As we look around Europe, the USA and many other parts of the world, political and economic uncertainty is all around us. There are very few countries which have managed to avoid the worst of the worldwide economic downturn but the likes of Canada and Australia to name but two have performed admirably during these difficult times. Indeed Canada has finally broken away from the shadows of the USA and its standing on the international investment stage has grown dramatically. This has led to a number of issues which need to be addressed in the short to medium term one of which is the ever increasing price of real estate in Canada.
Some experts believe that the Canadian property market is well overvalued and in danger of a major correction while others believe we should see a more controlled slowdown in property price increases and a more sedate market in the medium term. So, what are the main issues surrounding the Canadian real estate market in the short to medium term?
An interest rate hike in Canada would almost immediately impact demand for property and have the potential to send prices plummeting. This is a potential nightmare scenario which some experts believe could happen but when you bear in mind the Bank of Canada is more in favour of further interest rate cuts than increases, perhaps we can cross this potential issue off the list. When you also take into account the fact that inflation in Canada is relatively subdued, we are unlikely to see any interest rate rises in the short to medium term.
Quote from PropertyForum.com : “The authorities in Manitoba, Canada have today announced a review of the role in which real estate agents play in the buying and selling properties.”
One issue we have seen arise across Europe over the last few years is that of the availability of mortgage finance and the strength of mortgage providers. Indeed, some countries in Europe are experiencing an economic recovery while their banks and mortgage providers are still struggling to shore up their balance sheets. The Canadian banking system is perhaps more robust than many others around the world, it has been expertly managed and there is more than sufficient capital available to finance short, medium and long-term mortgage arrangements. A disruption in mortgage finance appears to be very unlikely in Canada.
A sharp increase in unemployment would result in mortgage payment issues, see a slowdown in the economy and have a detrimental impact upon real estate prices in Canada. At this moment in time unemployment in Canada is hovering around the 7% mark and many experts believe it would take an increase to 10% before any impact on property prices. This seems to be highly unlikely when you bear in mind the performance of the Canadian economy, the way the government has managed its finances and the short to medium-term outlook for the country. A significant increase in Canadian unemployment would not appear to be on the cards at the moment.
A number of experts are now concluding that the Canadian property market will begin to slow, we will see a prolonged correction in property price growth over the next decade or so and the sector will become more aligned with the economy and the outlook in the short to medium term. There are some who believe we will see a house price crash, the economy will slow and unemployment will rise but at this moment in time the odds are certainly stacked against this particular scenario.
Canadian property may look overvalued on an array of different levels but we are unlikely to see the “popping” of a house price bubble which many people fail to see.