Canada's Housing Market
Canada’s housing market rose again in August, having taken a dip during the summer period. According to the Canada Mortgage and Housing Corp showed that multiple urban starts, particularly condominium construction rose 2.7% in August. The construction of new homes had expected to fall, but the release of revised figures has economists scrambling to update their forecasts for the rest of the year.
The projections will be sure to confound both provincial and federal government, as they are a year on from attempting to cool the Canadian housing market. In 2016, the British Colombia government introduced a foreign buyers tax in an attempt to dampen the Vancouver property market. The 15% foreign buyers tax was the first of its kind to be introduced in Canada. The immediate effect of the tax was a drop in house sales by 26%. However, the impact was not long lived as sales began to pick up once again into 2017.
Foreign Buyers Tax
Both provincial and federal government have become concerned about the price of homes. This is especially true in Toronto and Vancouver. There is much consternation surrounding the possibility of a consumer debt crisis. The decade long housing boom has pushed Canadian homeowners into a record level of debt. Not only have Canadians taken out large mortgages, but many others have also indebted themselves with equity loans.
The Bank of Canada recently announced their second interest rate hike in a row. This is another measure to quieten down the Canadian housing market. Unfortunately, it could also put those who are already heavily indebted at risk. About a quarter of Canadians have a variable rate mortgage, which is susceptible to interest rate hikes.
Others fear that the Canadian housing market will suffer a crash similar to one the United States endured a decade ago. Today, revenue from the housing market is one of the chief sources of revenue for the Canadian economy. Without this source of income, the Canadian economy is liable to dip into a recession. The effects of the housing crash are still being felt in the United States. Many commentators believe that several problems which impact the US economy in 2017 have lingered from the crash ten years ago.
Despite these worries, there are plenty who do not believe that the Canadian housing market will suffer the fate of the United States. The existence of the Canada Mortgage and Housing Corp provides federally backed insurance and stability on mortgage securities. Canada also has tighter restrictions of mortgage approvals. A leading cause of the economic crash in the US was the subprime market. Financial institutions gave out loans with discretion, leading to a massive debt crisis. However, the Canadian market is far more risk averse.
Ultimately, the true story of the Canadian housing market is yet to emerge. It is still not clear whether the provincial and federal government will be able put the raging market on ice. They must also be conscious not to quieten down the market to such a degree that it has a significant effect on the country’s economy.