Government agencies may need to step in to cool down an overvalued marketplace and step up to the realization that Canadian home prices are highly overvalued. Fitch Ratings, a U.S. based global credit rating agency, warns that home prices values have been far too high, by up to twenty percent, in the Canadian real estate market. Fitch is calling on the government for another round of regulations to help soften the landing. With four rounds of mortgage regulation in four years, that may be a tough sell.
With historically low interest rates, increase in home prices, and a tough supply of available homes in the urban marketplaces, the market has been buoyed since the recession. In the urban areas, such as Vancouver, this holds especially true. The rebound in sales after a slow period has resulted in what many deem to be an overvalued market. The Morningstar research firm, an investment research and management firm in Chicago, previously predicted a thirty per cent correction in the Canadian housing market was possible over the next few years.
At this rate, the market is highly susceptible to market stressors such as increased interest rates or unemployment. Recent reports indicate that the average Canadian household has a debt-to-income ratio of 163 percent. That means for every $1.00 earned, $1.63 is owed for debt. With interest rates likely to increase, the household debt-to-income ratio could continue to climb and leave the housing market prime for bankruptcy and individuals defaulting on their loans. Yet there is some hope, as many economists believe that the housing market will gradually even itself out in the coming years. Building permits have increased and sales have picked up, particularly in the hot condominium market, over the past several months. While this leaves some analysts uneasy, it leaves many pointing to the fact that affordable housing is coming on the market and will gradually lead to an evening of the real estate industry.
While some mortgage lenders fear that the market is headed towards bubble territory, some analysts opinion that with the right intervention the effect could be more like that of a balloon. A housing market that slowly deflates, rather than popping all at once. Ultra low interest rates, which made borrowing cheap and added to the debt-to-income ratio, may not be the norm and home buyers looking to move up to a larger, more expensive property may find themselves staying put for the time being.
Regardless of what houses are selling for today, many claim that the housing market is headed for a correction and slow down over the long term. With that in mind, many potential homebuyers are choosing to wait out the market swing before buying a home of their own. Perhaps they are choosing to be a renter and opting to move more often to find a place to call home, as opposed to moving in with a mortgage over their head and themselves underwater in debt. Whether you are downsizing in order to reduce debt or up-sizing to accommodate a growing family, hiring Canadian Easy Moving for your next move guarantees this to your best move yet. Visit our website for immediate rates for BC’stop local mover services