Welcome to the Guardian Financing March 2018 monthly newsletter. This month’s issue is about the potential burst of the Canada Housing market.
It seems as if the Minsky Moment for the Canadian housing market has finally arrived. Through the years, prophecies have been made about the boom being nothing but a bubble that would soon burst, and if the numbers are anything to go by, then the dreaded burst might as well happen sooner than later.
The Canadian market was lucky to escape the global financial crisis in 2008, untouched compared to other major markets in the world, and after fifteen years, it seems the moment of reckoning has finally arrived for Canadians.
Loose mortgage lending may be blamed partly for the housing bubble, and since the household debt in Canada is among the highest in the world, the population doesn’t seem to have a lot of room in their budgets to accommodate further rising housing costs. It must also be remembered that Canadians have also contributed to the bubble by denying its existence and that one day it may burst.
To the majority of the population, Canada’s housing market is immune due to low interest rates and immigration. However, there is no concrete research to suggest that the Canadian housing market is a special one compared to compatriots in other parts of the world. If anything, the market is currently stretched to the same extent as the US market during its peak, and it is just a matter of time before a correction sets in.
The coming year will be a crucial one regarding whether or not the market is going to holdup from such a burst for just a bit longer. It is a known fact that interest rates for most mortgages held throughout the country reset to the market’s current rate after every 5-year term. This implies that up to 46% of Canadian mortgages are bound to reset within the next couple of years.
In as much as the Bank of Canada expects the rates to be similar to the market’s rates five years ago, any small rise will increase the debt subjected to Canadians, leading to a good number of people at risk of defaulting on their mortgages.
When that finally happens and debt increases Canada-wide, including debts being paid by corporations, there may be cutbacks on human resources, resulting in widespread job-losses, and people will start defaulting on mortgages. As is always the case in any world economy, lenders will tighten their lending rules, thus reducing the number of potential buyers in the market.
Out of fear of defaulting, some people will attempt to sell their houses, but since the rules will be tough for people seeking new credit options, there will be a limited amount of buyers and consequently, current real-estate prices will have to come down. In Canada, every indicator confirms that it is just a matter of time before this happens; not so much a question of whether it will happen.
Guardian Financing is a direct mortgage private mortgage lender. We serve the greater Montreal area, providing short term residential mortgage loans, typically ranging from $50,000 to $750,000. Contact us today to discuss your file at 514-700-3121 or by email at files@guardianfinancing.ca.
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