Canada’s housing market is believed to be experiencing a soft reaction after the government increased interest rates and regulations. Data shows that the market is experiencing only a modest price adjustment instead of the market collapse that investors where fearing due to debt and housing worries.
“The rule changes […] have been effective in cooling these markets down” reported chief economist at the Royal Bank of Canada Global Asset Management in Toronto. The changes came in 2017 after the housing market in Canada saw a spike in housing prices of almost 80% in eight years. Since last year, the price of homes has not fallen as much as the number of transactions has.
Nonetheless, there is a slight possibility of the market worsening. Young home owners have always had low mortgage rates and many of them will need to refinance their mortgage as rates increase. There is a high concern for the highly indebted borrowers.
With a more stable housing market, the Bank of Canada will continue with its low increases in interest-rates and government officials will hold back from interventions that affect households. This is a new situation for many. As the senior economist at the Bank of Montreal in Toronto said, it will be the first time outside of a recession since the 1990s that “price growth is going to be flat in real terms”.
A soft landing
Signs of a softer reaction were reported last week by the Canadian Real Estate Association as home sales are close to the 10-year average, a better-than-expected outcome after the fall in September and October.
Canada’s housing market has always been expected to crash and follow the likes of the US, the UK, and Spain. But it seems like the measures taken to slow down the market are making an effect. “We are reaching some sort of landing, how soft it will be I don’t know, but we aren’t in a free-fall” said the deputy chief economist at the Canadian Imperial Bank of Commerce.
However, it will take some time for Canadians to see a stable market. The fast increase in prices has left affordability challenges for buyers and supply shortage for developers.
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