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Since last year, the Canadian housing market has slowed down, and there is a lot of news in the media worried about the Canadian housing market. According to analysts, the Canadian housing market does have a tendency to have cyclical ups and downs, while the Canadian housing market will gradually decline moderately in three years. There will be about 2% of real estate in 10 years, and house prices should rebound to 3.5% in 2015.
Zhong Yinghui pointed out that in the long run, household-related factors have less impact on real estate prices, while macroeconomic factors have a greater impact. Variables considered to be the most influential include income and economic growth and the pace of population and household formation. “We have reported that low labour force participation and productivity growth will dampen the strength of Canada’s economic growth. We expect real economic growth of about 2% a year up to 2021. In nominal terms, this means about 4% of income and economic growth. Trends in personal income are particularly important, and this variable affects overall housing affordability. ”
Population growth is a bellwether of economic growth and overall housing demand. Statistics Canada predicts that the population will grow by about 0.6% a year by 2030, much lower than the current 1%. The demand for housing is driven by population growth. If the pace of growth slows down, so should the growth of property prices. However, slowing down the pace of population growth and household formation may not necessarily put pressure on prices unless housing supply is adjusted to meet demand, as builders and developers will adjust the pace of construction to bring it in line with basic demand factors.
Borrowing costs also have an important impact on house price trends. Interest rates cannot remain at current low levels indefinitely. Zhong Yinghui continued: “for the Bank of Canada’s target overnight interest rate, we think the more neutral interest rate is about 3.5%, while the neutral interest rate for 5-year fixed mortgages will be about 7%. This forecast assumes a spread of 1.5 percentage points between the five-year Canadian government bond rate and the normal five-year fixed mortgage rate. As economic growth slows and inflation is more stable than the average over the past 30 years, both neutral short-term and long-term interest rates are likely to be lower. “