This Is How Canada's Housing Correction Begins

There is a good article in Maclean's about the housing market in Canada and how it's starting to implode. Contributing factors are the rise in interest rates imposed by the Bank of Canada and tightened mortgage lending and renewal rules put in place by the federal government. If you own a home in Canada or are hoping to buy one, you need to read this article.

Now rates are rising, and many heavily indebted households are feeling crunched. In 2018, the Bank of Canada increased its benchmark rate three times to 1.75 per cent. Another two or three hikes are expected in 2019. For the first time in a quarter century, households are having to renew their mortgages at rates that are higher than when they first signed.

At the same time, the federal government has steadily tightened mortgage standards. Federally regulated lenders must put potential borrowers through stress tests, whether they’re applying for an insured or uninsured mortgage, to determine their ability to repay. The new mortgage rules have reduced the amount Canadians can afford to borrow by around 20 per cent, sending home sales tumbling across much of the country.

It’s a one-two punch that has shaken the foundations of the housing market, put an immediate dent in consumer spending and left economists and market observers wondering how deep the hit to the economy will be. “Maybe it’s just a moment and the market will rebound again like it has in the past, but maybe this is finally the perfect storm,” says Steve Saretsky, a Vancouver real estate agent. “I think we’re seeing the catalyst for a correction that everyone’s been talking about for 10 years.”

One data point: one of the town houses in our row is up for sale. The asking price is $100,000 less than that of our next door neighbour who bought two years ago.