This Bubble is Dead

Fall is already starting to heat up and it feels like things are already getting back to normal.

There are homes coming on the market already and many properties are still selling quickly for around asking. Gone are the days when they were priced low for a bidding war. There seem to be two groups of buyers, those who are hesitant and hope to get a deal with a low offer, and those who are more serious and are prepared to pay around asking or slightly above. If sellers have been able to wait to sell for the fall market, they likely aren’t as keen to sell as someone who put their place up during the slower summer.

All this means that the measures the Bank of Canada are putting in place to raise interest rates are working to slow the unsustainable increases of the spring. The dreaded bubble is dead according to Douglas Porter, chief economist at BMO Capital Markets. “It has ceased. It has expired and gone to meet its maker. This is a late bubble. Bereft of life, it rests in peace.”

Robert Hogue, senior economist at RBC Capital Markets says “Housing market developments in July are consistent with our view that Canada’s market is in the process of moderating to a more sustainable level of activity. Much of the ongoing cooling is taking place in Ontario where recent policy changes by the provincial government have contributed to a welcome shift in market psychology toward more caution.” He does admit that the drop in Toronto has been dramatic but feels that the correction is overshooting. He also feels that the Vancouver market is not overheating again based on the third monthly decline of resale homes saying “We expect any further increase to be modest in the short term as the market stays close to balanced conditions”

With a possible three more interest rate increases, as well as even more regulations in the works, no one is seeing a return to out of control prices. Missing ingredients of a housing crash include households increasingly falling behind on mortgage payments and rising unemployment rates. Citing Equifax and Canada Mortgage and Housing Corporation numbers, TD Chief Economist Beata Caranci and Senior Economist Diana Petramala say that as of 2016’s final quarter, 0.1 per cent of Toronto households had fallen more than 90 days behind on their mortgage payments.

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc., characterized the softening Canadian housing markets as “very orderly,”. He feels that Toronto’s decline matches Vancouver and that the correction will probably last about a year, “and prove to be a healthy environment (outside of those who bought at or close to the peak.

Prices are expected to soften over the next year TD’s Petramala believes GTA home prices could fall about six per cent on an annual basis in 2018. That being said, some neighbourhoods in the city traditionally hold their value much better than others. Give me a call if you’d like to chat more about where things are going.