Gehry Condos.Raising interest rates will not continue to depress house prices! High interest rates will solve Canada’s housing affordability problem. The reason is that if interest rates continue to rise, there will be less demand from buyers, and as a result prices will fall and housing will become more affordable.Please Visit: Gehry Condos to Get Your VVIP Registration Today!
The current housing market really seems to be developing in this direction. Canada’s housing market is responding to two interest rate hikes by the central bank this year, with home sales falling in major cities such as Toronto and Vancouver, suggesting demand is weakening and house prices are falling.
CIBC: interest rate hikes will not continue to affect house prices. But CIBC, one of Canada’s leading banks, does not think so.
On May 11th, CIBC announced that people should lower expectations that higher interest rates will have a real lasting impact on the Canadian real estate market.
To put it simply, the impact of rising interest rates on the housing market may not be as long-lasting as expected.
In the announcement, CIBC said the Bank of Canada’s rate hikes so far, and expected further increases before the end of the year, will only ease the hot housing market “symptoms” in a short period of time.
CIBC: the crux of the housing market is “housing supply”
On the contrary, economists at CIBC see the housing supply problem as an overwhelming structural problem in the housing market.
“in fact, if history is used as a guide, the future slowdown may lead to a mismatch between supply and demand in the furniture market,” the announcement said. ”
“after years of using demand tools to solve supply problems, governments at all levels have finally realized that over time, without adequate supply policies, the housing affordability crisis will worsen.”
Analysts assert that housing demand is grossly underestimated because current methods and estimates are based on inaccurate assumptions and are oversimplified.
The reasons for the government’s underestimation of demand include: the “Family Building Project” in 2021 is based on 2016 data and underestimates the number of immigrants and non-permanent residents since 2016; expired non-permanent resident visas do not count residents or families; do not fully take into account the usual place of residence of individuals; underestimated the household ratio of new immigrants and non-permanent residents (the ratio of the number of households to the adult population).
“when it comes to the mismatch in the housing market, the variable that measures housing demand is family formation (the number of new families). We assume that the measurement of this number is accurate and constant. After all, municipalities rely heavily on these figures when deciding on land release and building permits. ”
“however, the number of families can not be accurate. They are estimated by CMHC through the use of account rates. However, a large amount of information is lost in the process of transformation, resulting in a serious underestimation of the actual number of households in Canada, which leads to an underestimation of housing demand. If demand is underestimated, then the supply released by municipalities to meet demand will of course be insufficient.
So how many families have been underestimated? “our conservative, well-founded guess is that the number is close to 500000 households,” said CIBC economists.
“in other words, the official household figures, which are usually used to estimate market demand, underestimate the actual housing needs of about 500000 households,” they explained. ”
Naturally, the solution proposed by CIBC is to attract the municipal government to allow more housing to be built and increase supply. But the bank also questions Canada’s ability to build the necessary housing because of a severe labour shortage in the construction industry, exacerbated by fierce competition for equally limited labour resources from large infrastructure projects.
Although Canada has a record number of immigrants of more than 400,000 in 2021, few of these new residents are engaged in the construction industry.
The announcement added: “it is clear that immigrants are needed to solve the problem of housing supply. In addition, policies aimed at training young Canadians in the technology industry will help alleviate labour shortages. ” It also points out that it takes twice as long to build low-rise and high-rise housing as it did 20 years ago.