Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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According to Mark Carney – former governor of Bank of Canada – in an interview with Sky News – Canadian homes are facing lesser amount of danger compared to the ones in United Kingdom. According to him, Canadian homes are 50% less in terms of valuation metrics compared to those in the United Kingdom.

Is there a real threat to Canadian housing? Maybe all these talks are just expectations, not the reflection of reality.

The concept of overvalued housing actually comes from low interest rate – which is historically at its bottom. Beside that there have been some house prices adjustments in the past. Those corrections succeeded low interest rate environment. It is natural to draw a conclusion based on past experience that the house prices at present are somewhat overvalued  because of low mortgage interest rates.

Let us change our point of view. If we look at the Stock exchange index then historically the annual yield will come close to the yield of housing prices.

In some pockets, housing prices increased at an accelerated rate. As in all other laws  these exceptions are not the norms.

The inflation expectations are rising. Soon the CPI will exceed the 2% target. Variable rate will be the first to grow. It will then be followed by the fixed rates.

Homeowners will find themselves in a tight spot balancing between mortgage payment and everyday expenditure.

Thanks to higher qualifying rate, Canadian homeowners will be able to pull through until the interest rate reaches 5%.

At present, variable-rate borrowers are minorities. Most are selecting fixed-rate. Assuming the interest rate will go up in next 3 to 5 years, the present borrowers will do just fine till that time comes.

The vulnerable borrowers are the ones who have borrowed to their limits. Those borrowers are already restricted by stricter mortgage regulation.

Where it stands now – Canadian housing market may see some slow down but a severe price adjustment seems to be a bit far-fetched dream.

1 Comment
  1. The average numbers seem to indicate that there is not a bubble, but when you look at the increase in property values in the GTA there is a bubble.

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