Canadian’s who are looking to enter the real estate market has been through a lot. Between sky-high prices and what feels like never-ending bidding wars in most markets, it is no surprise that many potential buyers have delayed taking the leap. And now, they face another dilemma: whether or not they should consider buying when some experts are anticipating a real estate crash.
This dilemma can be incredibly frustrating, especially when you consider the current real estate market in Toronto and Vancouver. Many potential buyers currently qualify for less than what they would have two years ago. All that said, the federal government finally introduced some changes to the Mortgage rule to take effect in September 2019. The federal government is also introducing more affordable housing in the Toronto area. Homes in Vancouver and Toronto are overinflated and many experts are cautioning home buyers to keep their financial futures in mind. We recommend that buyers make sure that they are prepared to take on a regular mortgage payment and keep in mind any unforeseen situations, set aside an emergency fund in the event of job loss.
The Canada Mortgage and Housing Corporation also said that household debt had reached a record high, even though fewer people were taking on mortgages. In fact, Canadians debt-to-income ratio hit a new high of 178.5% in the fourth quarter of 2018. However what CMHC omits to say; many of those additional debts were taken on by retirees mortgaging their current residence. (Reverse mortgage with no monthly payment required).
In May The Bank of Canada said that housing prices in key markets such as Vancouver and Toronto have slowed down. However, imbalances in real-estate markets are still a significant concern and vulnerability in Canada’s financial system.
While many domestic and international professionals are warning of a potential crash, not everyone is holding their breath. Canada’s Business Development Bank said that it doesn’t see a crash on the horizon because of how strong the economy is. Stating in April, “As long as people continue to work, they will likely be able to meet their debt repayments.”
While we have seen some changes in the right direction with real estate prices coming down in Vancouver, many fear that affordability for the average Canadian household may never be fully restored in Toronto. Professionals in the real estate industry have a different view of what the Toronto market means for potential buyers in the GTA and are quick point to historical trends that suggest investing in real estate somewhere are always a good investment.
Phil Soper, chief executive of Royal LePage, believes the cooling-off of most real estate markets presents buyers with great opportunities to make a nice profit in the long-term.
“Canada’s housing market doesn’t have a history of severe depreciation even in tough times and that over several decades, Canadian home prices have appreciated more than 5% per year” – Phil Soper
“Slowdowns are really hard to predict. It’s not necessarily going to happen…We’re probably going to see an American recession sometime over the next couple of years which will slow the market in Canada but not necessarily so. And if history is any guide, you’ll do well in almost any place in Canada.” – Phil Soper
The reality is that the real estate market tends to adjust during economic changes because the number of homes listed for sale and the number of buyers both drops significantly. Allowing supply and demand to remain somewhat in balance.
With prices stagnant, and houses sitting for more extended periods without offers, it is a great time to buy because there are less competition and more opportunity to include the conditions you may have otherwise felt had to be left out, such as a home inspection.
So, if you are considering purchasing a home, but are unsure of where the real estate market is going to turn, keep in mind that the choice to buy a house is more about the home meeting your personal needs than it the price and value. If you are ready to purchase a home and can afford it, then as long as you have sorted out your finances, taking the leap and getting into the real estate market in the next couple of years might be worth the leap.
To find out how much you can afford under the mortgage rules click here to download our mobile mortgage calculator.
The Mortgage Centre Team
Sky Financial Corporation