Tag Archives: mortgage amortization
Carolyn Ireland – Globe and Mail
I can’t imagine what it’s like to be a Bank of Nova Scotia economist facing a room full of foreign real estate mavens.
Investors around the globe are fascinated by Canada’s housing market. When Scotiabank vice-president Derek Holt did the rounds of U.S. cities last week to present Canadian Housing in a Macro Context, he must have been besieged.
Canada’s housing market is stretched but there are lots of mitigating factors that should quell some of the anxiety floating around, according to Mr. Holt, who narrows in on “Why it’s Different from the United States”.
Interest rates in Canada will stay low a while yet according to Mr. Holt and Dov Zigler and Adrienne Warren, who put together some of the forecasts for the road trip. They add that inflation won’t challenge Bank of Canada targets while growth in wages remains weak.
Household debt growth is already cooling, they add, and the central bank shouldn’t push that too far. For one thing, other factors – including the strong Canadian dollar, real wages and regulatory tightening – are already doing the work of the Bank of Canada.
Still, the economists point out some of their worries: Canada’s record-high rate of home ownership has surpassed the rate in Australia, the United Kingdom and the United States, Canada has overshot the United States on average house prices, and the ratio of insured mortgages to uninsured has swelled.
Confidence should be bolstered by the fact that the sellers’ market of the past few years is returning to a better balance between buyers and sellers. There’s no evidence of too much building in the single-family house market, they add, and the rules surrounding long mortgage amortization periods and paltry down payments have already been strengthened.
As for the number of cranes filling the sky in cities such as Toronto, Montreal and Calgary, there are plenty of things driving the demand for high-rise condominium units, say the economists. They point to the fact that condos are more affordable and provide more to choose from than single-family houses. People are moving here from overseas and those who already live here are changing their lifestyles. There’s a trend to urban intensification, vacancies for rental units are tight, and investors are still keen to own condos.
But the economists do note some “pockets of concern”: Vancouver has seen a jump in the inventory of unsold condos compared with the long-term average, while Calgary’s condo market is not lean either. Toronto’s condo boom masks the shrinking amount of building in the market for detached and semi-detached houses, they add.
As for why Canada is different from the United States, the economists look at stronger household finances on this side of the border. Canadians have more home equity and more real estate assets.
Meanwhile, the country’s diversified economy means that economic shocks – when they do hit – never hit all of the local housing markets in various cities in the same way.
Canada’s banks are strongly capitalized and there is far less shadow banking than in the United States. That revolving-door-financing so popular south of the border is not prevalent here.
Canadians don’t default when house prices correct: In Toronto and Vancouver since the late 1980s, mortgage arrears have barely budged even when prices dropped.
The chart showing average existing home prices as a multiple of income per capita is particularly striking: While the line plotting the U.S. numbers turned downwards back in 2006 or so, the Canadian trajectory has been mostly upwards since 2001.
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Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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