The days are over when investors used to see Canadian housing market through rose-tinted glasses. And it has left the trade pundits scratching their heads over confusion. The skyrocketed housing prices of central cities like Montreal and Toronto, despite economic slump, defied sound judgment. But 5 times it’s showing- how the end of Canadian real estate is near-
Chaotic foreign investments
The convenient immigration policy and work opportunity for students also propelled the housing price growth. The prevalent real estate trend is- a house is purchased at an inflated price. It becomes inhabited by the proprietors for few months. Then again, it gets vacated or lays empty for no apparent reason.
Not only this practice is changing the neighborhood character of Vancouver but also increasing the housing price. Additionally, the banks have lifted up the cap of loan mortgage for new immigrants. This also paved the way for the housing bubble.
Warning from CMHC
CMHC is the national mortgage insurer and only recently it has acknowledged the reality of housing marketing going bonkers. Earlier 2017, CMHC have published its study of over-valuation in 11 out of 15 Canadian metros. Among them, Ottawa, Toronto, and Montreal have shown over-saturation in the condo segment.
The chief economist of CMHC Bob Dugan had revealed in a recent interview his surprise too. How come the high pricing of housing is flouting every textbook rule of economic as well as demographic growth? Now, only a tighter leash on valuation can put things in place.
Mortgage fraud is rising
Borrowers are aiming for houses that are beyond the reach of their spending and economic capacity. An extensive number of mortgage brokers in cohort of borrowers, have been submitting forged income documents to the bank. The buyers, who are capable of bearing higher rate of premium, are altering the bank statements. Doing this, they could qualify for the least expensive mortgage. No big surprise that, it led to inflated prices for apartments, condos or houses.
Shorting in real estate
This is a hopeless loop where the investors are selling (shorting) the stocks of prime financial lending institutions- without investing on them. Home Capital Group, Canadian Western Bank, Genworth MI Canada – the leading names in Canada’s mortgage lending industry is witnessing monstrous slips in stocks. With a puffed up housing market, it appears that, even the seasoned global investors are finding it hard to buy land properties. Rather they seem to be waiting for the bubble to burst!
Topping the ‘bubble’ index
A rational investor tends to take what’s written in popular media- with a pinch of salt. Be that as it may, when a reputed publication like The Economist calls out Canadian housing market– the topper in the bubble chart, one must take note. This is also supported by Deutsche Bank that, Canadian real estate is mostly over-estimated. So going by the trustworthy media, the housing bubble in Canada appears legit.
As stated in the above, tight regulation will halve the job of slicing inflated housing prices. This and a positive economic growth can only steer the market back into normal.