Real Estate Bubble 9

Thanks for all your comments on previous blogs and I have finally got time to write again. Since my last post there has been alot of turmoil in the financial markets and a real dramatic correction in the world stock markets.
 Lets get back to Real Estate, Our local market had a strong sales month again and a lot of new listings ( now over 2000 from a low in February of some 1400 ). Sale prices continue to rise and according to sales data from the Canadian Real Estate Association the average home price has gained 23% from January 2009 until April 2010 and is now 7% over pre recession prices of early 2008.
 This leads to a survey from the economists at C.I.B.C. to state that prices are 14% over fair value and to a price correction in the next two years of 5% to 10%. The report states that 20% of homes in B.C. are overvalued and in Ontario 11% are overvalued. However, on closer examination there are already stabilizing forces at work. Note the number of new listings in our Peterborough On. market and in the Canadian market. The Bank of Canada has pretty much decided on a .25% increase in the Bank Rate if not in June then probably July. This will increase the Variable rate mortgage for the first time in a year and fall in line with the increases in the fixed rates ( 5 year ) which have had as much as a 1% increase in the last few months.The Bank of Commerce economists and the economists from Central Mortgage and Housing seem to agree that there will be a modest correction in the next few years. For example C.M.H.C. expects sales of existing home to go from 497,000 units in 2010 to 473,000 in 2011 with only a modest rise in prices in 2011.
 I think the crises in Europe will cause some deflation and not inflation as governments around the world are goin to start to cut spending and are forced to moderate the increase in stimulous.This will keep the Bank of Canada from having to increase the Bank rate by several percentage points.( 3 to 5) I don't think we will see the abnormally high rates that caused the property and housing crash of 1991.
 I still recommend that as I stated in previous blogs that if you have lots of equity or have the income to qualify for a variable rate mortgage, stay with it and take advantage if these low rates to pay off the debt.
 As for commercial loans and mortgages there could be stiffening credit restrictions, for now in Canada the picture has not changed and for the smaller investor looking at multifamily or modest commercial investments credit is still available.

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Harry Huffman

Harry Huffman

Sales Representative
CENTURY 21 United Realty Inc., Brokerage*
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