buying a resale house/property, some of the best houses/properties in Toronto are between 40 and 100 years old.
Get one that has recent renovations, to each their own but older homes have much more character and charm then the new cookie cutters and you don't pay a dime in HST on them because they are resale.
Posted by: AM103 | Feb 8, 2022 6:10:14 PM
To Jen: Agree 100%, there will be no bubble burst.....At all.
Win Win Win for homeowners/investors $$:)$$
Posted by: bob | Feb 8, 2022 7:04:24 PM
kelowna and the okanogen are 20 months of inventory prices down 20 percent ,the balloon is deflating already sell now if you can.
Posted by: homesjustforyou | Apr 17, 2021 2:04:04 PM
Real estate market may not always stay at the same level but for sure it will always be manageable. Price changes in Canada’s real estate market is something we can always keep track. Visit http://www.openhouse-tour.com/ and keep yourself updated with the changes. We have the most up to date info about real estate market with a focus on the Oshawa area.
Dan Wood Sales Representative with Keller Williams Energy Brokerage. Each office independently owned and operated. Not intended to solicit buyers or sellers under contract. Call 905 430 2320.