Canada Housing Market

While many other western countries, most notable the United States, are still experiencing the aftershocks of a housing bubble crash, the Canadian real estate market is still doing quite well. Since the start of 2009, the average home price in Canada has risen nearly twenty five percent, with the volume of home sales at nearly seventy five percent. What does this mean? Simply put, it means that Canada has a very healthy, vibrant real estate market. And this signifies that it is currently a good time to purchase real estate in Canada.

But why has Canada’s real estate market been so healthy? Why has it outperformed its southern neighbour? There are four basic reasons why. The first reason is that Canada has maintained a set of high quality lending standards. The lack of this high quality lending was a great problem in the United States’ recent real estate crash. Related to the first reason, the second reason is the single regular “lack of regulatory capture.” In Canada, regulation is much more consistent and uniform than in the United States, and the regulating body tends to be much more in lockstep than the US’s regulating bodies. This has a direct effect on not just clarity of information, but also on issues such as corruption and trust.

The next reason is relatable to the first: high risk mortgages in Canada require the purchase of mortgage insurance. The final reason is what is termed “full recourse mortgages.” In the Canadian real estate market, a person may walk away from his or her home, but not the debt. This has a direct affect on consumer behavior — it limits risk on the consumer end, essentially. Each and every one of these traits of Canada’s real estate market plays a role in why it has remained healthy. And it is exactly this stability and market health that makes real estate such a great investment in Canada, even while so many other countries are struggling with real estate problems.

If you’re already set on purchasing some form of real estate in Canada, the question then becomes what? Are you looking for a short-term solution, or a lifetime investment? How much space do you need? How many rooms? And then, just as importantly, you need to know how much you’re able to afford, and how much a home mortgage will cost per month and overall. Now this is one area in which real estate operates in Canada much like it does in the United States, and most everywhere else.

See, regardless of the regulations involved, all financial transactions from direct exchanges of goods and services for money all the way to borrowing and lending are governed by universal economic laws. How much you’re able to afford in monthly payments is necessarily a function of how much income and savings you have. These also have a bearing on what size of a mortgage loan you’ll be approved for. As a general rule, you’ll be approved for a larger loan if you have a higher income and increased savings. Of course there are other factors involved, such as other debts or financial obligations, as well as the current health of the market.

The simple facts are these: when purchasing a home, you’ll want to be approved of a mortgage large enough to complete the transaction of the home; you’ll want your mortgage rate to be as low and as beneficial to you as possible; and finally, you want to purchase the home in a stable market environment. These three facts all still come together very well in Canada, and they make purchasing real estate there a generally wise investment.

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A Nation of Homeowners – Canada

In the middle of a worldwide recession, would it surprise you to hear that a record number of Canadians now own their own homes? It would surprise just about anyone, surely? But that is the conclusion from a report by the Bank of Nova Scotia, details of which were reported this week. The caveat to this is that the figures refer to households that owned their own home in 2006 (with the belief that the number increased yet further in 2007) and that the full figures for 2008 will not be known for a couple of years. What is indisputable, however, is that there has been a significant increase in ownership compared with the same figures a decade earlier.

The Scotiabank report states that in 2006  a record high 68.4% of Canadian households were owned by the householder, and that there was reason to believe that the percentage increased in 2007. This was in comparison with figures for 1996 that showed a total of 63.6% of householders owning their own homes. How the figures will be effected by the recession still remains to be seen, as the compilation of the figures from a wide range of sources in a wide range of different jurisdictions takes time. It may well be that there has been some fall-off in the last couple of years as people have sought to cash in the capital locked up in their house and begun renting. However, there is little likelihood that this will have taken the numbers beneath those set a decade ago.

Reasons for this rise in the figures must include the fact that “baby boomers” now make up almost the entirety of the 45-64 age group which is considered the prime house-buying section of society. With the birth numbers having been so elevated in the last 60 years, and the improvements in medical science that have been seen in the intervening period, there are now more people than ever who are ready, willing and financially able to buy a house. Aside from this, however, the numbers have increased for those in other demographics buying houses. this can be put down in large part to the desire for owning assets for the purpose of having something to subsidize a pension. People are saving for their retirement earlier and earlier these days, and using more methods than ever before.

In addition to the headline story of the report, there was also some interesting data to be found in that 9% of Canadian households now own a second property, typically used for the purposes of a holiday, compared to 7% in 1999. How this will have been affected by individuals cashing in on their properties in order to ride out the current recession remains to be seen, and certainly it is unlikely that the numbers will rise as quickly over the next few years. Nonetheless, the changing trend towards home ownership seems to suggest that those who rent their homes will stay in the minority for some time yet.

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Canada Mortgage

Canada has not been immune to the credit crisis that has hit the world over the last eighteen months, but there are many inside Canada and out who feel that of all the major developed nations things have been handled better in Canada than anywhere else. This is down, in no small part, to a sense that Canadian banks have had more sensible lending policies and that panic is something that is not a major part of the Canadian psyche. A recent IMF report has said that Canada is actually specifically well placed to handle any further economic crisis and has applauded the $400billion stimulus plan unveiled in January as being the right amount at the right time. In addition, Canada has been recognized as the last country to succumb to the crisis and is expected to be the first to lift itself out.

What this means for those hoping to buy a house in Canada is that there may never be a better time, if you currently have the borrowing power, to buy one. By taking advantage of the effects of the crisis – admittedly something that causes a moral issue for many – one can find some bargains that will begin to increase in price once the clouds start to lift. The question is, where should you go in order to borrow the money it will take to buy? With Canada less marked than other countries by the crisis – but marked nonetheless, no doubt – the banks are more willing to lend to those who can show credit worthiness than banks in other countries.

