For several years, economists and professionals alike have speculated that Canada is in a housing bubble. This speculation has even led to a number of changes to CMHC’s criteria when it comes to approving a borrower for high ratio insurance. Some may credit these changes for the fact that the “bubble” hasn’t burst… others wonder if there is a bubble at all.
The rising household debt that Canadians are carrying is more recent news that has prompted another flurry of speculation that Canadians are vulnerable to interest rates and will struggle to carry their mortgages if rates were to increase.
Does Canadian household debt leave individuals and families vulnerable in the event of rate hikes? Yes, of course it does. However, in the past 18 months, the only movement we have seen with respect to interest rates are the 2 rate reductions and the BOC kept the incredibly low rate status quo on their most recent April 2016 rate announcement. You can view the April 2016 BOC report here http://www.bankofcanada.ca/2016/04/mpr-2016-04-13/.
Even with Canadians carrying record levels of household debt, real estate values, especially in urban markets like Toronto and Vancouver, continue to be red hot. This is not to mention that in cities like Toronto, the average price of a single family detached home has risen to above 1 million dollars, pushing many families to buy further and further outside of these urban centers.
Immigration also continues to fuel the Canadian housing market. A recent article in the Financial Post highlights the Immigration Investor Program which offers visas to individuals with a net worth of $1.6 million and who were prepared to lend the Canadian Government 800,000 for 5 years as being one of the pillars that has added gasoline to an already smoking hot market.
In fact, a study seems to draw a direct connection between Vancouver’s hot market and Chinese buyers. This is in addition to the Canadian Government’s plan to accept 300,000 new immigrants to Canada this year. It is certain that many of these people will need homes as well.
With more buyers and less inventory than ever it’s hard to envision Canada experiencing a housing bubble burst the likes of which we saw in the US in 2008. What’s your take? Join the conversation on Twitter @purview4lenders.
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