One of the most common questions I am asked lately – “Is the bubble going to burst?” Or I hear, “We are in a Real estate bubble and it’s getting close to popping”. While prices have had a steady increase across the nation over the last 14 months, I don’t believe we are in a Real estate bubble.
Looking back to 2008, Canada wasn’t hit as hard as the United States during the housing crisis in 2008, yet people worry whether today’s hot housing market will lead to a similar crash as we saw at that time. Economists don’t think so. They see the activity as evidence of a boom – not a path to a bust. Here are a few factors that make this market unique.
Low Inventory
Historically, oversupply has led to market busts.
Even though there is a bit of buyer fatigue at this time, we are still experiencing high buyer demand, and low inventory levels across the country, so the current risk of oversupply is low.
A new report from RBC Economics sites “Further moderation in activity will not be sufficient to rebalance markets, especially if it’s caused by a dearth of homes for sale. We’ll also need more sellers to step in. And higher prices could be the catalyst for this.”
Home Prices
While rapid price increases can indicate a bubble, things are different across Canada. Housing makes up a significant part of the economy, and higher home prices reflect the higher levels of real estate market activity.
According to BMO, a home in Canada costs 46% more than one in the U.S. Also, the June report from RBC Economics sites “We expect intense upward price pressure to persist nationwide in the near term.”
With residential real estate hitting record highs earlier this year, the June report from RBC predicted prices will rise another 13% by the end of 2021.
Credit Scores up
Canadians and Canadian homeowners are showing their strongest financial fitness in history, and have indicated that Covid helped them save. Along with these increased financial savings, they have also been able to increase credit scores as well.
Better credit scores, usually equals better buyers. Borrowers with better credit scores are less likely to default on their mortgage and seen as better risk.
Qualified buyers are always good news for a real estate market, and Canada has plenty!
Strict Lending Rules
One of the main reasons that Canada wasn’t hit as hard as the US in 2008 was due to stringent lending rules in place with lenders across the country, and those imposed to ensure that borrowers were qualified.
At the beginning of June 2021, the government strengthened stress test regulations.
We will see over the coming months whether this will cause a shift in the market with borrowers.
If you are ready to buy or sell, or just looking for some real estate market insights, give me a call.
“Don’t wait to buy real estate. Buy real estate and wait.” ~ Will Rogers
Have questions about real estate or investing in real estate? Give me a shout, and I would be happy to meet with you and help you in your journey.
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