Before you decide on a mortgage, the first and most important step is to shore up your own position. This can be done chiefly in two ways. Firstly, it is vitally important to save cash for a deposit, or down payment. If you can place this in a high-yield savings account, so much the better. By putting aside more money, you will cut into how much money you have to borrow when the day comes. This can dramatically change how much you have to pay back, and bring a number of properties within your reach that would have been fantasy purchases otherwise. It will take a bit of time to make significant savings, but the base that this gives you and the difference that it makes will be well worth the wait.

In addition, you should live on credit for a while. Yes, you read that correctly, but do not make the mistake of thinking that this is advice to go crazy with your Mastercard. The reason for this possibly controversial advice is actually fairly sensible. If you make purchases on your credit card and pay them off immediately, you build up a strong credit rating. And the people with the better credit ratings get better mortgages. By  paying off credit card purchases the moment they hit your balance, you will avoid having to pay interest, so there is no penalty for use. It’s a more roundabout way of doing things, sure – but it’ll get you into that house quicker! Try to make sure, too, that you do not have high balances on any lines of credit when you apply for your mortgage – this will badly squeeze your borrowing power.

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Investment Opportunities Exist Even In A Terrible Market 

As global markets continue to pop like antique light bulbs, the value of some assets is beginning to slide south; even in a country, that has managed its economy as well as Canada. For people with money to spare who are worried that despite the security of Canadian banks their cash will begin to lose its value, it is therefore a tricky situation in which to invest wisely with any measure of confidence. Of course, investment is indispensable for an economy to thrive and grow, and if you’re not satisfied to see interest safely accrue on what you have in the bank then you’ll still be looking around to see where you can invest without having instantly to drop to your knees and pray. You’re not alone.

One investment market that is currently doing just fine is the buy-to-let market. This makes sense if you stop to think about it. With financial uncertainty clouding matters at the moment, renting a home has never been more popular. Fewer people are taking the considerable risk of buying a home, concerned that they might lose their job – particularly if exports begin to tail off as the global economy struggles. This makes it a potentially very profitable time to be a landlord. Real estate prices are falling, so if you have the spending power and the borrowing capability to buy up properties, now is a good time to do so, before doing the necessary work and turning them out on the rental market.

It is at least partly true that where one man is facing a crisis, another spots an opportunity. This may be cruel in some people’s eyes, but someone is always going to be getting rich when other people are having concerns, and when it comes down to it why shouldn’t you be that someone? Another thing to take into account is that property prices will by their very nature increase again at some point, and with senior analysts voicing the belief that the real estate market has bottomed out (or is at least about to) this might just be a fine time to get on the “property ladder”. Intelligent development could pay off in a big way a couple of years down the line.

One word of warning, however. To repeat the final words of the first paragraph, you’re not alone. There are a great many other people looking for an investment opportunity, and where there is a demand for something there will always be someone ready to profit from that demand. That someone will not always be as altruistic as might be hoped.

A competitive market is the ideal breeding ground for scammers and hustlers, and it is important to vet any investment opportunity more than once over before committing. A once in a lifetime, too good to be true opportunity might just be exactly that. Scammers will not always e-mail you pretending to be a retired Nigerian general with millions of dollars to invest – sometimes they’ll look you in the eye and smile at you. If you have doubts, contact the Investment Dealers Association of Canada. They police investment professionals, and there are few scams they haven’t seen.

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Current Financial Crisis and Housing Market

When the current financial crisis hit, the first industry shaken was the housing market. After all, one of the catalysts for the so-named “credit crunch” was the vexation in the United States’ “sub-prime” mortgage market, where irresponsible lending at unsustainable levels caused banks to lose solvency with terrifying rapidity.

As a result, the real estate market in the US and beyond fell victim to a major crisis of confidence, and the knock-on effects of this continue to shake the world’s economy. Injections of capital by some governments, and lock, stock and barrel takeovers of banks by others have introduced some measure of stability, but even now that stability is under almost permanent threat.

The consequence of this uncertainty has been a fall in house prices, as home owners have defaulted on mortgages and had to sell up and the market, for so long a seller’s domain, has turned to favour the buyer. Getting a mortgage to buy for the first time may have become a little more difficult, but for those of us lucky enough to have amassed some disposable income the market suddenly looks altogether more favourable.

Although house prices have fallen in Canada – just as has happened everywhere – the fall has been markedly less steep than elsewhere, particularly just south of the border in the US. In the past year, the Canadian real estate market has seen a drop in prices to the tune of 8.9%, and sales themselves have fallen month-on-month. But despite the more troubled market, Canadian banks continue, thanks to judicious management, to make mortgages available to those looking to buy a house. Set against the open panic in the States, where once it was too easy to get a mortgage and now has become a quest on a par with the search for the Holy Grail, this is resulting in a far more serene market in Canada.

Indeed, in some cities it is believed that the market is bottoming out in Ca nada, and ready to at least stabilize if not yet commence an upward climb. While prices have fallen, senior analysts are making the point that even if they continue to fall, the rate at which they are falling has slowed, and anyone waiting for the housing market to hit rock bottom so that they can jump on board will have a long and forlorn wait. As more potential buyers realize this, it is likely that we will see the numbers of sales starting to rise again. If, however, the strong employment numbers nationally take a hit, then the market could yet have austere days ahead of it.

The moral here certainly seems to be that sensible and realistic management of the banking and lending system is equipping Canada to see out the current global crisis in much finer fettle than many of its more storied counterparts. It could just be the case that Canada becomes a model for the other nations to follow.

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