Ok, I feel it's time for an in depth article that should give an answer to one of the hottest real estate question at the beginning of the new year. Where is our market heading and most of all do we have to be afraid of what happened south of the border to come to the Great White North?
Here is an extract of an article that was just published in the Ontario Real Estate Association's Newsletter (OREA Edge, January2008) :
The melt-down of the U.S. real estate market has left many homebuyers wondering if and how it may affect the housing market in Canada. but market analysts say the problems in the U.S. will have little impact on Canadian real estate.
Much like the Canadian dollar, the Canadian housing market is charting its own course, quite independent from the United States and its currency and housing climate.
The strength of the Canadian dollar, and the fact that the country is adjusting well to its value, will continue to keep interest rates at their existing low-moderate levels, boding well for buyers looking to enter the market. Statistics Canada also reported that "With the combination of the cost of borrowing money remaining relatively low, the availability of longer mortgage amortization periods, and the fact that Canada's population continues to grow, it is no surprise that more and more people are entering the real estate market".
Fundamental Differences between the Canadian and U.S. market:
- Canada benefits from a simpler economy and a more conservative investment environment that the U.S., avoiding the consequences of lax underwriting and speculative building.
- In Canada, institution-dominated markets appear to be avoiding "transaction mania", but real estate values have reached record highs and a strong economy has accelerated tenant demand for space.
- Canadian federal surpluses have given consumers more confidence which has led to increased spending on homes, retail goods and business expansions.
- Canada is naturally rich in areas such as energy and resources and benefits from huge global demand, which fuels both economy and demand for all forms of real estate.
- Housing prices continue to skyrocket towards new highs without overdoing mortgage financing.
- Canadian metropolitan areas boast below 5% vacancies, and rents have room to push higher. Rental apartments are doing well in major cities with high immigration flows.
- Canada's economy continues to be healthy and the soaring dollar brings benefits to importers and any company looking to make capital purchases, which are almost always prices in U.S. dollars.
- FINALLY AND MOST IMPORTANT ... NO SUB-PRIME LENDING MARKET Unlike the U.S., the Canadian housing market has not been artificially driven by bad lending practices. In the U.S., lenders with liquid assets or investment money were making loans to almost anyone who asked. When U.S. housing prices started to slide and interest rates began to rise, may borrowers ended up in trouble and default which in turn, initiated the credit crunch. However, by June 2007, only 5% of mortgages in Canada were sub-prime as compared to more than 21% (!!!) of U.S. mortgages. As well, all mortgages in Canada are insured which is not the case in the U.S.
Here a quick summary that should let all of you who are worried sick about this sleep well tonight:
Canada's long-term fundamentals are solid. Canada has a growing population, our energy and commodities are in high demand, and job creation is strong. All of these attributes seem to have created a buffer shielding Canada from some of the problems in the U.S. real estate market.
Good night!
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