Cautious Investors On The Lookout For That Canadian Property Bubble
Can it be as simple as the fact that drama sells papers? The rumour of a Canadian property bubble just won’t go away. Just as soon as statistics shoo it under the nearest rock, out it pops. Is the recent spate of articles a tease, or journalistic types harbouring justified concern?
The Canadian Real Estate Association, or CREA, released statistics that have calmed concerns of an outright crash, but some analysts are insisting that a correction of some type, although expected to be moderate in nature, will occur.
In January of this year, home sales increased by 1.3 percent over December of 2012. For the last five months this fairly flat tendency in the market hardly signals a crash, but more the moderate adjustment advocated by some. Other than the sharp decrease seen this past August, the markets have been fairly steady. That drop was attributed to the change in mortgage rules in July more than anything else.
In about half of the local markets CREA looked at, sales showed increases when compared to December of 2012. Edmonton was on top of the list with a ten percent increase in sales. Greater Toronto came in second with a 5.6 percent increase, followed by Greater Vancouver with a 4.7 percent increase in sales. Wayne Moen, president of CREA, noted that national real estate sales activity remains steady at or near the levels seen at the end of last August. That said, the improvements seen in some areas, such as Toronto and Vancouver, did come as a bit of surprise.
Those looking at the year over year sales stats, as well as nationwide predictions of prices on homes rising continually, are keeping the fears of a bubble alive. But, economists do not agree on the severity of that bubble. Some see that moderate slope; others fear that Canada will suffer the fate that the United States went through when their housing market literally tanked seemingly overnight. The latter is not likely since Canada has worked overtime to avoid the same mistakes made by our southern neighbours. A number of adjustments in nationwide mortgage rules have prevented housing prices from losing control.
Borrowing costs in Canada are expected to stay low for the foreseeable future, as the Bank of Canada has no intention of raising the lending rates until early in the coming year. The rate has been at a record one percent since September of 2010. Experts consider this a help in keeping sales coming in at a steady, albeit possibly slower, rate. Currently homebuyers can get a mortgage at the lowest rates ever offered in Canada. Those who renewed in 2012 managed to save roughly $2,000 in their annual mortgage interest fees.
As the spring buying season approaches, the rumours and opinions will no doubt continue to fly. But, that spring season may finally signal the end of the crash rumour, at least that is the hope of senior economists that have their eye on those sales numbers.