There Might Be A Potential Canadian Real Estate Slowdown

The predictions for a country-wide Canadian housing bubble have thus far not become reality, and the real estate sector has remained strong during the mortgage crisis that rocked the U. S. economy the past few years. The Canada Mortgage and Housing Corporation's (CMHC) strategy to encourage credit by accepting high-risk mortgages had concerned experts since it pushed the ratio of housing values to a 7.4:1 ratio, which was more than 50% more than American homeowners witnessed prior to their housing bubble meltdown. CMHC's shift in policy did impact average Canadian household debt, and the 9.3% rise in just a year being the clear result.

Some critics, like the 84-year-old investment advisor Stephen Jarislowsky -- who is reportedly worth $1.85 billion -- said at the beginning of the year that he felt that the strategy utilized by the CMHC would backfire. Jarislowsky flatly negated the comments made by Finance Minister Jim Flaherty claiming that the evidence did not forecast to a forthcoming housing bubble. Jarislowsky firmly believed that the government's programs were not going to strengthen the economy. During a phone conversation, he said that the CMHC "..has created the reverse effect of what was acceptable. " They have basically persuaded people to buy homes based on inexpensive mortgages. The City of Toronto is an example of this as purchasers have boosted prices for Toronto properties simply due to of cheap mortgages.

In February, the Wall Street Journal examined the potential of a Canadian housing bubble and highlighted that aggressive lending tactics implemented after the 2008 collapse of the U.S. based Lehman Brothers could have failed unless the government stabilized the lending methods. But as early as January 2010, a representative of the Bank of Canada indicated that "if the Bank were to increase interest rates to slow down the housing market" that the result would be like "dousing the entire nation's economy with cold water, just as it emerges from recession". Condo owners in Toronto are watching this very closely because a rise in interest rates would have a huge influence on condos for sale in downtown Toronto which would affect sales.

Recent figures released by the Canadian Real Estate Association this month show that there was a steep decrease in residential housing when the recession began in 2008. However this did not last long, and the rebound has not been as drastic as expected. Even though the May 2010 sales figures showed a 9.5% drop, the year-over-year price increases actually moderated it to 8.4 percent. Now the market is stabilizing, and the offering of houses is increasing as the prices rise and purchasers are not as nervous to buy. While areas like Toronto can afford a little drop in values the Hamilton real estate market could be harder hit as purchasers take a wait and see approach.

Pascal Gauthier of the Toronto-Dominion Bank mentioned that the bubble scenario "made a lot of clients nervous," anticipating a massive crash comparable to the 30 percent drop in U.S. housing values. However he mentions this summer he is experiencing a "180-degree turn from six months ago," and that the interim factors that drove up values have only resulted in a modest fall in a sector that was clearly overpriced. Even though the markets in Toronto and Vancouver may experience a 7% fall that will drive down the national average, Gauthier estimates they will carry most of of the decline, while areas like the Maritimes and The Prairies and may well find by the end of the year that they are experiencing gains again.

By: Stefan Hyross

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Stefan Hyross is a real estate writer that studies the property market. For news about Toronto properties or to look for condos for sale in downtown Toronto please visit the sites. You may also browse for Hamilton real estate and information.