If you’ve been following the latest developments shaking up Canada’s real estate industry, then you’ve no doubt also been hearing whispers of the coming wave of more affordable real estate.
And I’d like to tell you that it’s true. It’s darn true!!
I mean, first things first, consider the OSFI’s new “stress test” — officially implemented on the first of January — which now requires all home buyers who take out mortgages from the lenders the OSFI regulates to prove they can actually afford the Bank of Canada’s prime rate, even if that lender plans to give them a lower rate. This could easily translate to hundreds of dollars per month on an average mortgage, thereby reducing the amount for a house that many can afford.
In other words, some of the would-be buyers who were planning to ‘graduate’ to a more expensive house may no longer be able to qualify for bigger mortgages, the “stress test” should remove several transactions from of the market. Which would, in effect, nudge down competition and perhaps, prices.
Also, remember when the Bank of Canada raised interest rates — twice — last year? Well, the interest amount that home buyers are charged by lenders reflects the cost of borrowing from the Bank of Canada. So, when they raise rates — which, again, they did more than once in 2017 — that cost is passed onto consumers with higher mortgage rates by their lender. Moreover, since the Bank of Canada likes to raise rates when the economy is growing — and make no mistake, the Canadian one currently is — economists are predicting them to mark up their overnight rate, one more time, by 2018’s end. The new ratio? 2%.
You do the math: the higher the rates, the lesser the number of people able to afford homes. And when fewer people are buying homes, prices inevitably drop.
For all intents and purposes, it definitely looks like 2018 might be the year that the Canadian real estate market cools down, at long last! Great news for prospective buyers.
Sure, certain factors exist which could cause prices to climb back up — the staggering amount of millennials entering the market, for one, as well as global policy decisions and growing immigration — but thankfully, the OSFI’s “stress test” and Bank of Canada’s increased interest rates look promising enough to hold them off. For now, that is.
So yes, you heard it right — 2018 is the year to buy!