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2017-01-17

2016 was an exceptional year for Canada’s housing market – with unprecedented price increases and more demand than available supply in many markets. Canada saw changes like never before. Many Canadians are wondering how long the market can remain red hot, and if we are indeed in a housing bubble like the United States saw ten years ago.

Is Canada in a Housing Bubble? Whether or not Canada is actually in a housing bubble is up for debate. Bubbles burst and many experts predict that nothing as dramatic will happen in Canada, as it had in the U.S. In order for a market crash to occur (or a bubble to burst), there would need to be a sudden drop in demand. This could potentially happen if there was a quick rise in interest rates or a significant tightening of credit standards. Although it is always a possibility, experts suggest that nothing so dramatic will happen.

Will We See a Housing Crash? Prices may plateau or decline slightly, but a U.S. style crash is not expected. The U.S. housing bubble involved widespread use of complex products such as collateralized debt obligations and credit default swaps. Here in Canada, this is not so prevalent. If we are indeed in a housing bubble, it is caused by low interest rates, an abundance of bank lending and foreign investment playing a role in certain vicinities, such as Vancouver.

What Should We Expect for 2017? Demand is still high, while supply remains limited in the hot markets. The changes in mortgage regulations and the slight increase in mortgage rates have pushed enough buyers out of the market that some decline is expected. Experts believe that home prices across Canada will still rise 2.8 per cent, with markets varying greatly across the country. Vancouver and the GTA are on divergent paths this year. There is a price correction underway in Vancouver, while Toronto prices continue to climb. It should be noted that Toronto area homes are still significantly less expensive than homes on the west coast.

Will Home Sales Decline? From January to October of last year, almost 100,000 homes changed hands in the GTA. The Royal Bank of Canada predicts that home sales will drop 3.3 per cent across Canada this year, with a 12.2 per cent drop expected in British Columbia and a 2.7 per cent drop expected across Ontario. An increase in sales is predicted in Alberta, Quebec, Manitoba and New Brunswick. RBC predicts that despite an expected decline in sales activity for 2017, most of Ontario’s housing markets will not experience price declines. This is particularly true for homes located in the GTA, primarily due to lack of supply. As a result, anyone looking to sell in the GTA in the next year or so can rest easy knowing they will get a fair price for their homes.

Are you interested to find out if now is the right time for you to sell? Want some advice on how to get the most value for your home? Feel free to call me at 416.921.1112 and I would be happy to help.