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The Canadian housing market conundrum awaits a faster and easier fix

19 November 2012

According to a recent announcement made by Moody’s rating agency, a majority of the largest Canadian banks are likely to suffer a credit downgrade. This stirs up the fears of rising debt levels amongst consumers as they look to refinance their homes. The housing prices are also not going to be free from a substantial price rise.

Some said that it could be 14 years before Canada’s housing market was down to earth again. The housing markets in Canada are not the same as before and are losing heat at a faster pace than usual. People at the Finance Department, the Bank of Canada and the International Monetary Fund agree to this gruesome fact. The question is not whether the landing is going to be a smooth one, but if it is going to be a landing at all. Opinions on this vary greatly, but people aren’t willing to rule out the possibilities of a likely crash.

The following is a compilation of famous arguments in support of the present positions of a few important questions. Aside from giving you an idea of the Canadian real estate sector’s future, it is going to help you prepare for the worst ahead.

The future of housing prices The following are the latest figures as obtained from the Canada Mortgage and Housing Corporation and the Canadian Real Estate Association:

  • Existing home sales – A 15% drop was recorded in the sale of existing homes during the month of September, 2012. This is in comparison with the figures recorded about the same time last year. They were found to be higher by 2.5% when compared to last year’s figures though.
  • Average home price – There was a rise of 1% in the average Canadian home prices in comparison with last year’s values. The month of August, however, showed a negligible change of 0.2% in the average price (seasonally adjusted).
  • Housing starts – The housing starts dropped to end up at an annualized rate (adjusted seasonally) of 220,215. This was slightly lower from the figure of 225,328 recorded in August. Nevertheless, it was higher than the average value of 218,400 units recorded in the year 2012.

There are people that believe that the government played a role in shaping the slowdown. Whatever is visible are just the effects of the new rules introduced by the Canadian government in the month of July. This shortened the length of the mortgages, especially of the government insured ones. The duration was reduced by 5 years to bring it to 25 years. The home equity loans were capped at 80% of the property value. It goes without saying that they suffered a drop of 5% in the process.

Things seemed to be quite encouraging to Avery Shenfeld of CIBC. There are possibilities of hikes in the interest rates. Such a change is going to push loans to the costlier side. That would act as a discouraging point for Canadians as they shy away from buying newer homes let alone using their own homes for the purchase.

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