We have all heard that by this time, we were supposed to be suffering from a massive collapse of the real estate market. But for the past several months, the real estate market has been seeing quite a boom. Granted, it’s not as large as we saw during the years of 2010 and 2012; but it’s certainly much better than what many people were expecting. In Toronto and the GTA, Canada’s most worrisome market for the past year or two, home sales were up 13 per cent in July; 18 per cent in August; and a whopping 26 per cent in September. So what’s the reasoning for it? Turns out, there are a couple of them.
The first is because of the mortgage rules that went into effect July of 2012. It was the fourth time in just as many years that changes were made, but the ones imposed in July were perhaps the harshest of them all. Shortening amortizations on insured mortgages to just 25 years, it forced many buyers to have that coveted 20 per cent down payment before they purchased. And many just couldn’t afford it. This was the biggest change that was made, and the one that had the biggest impact; but there were other changes too that helped to slow down the market for several months.
It was that slow down that caused sales in recent months to show such a positive increase. Because sales did come to a near crawl after July 2012, and remained that way until this past spring, the sale numbers coming in from this summer and fall look much better. Had that slowdown not occurred, sales would most likely be average or even a bit down from last year’s numbers.
Another reason for the great numbers in real estate sales lately were the increase in mortgage rates. Those came a bit later, in August and early September of this year. These were the mortgage rates determined by the lenders, as the overnight lending rate at the Bank of Canada has remained the same since September 2010. First an increase was seen when the first few lenders started lifting their rate, as buyers became worried that it would become a trend.
They were right, it did, but it wasn’t enough to send sales numbers plunging. That’s because almost as quickly as they started going up, bank bonds started to provide better yields, and lenders started to once again drop those rates. Buyers once again flooded onto the market, wanting to get the lowest rates possible when they knew they could. Those rates are still pretty low, attributing to some of the positive real estate sales in the most recent months.
The Canadian real estate market has showed up some of the experts and analysts that were predicting an apocalyptic collapse by now, but there is reason for it. Those who are looking to get into it can thank mortgage rates and last year’s mortgage rules for it.
