Ottawa remains fearful of the dangers of a continuing rise in residential real estate prices.
Last week, the federal government introduced new rules and restrictions that are designed to discourage speculation by foreign investors. Plus, the government wants to prevent homeowners from accumulating mortgage debt beyond their financial means.
Finance Minister Bill Morneau continues to preach fiscal prudence to all Canadians who own, or plan to own, a house or condominium. We have had similar warnings from previous Finance Ministers, as well as from the Bank of Canada.
Many believe Canada is in the middle of a housing bubble and if the bubble bursts, individual homeowners and the Canadian economy could suffer serious consequences.
Morneau has two concerns.
What happens to homeowners when mortgage rates increase and mortgage holders are forced to renew their mortgage at the end of their current term at higher interest rates?
The other concern is the risk families face if their income declines. We have a more volatile work environment than in previous decades and job loss, combined with the potential of being underemployed, are real threats.
A few days after the finance minister announced new measures designed to slow down the booming real estate market, we had news that prices and real estate activity continued to boom.
The Toronto Real Estate Board announced a sales increase of 21% for September over the previous year. Prices also continue to increase.
The average single-family house in the 416 area is $1.3 million and close to $930,000 in the 905 area.
As for the Oakville market, prices have risen sharply.
According to one Oakville real estate agent, it boils down to a simple case of supply and demand.
Earlier in the year, the supply of houses for sale decreased while at the same time demand for houses increased.
The excess demand has resulted in a sharp rise in real estate values. The increase in demand is accelerated by out of town buyers entering our local real estate market.
Oakville prices are provided by the Oakville, Milton and District Real Estate Board. Oakville’s median residential sale price for the month of September was $980,000, an increase of 36 per cent from $720,000 compared to September 2015.
Prices of any asset class, including real estate, go up and down. Many believe that Oakville real estate can only go up. The hot Calgary market suffered with the down turn in oil, and the red hot Vancouver market has started to cool significantly.
No place is immune to the possibility of real estate values declining. Home prices have risen and that has many different implications for many local residents.
Will the younger generation be able to afford home ownership? Will they shift their housing choice to rental?
Will those approaching or already in retirement consider selling to capitalize on current high prices and use these funds to help pay for their retirement. A decision to sell could mean downsizing or transitioning to rental.
If the housing bubble does burst, will our federal finance minister’s fears about the negative effect on the Canadian economy come true? And if so, how will that affect us?
The Canadian real estate story continues. The outcome will affect us all.