Looking at the big picture in the housing market it is easy to conclude that the housing boom should be bracing for a crash. It seems that with all that is going on in the world and especially with our closest southern neighbor, that the constant calls for interest rate increases continue to to be muted and the housing boom goes on here at home.
Critics say that this pattern cannot continue and all indicators seem to support the idea that a housing bust is inevitable, but is it? The price to income and price to rent ratios seem to provide evidence of this claim.
However, when we really break down the ratios there are huge differences in the percentages when you take into account the different cities in Canada that are skewing the numbers; Vancouver’s housing market alone inflates the housing price increase by more than 3% bring the ratio from 8.6% to 5.6% a national average further reduced to 3.7% when Toronto is taken out of the equation. Higher end housing in the two metropolitan cities is to blame for the huge disparities in numbers. CNW Article
So the expectation is that the market will correct itself as increases gradually set in and home owners start to feel the crunch. Those that have variable rates will lock in for more stable fixed rates to lessen the burden of escalating interest rates.
It is likely however that Canada’s housing market will suffer a fate remotely close to what was seen at the start of the recession in the US, historically Canada has a less then 1% default rate amongst its most at risk groups (low equity and high debt service groups)
So it is up to the consumer to do his homework when considering a mortgage and with the help of a Mortgage broker to determine which rate type makes the most sense with regard to current market trends.
Further it is unlikely at this time that an extreme change is going to occur in the markets forcing interests up at alarming rates and causing the housing market to plummet overall. The greater liklihood is that the change will occur gradually alongside salary increases and lowered housing prices so that equilibrium continues to govern the market.
