8 Elm on Yonge Condos.The Canadian real estate bubble ushered in the final blow. The Bank of Canada has raised interest rates again, undoubtedly shaking the real estate market again.Please Visit: 8 Elm on Yonge Condos to Get Your VVIP Registration Today!
As a result of higher interest rates, mortgage repayments have exceeded those of the late 1980s, when the market bubble led to Canada’s most extreme house price slump to date.
In this regard, the Bank of Montreal (BMO) capital market reminds investors that Canada’s housing affordability has reached its limit and the real estate market is in urgent need of cooling.
Even though the housing market has predicted a possible severe blow, the current impact is still fatal. On Wednesday, the Bank of Canada raised interest rates to their highest level since 2008, hoping to reduce “excessive demand” in the property market and curb rising house prices.
Robert Kavcic, a senior economist at BMO, warns that Canadian property valuations that have been pushed up have reached absurd levels. A sharp increase in interest rates by the Bank of Canada could be a technical blow to the real estate market, which is actually a simple math problem. Quick estimates by banks can show how much house prices must fall in order to make the property market reasonable.
Take a market-averaged home in Ontario, for example, with monthly mortgage repayments of $3000 last year. This is already very high, but assuming that the current mortgage interest rate is 4.5%, the monthly repayment of the same house will rise to $47,700, which just broke the record set in the late 1980s during the housing bubble. It should be noted that the average house price is based on the entire province of Ontario, where the situation in the outer suburbs is far more serious than in cities.
According to current data, house prices need to fall by about 36% of the annual income of buyers to be affordable. On the other hand, compared with last year’s scarce housing inventory, this year’s supply has increased, but sales have been even worse. Therefore, if house prices do not fall further, it will be difficult to maintain the current level of sales.
The end of the 1980s was the worst of the Canadian real estate bubble, followed by the most extreme house price adjustment, which brought house prices to a standstill for nearly 20 years.
Today’s market environment is even worse, says Robert. Even though mortgage repayments have been reduced in the past few decades to raise income levels, mortgage repayments are now higher than they were at the peak of the late 1980s.
