Housing market in Canada is unexpectedly rock strong

Couple in new homeIn the last couple of years, the analysts are unnecessarily predicting dwindling real estate market. However, the numerical figures in relation to consumer debt and home prices that need to be worried about is low. But the situation can take a negative turn if the consumers fail to understand the housing market.

The economists in Canada are skeptical because of the colossal collapse of the US housing market. Its effect is predicted to influence the Canadian real estate market. Well, it’s really difficult for the analysts to believe that Canada being closer in terms of geographical proximity can be so different.

In Canada, the housing market seems to have a firm grip as the condition is stable after a mild tremor followed with the tight mortgage lending standard. In the meantime, the condition of the consumer debt has reduced. Previously the scenario changed as the consumers in the Canada incurred overwhelming debt. The situation was quite similar to that of the US before it crashed. However, in last two quarters, the number of indebted consumers is dropping. In fact, the figure is not that high as it has been reported. The debt to income ratio is diminishing and reaching a sustainable level.

Canada can be in a similar condition like that of the US market if the housing prices rise with an increase in consumer indebtedness.

According to OECD report, Canada is considered as one of the overvalued housing markets in the world. Well, it is required to accept that both the price as well as debt are at undesirable level. However, the consumer debt is stably reducing, but housing prices needed to be stagnant for a few years to improve the housing affordability as income increases.

In reality, the OECD analysis is based on the high ratio of home prices to home rental costs. The economist, Adrienne Warren at the Bank of Nova Scotia opined that the rental properties have poor quality in comparison to the purchased ones. Therefore, comparing the monthly rent with one time purchase price can be a wrong calculation.
In fact, comparison should be drawn between rent and monthly payment as the interest rate is at record low. Well, this type of market condition may not stay low forever. It is expected to rise but in a snail’s pace in the next few years.

In the US, housing crash was ignored for years as only warning signs. But this type of alert signal is not identified yet in Canada. Well, the fraudulent mortgage lending was widespread while it is very rare in Canadian market. In America, people defaulted on their mortgage payment U.S. saw rising numbers of delinquent mortgage-holders. Fortunately, this number seems to be less as well as stable in Canada.
But Canada needs to be cautious of two thing that can bring economic downturn– a very big rise in unemployment and increase in the interest rate.

This article is a contribution from  http://www.mortgagecases.com/