With the days of cheap borrowing coming to a halt as we see increasing interest rate hikes and tighter mortgage rules on the horizon, Canada’s seemingly impermeable inflated market bubble finally seems to be bursting. For the first time in ages, a significant cooling in home prices is predicated in Toronto and Canada at large in the year to come. According to Reuters, Toronto home prices are expected to rise just 2% in 2018, in contrast to a peak of 30% just this year before the government put various measures in place in attempt to cool our boiling hot market. (Ex. The Foreign Buyers tax, Interest Rate Hikes, tighter Mortgage Rules.) However, after looking around at the predictions of many of our peers, one thing is clear- everyone has a different take on the effect these new rules and regulations are going to have on our market. Some expect it to cool significantly, some predict it will stay flat, while others believe that after a short few months of adjustment to new rules and regulations, the market will bounce back.
Canada’s real estate market has seen a fairly steady incline over the last few years, however this rise in housing prices has been accompanied by record levels of household debt amongst Canadian citizens, many of whom are living beyond their means. The tightening of mortgage lending rules anticipated to take effect in the new year, as well as further interest rate hikes will likely put many of these indebted Canadians in a sticky spot. The Bank of Canada raised rates twice this past year and are anticipating another hike in 2018, depending on how the economy responds to these higher costs. Canadians with significant debt will likely find it difficult to carry their debt at these higher costs. “Rising interest rates, alongside record indebtedness, together pose significant risk to both the financial system as well as the overall economy,” said Michael Delega, senior economist at TD Bank to the Globe and Mail. These increased rates combined with tighter mortgage lending regulations will likely have a serious impact on the real estate market.
These new mortgage rules will require buyers to qualify at a higher interest rate, inevitably limiting affordability and cooling housing prices, particularly in high priced markets like Toronto. The good news (yes, there is some) is that, contrary to expectations, new construction homes are expected to stay strong and steady, and will continue to contribute to the growth of our economy in the upcoming year. Feeling overwhelmed? Give us a call today and we’ll walk you through the new rules and regulations. We’ve got an experienced team of legal representatives and realtors here to help you put your best foot forward in the changing Toronto market.
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