Monday , 5 December 2022

Canadian Real Estate: In the Later Stage of a “Speculative Fever”

A whole generation in Canada has seen real estate do nothing but rise in Canada. Many adults have never seen a crash, and some have mentally blocked them out. The result is people are putting a disproportionate amount of capital into housing but Canadian real estate is in the later stage of a “speculative fever,” said the country’s bank regulator. He called it herd mentality, with investors leveraging equity to increase housing exposure. 

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…As interest rates fell, borrowers received more credit to bid up home prices, allowing faster growth…[but,] as interest rates rise, the exact opposite occurs. Rising rates will reduce the liquidity, and this usually brings home prices lower as long as the government doesn’t increase credit capacity in other ways, such as down payment assistance

@$$4$[The Office of the Superintendent of Financial Institutions superintendent Peter Routledge expects] that:

  • “as rates go up, assuming they do some of that, the fever will abate a little, and you’ll see a slowdown in prices”…
  • [but such a] 10-20% correction wouldn’t spill over into a financial event, though, as Canada’s banks are prepared for volatility events like a housing crash…[because, as] Canada’s notoriously low delinquency rates climb, banks have safety buffers to use…to absorb the shock of a downturn in housing or an increase in unemployment or both simultaneously…
  • [Routledge concluded his comments] adding, “a smart investor would think twice [about housing] and look at other outlets.”

That last point probably isn’t going to make him many friends in Canada, but that’s kind of what the country needs. There is an adult in the room who doesn’t need to appease private industry due to politics.

The above version of the original article by Stephen Punwasi (betterdwelling.com) was edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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