Hot Real Estate
The majority of questions I am getting these days are about real estate. Is the Canadian market over-heated? Is this a bad time to buy? Are interest rates going to go up?
The only reason we haven’t seen a rise in interest rates so far is because Europe is in free-fall and the Bank of Canada is desperately afraid to do anything to rock the Canadian boat.
Of course interest rates are going to go up. Ask me when and I’ll probably shrug. Who knows? I don’t, and I’m done trying to guess. Every time I think the rate will tick up, some crap happens that creates the justification for rates to stay low. In the mean time our real inflation – the increases we’ve seen in gas, food, and other day-to-day expenses – keeps climbing. (Inflation is usually the reason the Bank of Canada raises interest rates.)
An article in the Globe last Tuesday says that Toronto’s hot condo market shows signs of cooling. The Globe reports that prices are softening and new projects are being reviewed or put on hold. One of the banks also said they expect to see a 15% drop in real estate prices in the Toronto area. What no one is really talking about is the fact that CMHC is bumping its head on it’s legislated ceiling: once it hits that number, it won’t be able to insure any more mortgages.
Banks are unlikely to extend credit to people who have anything less that a Triple A rating when it comes to new home purchases if they can’t back those loans up with CMHC insurance.
Will the bubble burst? A slowdown in the condo market, CMCH topping out, and record levels of debt tell me that something is going to change.
Should you be worried if you’re already in a home? Not if your payments are within reasonable parameters and you can manage your them. And not if you’re in your home for the long term. Remember what comes down will eventually go back up.
If you squeezed yourself into too much home and your payments are glutinously gobbling more of your cash flow than they should, an increase in interest rates will hurt. If you’re flipping, you might get caught holding the bag. If you’re trying to squeeze yourself into the market before interest rates go up, remember that if property values drop off you may end up owing more than you own.
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