Canadian Housing Market at Tipping Point, First Time Home Owner, Mortgage News, Mortgage Term, Mortgage Types, Residential Mortgages

According to economists at the Bank of Nova Scotia, Canada will soon boast a more than 70 percent homeownership rate. The question now is whether or not the nation’s housing market has reached the tipping point (the United States is believed to have cracked the same 70 percent threshold just before the housing bubble burst in 2008).

Growing concern over Canada’s seemingly out-of-control housing market has already prompted Ottawa to crack down on mortgage rules. These restrictions, which include limiting amortizations to 25 years, are designed to disuade cash-strapped Canadians from taking on mortgage debt that they can’t afford. What’s more, the Office of the Superintendent of Financial Institutions has also implemented new rules that will tighten up lending regulations at financial institutions.

What Will Happen When We Hit 70 Percent?

According to 2006 census data, Canada currently sits at a 68.4 percent homeownership rate. This is expected to crest the 70 percent mark later this month once the latest census figures are released.

So what will happen when we hit the 70 mark? It’s hard to tell. Benjamin Tal, deputy chief economist at CIBC Markets Inc. believes that we’ve hit the peak of homeownership in Canada. He was quoted in the Financial Post as stating that homeownership levels will probably go down once interest rates go up and debt-laden borrowers are forced to give up their mortgages.

However, some countries, like Italy and Spain, boast homeownership rates as high as 80 percent. While the tipping point varies for every market, it’s not surprising that many experts feel Canada will probably hit the maximum level at roughly the same point as did our southern neighbours. The combination of ultra-expensive list prices and tighter lending restrictions have effectively cooled some of the nation’s hottest markets, including Toronto’s booming demand for condos.

The Condo Conundrum

Data from the 2006 census shows that the biggest jump in homeownership rates was among young condo byers. Obviously it goes without saying that this trend has continued over the past five years, but what about into the future? Flaherty himself has said that the latest round of mortgage rule changes were intended to stifle a hot condo market, effectively sidelining young first-time buyers.

Stats from the Building Industry and Land Development Association are already supporting a dip in condo sales. According to information released in March, the Toronto high-rise market saw a 59 percent decline in sales in 12 months.Numbers from condo builders are also showing that price appreciation is beginning to cool off – a 2 percent increase was recorded in March, a stark contrast to the 7 and 9 percent year-over-year hikes that have been notched for the past five years.

However, if history is any marker, Canadian property prices tend to flatten versus decline. The longest period of national average price decline since 1980 took place in 1995 and lasted for just 14 months. The most notable drop in recent history took place in 2008. It lasted for just 11 months.

Is Canada about to see a condo cool off? Have we hit our tipping point for homeownership? Stay tuned to the Mortgage Talk Blog for all the latest information on breaking housing and mortgage rate news!

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