2014-06-23

While some sources claim the Canadian real estate market has overheated and could experience a short-term correction, a recent study shows the housing market has room to run. And thanks to more conservative lending rules, Canada will avoid the same housing-market-style crash that helped set off the U.S. recession back in 2007.

The majority of forecasters surveyed said that while house prices were slightly overvalued, the consensus is that prices will still rise 3.0% this year; although rising interest rates will then take some steam out of the market.

Going forward, housing prices are expected to climb 1.0% in 2015 and 1.5% in 2016. In February, the consensus was a 2.2% rise in 2014, and a 1.0% increase in 2015.

Some have warned that the Canadian housing market has been climbing too quickly and could be forming a bubble. That sentiment mainly comes, in part, from comparing the Canadian housing market to the U.S. market.

The experts at Zoo Mortgage explain that the U.S. housing market tanked because of poor lending practices, which came to light amidst a major stock market crash and the U.S. recession. Between 2007 and 2012, the U.S. housing market lost more than 30% of its value.

Even though the U.S. real estate market has rebounded 25% since the beginning of 2012, it still needs to climb another 20% just to break even with its pre-recession highs. The Canadian real estate market, on the other hand, is up roughly 30% since 2008.

To help stave off a U.S.-style housing market crash, the Canadian government implemented a number of tougher lending rules for those with down payments of less than 20%. The government reduced the maximum amortization period for a government-insured loan from 40 years to 25 years. The government also reduced the upper limit that Canadians can borrow against their home equity to 80%.

According to Zoo Mortgage, these government changes were put in place to ensure the Canadian housing market remains as stable as possible. They also encourage Canadian homeowners to avoid overextending themselves financially.

In essence, these regulatory changes mean the Canadian housing market is on much more stable footing than the U.S. That said, Zoo Mortgage understands that the Canadian housing market is not immune to a downturn; every market goes through periods of contraction. However, the odds of a U.S.-style meltdown are extremely remote.

If you’re in the Greater Toronto Area and looking to get on the property ladder (and take advantage of near-record-low interest rates), are considering refinancing your home, or want to consolidate debt, contact the financial experts at Zoo Mortgage.

The independent agents at Zoo Mortgage work for you, not the banks or other lending institutions. We’ll discuss the different options available to you and find the right financial product best designed to meet both your short- and long-term financial and lifestyle needs.

Source:

 “Canada housing market still has legs, crash fears low: poll,” Reuters web site, June 11, 2014; http://ca.reuters.com/article/businessNews/idCAKBN0EM1JL20140611?sp=true.