Are We In A Housing Bubble?


One thing I think everyone can agree on is that one day the housing market will go down. Knowing the exact timing and the catalyst that starts the trend is a huge unknown. How far will home prices go down, whenever it does, and how long will it keep dropping? Could have started already, or could start next week, next year, or it could happen in 20 years time. You will not know until it's playing before your very eyes, and several months in before were like “oh, prices are tumbling”. The last time the housing market had a real correction was in the early to mid 90’s. Prices have been going up steadily since then, for the past 20 years.

Some areas are going up faster than others; let’s stick to our area here in Bradford. Today our interest rates are at record lows, and are looking like they may continue to go lower. You can easily get a 5 year fixed rate of 3% or less. Bradford is now averaging around $481,000 for a detached house, up from $303,000 only 10 short years ago. Many families have 2 income earners, and their average household incomes are around the $105,000 a year range, compared to around $82,000 in 2005. Today a Mortgage on $481,000 with a 3% rate for 25 years is $2276.31 a month, go back 10 years ago where the average price of a detached home was $303,000 and interest rates at the time were averaging 5.60% for a 5 year fixed, so your payment would be $1867.16 a month. If you look over that time period incomes increased 28% and the increase in the monthly mortgage is roughly 22%. This is based on a 25 year mortgage and in 2005 you could have a longer term with a high ratio mortgage, whereas now you can only do a 25 year term with a high ratio mortgage.

Let’s look back at 1990, I found a property that sold for $200,000 then, and it recently sold for $409,500 in mid 2014. Let’s look at the numbers, in 1990 the interest rate was averaging 12.01% for a 5 year fixed term on a 25 year mortgage, your payment would be $2065.20 a month. Fast forward to today and the mortgage payment on the $409,500 with the same 25 year mortgage and 5 year fixed term at 3% would be $1937.94 a month. So the monthly payment is less today than it was 25 years ago for the same house and it was $209,500 cheaper then. The average family income would have been less in 1990, as many families had one parent at home in those days.

So when you really crunch some numbers were not bad off in Canada with our current housing market. Media hype over the “Housing Bubble”, “Housing Correction” and “Canada’s Housing over Valued by 10% to as high as 60%” is just that “HYPE”. Canada is a large area with lots of local economies that can affect housing values in certain areas. Recently oil has dropped in value by just over 50%; this will have an impact on oil producing communities if the oil stays low for an extended period. Not all areas of Canada have seen the same growth as the major metropolitan areas of Vancouver, the GTA and Calgary being the most expensive. Windsor-ON, Sydney-NS and PEI are still very reasonable in terms of price.

We all need a place to hang our hat and put up our feet. So until the day interest rates are rising, house prices are going down, and the economy is in a sinkhole, feel confident in your purchase, and enjoy the fruits of your labor with home ownership.

Roddie Saunders

Sales Representative

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Roddie Saunders

Roddie Saunders

Sales Representative
CENTURY 21 Heritage Group Ltd., Brokerage*
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