The Canadian government made changes to the approval process effective October 17th, 2016, for buyers who have less than a 20% down payment. These buyers are now required to qualify under higher interest rates than previously. We have created a short video to explain the new mortgage rules as they pertain to CMHC, and other loan insurers in Canada. Here is the video:
It remains to be seen as to what effect this will have on our booming Canadian real estate market, but for high-ratio buyers, they will now qualify for about 20% less than they did prior to October 17.
A steady stream of experts in the mainstream media have been predicting a fall in Canadian real estate prices. How can prices be so high? And how can they keep on rising? Surely we are due for a correction!
Some nationally known authors such as Garth Turner have been preaching doom and gloom for over 10 years now, Turner for so long that he has actually missed the entire bull market….and yet he still gets press attention, even after being dead wrong for so many years..
Most of these so-called experts make a fundamental mistake when examining the Canadian real estate market – they confuse Cause and Effect. The high prices in Toronto and Vancouver, you see, are not the Cause of the market – they are the Effect.
So when they decry high prices in Canada, they are missing the point..they are attacking the Effect of the market, not the Cause – a fundamental mistake.
The causes of the bull market we have enjoyed in Canada for the last 15 years or so are three fold:
1.) low interest rates
As long as interest rates remain low, the market will continue
2.) a decent economy
As long as the Canadian economy remains decent, and there are jobs being created, the market will continue
3.) continued immigration into Canada
Here I am talking about the Greater Toronto Area (GTA), my area of expertise, although the same rule applies for any Canadian cities where there are large numbers of people moving into the area.
As long as government policy facilitates continued immigration into Canada’s large cities, the market in those cities will continue.
If we look at these three Causes – the Causes of the real estate boom in Canada, there is still room for optimism. Our Federal Government is loath to increase interest rates, as it boosts the Canadian dollar too high, killing our manufacturing industry vis a vis the United States. The U.S., with its current set of problems, has indicated that it will retain low rates for at least the next two years, so the outlook for Canada’s rates remains low for the foreseeable future.
As for a decent economy, the Canadian economy actually seems to be improving; everywhere I look these days in my home town of Mississauga, or anywhere in the Greater Toronto Area, there are ‘help wanted’ or ‘now hiring’ signs….so the economy, in spite of some global macro issues, seems to be on the right track.
And finally, unless there is a change in government policy, Canada continues to welcome new immigrants from all across the globe. All these folks (reportedly 100,000 per year moving into the Toronto area) need somewhere to live, and many arrive in Canada with money to buy property. God bless ’em..
So there is my take on the Canadian real estate market. Sure, there are issues of absolute affordability, but we in the GTA have only to look at Vancouver to see that much greater prices are indeed possible, as long as the three causes of the market remain in place. If any of these change – is rates start rising, if the economy goes in the tank, or if immigration dries up – then the market will slow. Until then, the future is bright. Whenever you read a self-proclaimed ‘expert’ in the mainstream media saying that the market will fall because prices are ‘too high’, know that they are mixing up cause and effect; they are addressing the effect of the market, not the cause.
Mark Carney and the Board of Governors announced today that they are leaving Canada’s key monetary policy rate unchanged at 1.0%. Correspondingly there will be no change to Canadian Prime rates at the current time.
The Band of Canada indicated that both the Canadian and global economic recoveries have proceeded largely as expected, however there are still risks: The Canadian recovery faces risks if the Canadian dollar continues its high flying ways (a strong currency makes it difficult for our exporters to do business).
The U.S. recovery faces challenges due to tapped-out consumers in that country. High debt levels are constraining spending.The global expansion faces risks from so- called “peripheral” economies – those seeking continued support via various bailout programs.
Carney noted that, although commodity prices have come off their highs recently, the Bank expects them to remain at elevated levels for the foreseeable future.
One new factor is the effect of the March disasters in Japan, which have caused temporary supply chain disruptions throughout developed economies.
Canadian growth is expected to soften slightly in the 2nd quarter of 2011, with a rebound in the second half of the year.Total CPI inflation is running at a hefty 3%+, but is expected to moderate due to currency effects.
Carney gave no real clues as to when to expect rates to begin increasing, but they are coming – the Bank indicated that some of the considerable monetary stimulus currently in place will be eventually withdrawn.
It now looks like the expected July rate hike is off the table and and any interest rate increase will be pushed out further into the fall. Mr. Carney will probably want to get at least a preliminary look at how 3rd quarter GDP unfolds before making any decision to hike rates.
With no change to prime rates today, or in the foreseeable future, Canadians should be tempted to resume spending, which could translate into continued use of credit by consumers. With mortgage rates continuing at historic lows, some bump to the housing sector is expected. This could lead to increased mortgage (and house-buying) activity.The beat goes on……
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