Photo by Thirdman from Pexels
Through the years, there were speculations of Canada's housing market being in a bubble and how it's going to pop anytime. These talks are more common now in the midst of a global pandemic wherein there were many movements taking place in the market. So it's only understandable for those considering to enter the market to ask the question "Are we in a real estate bubble and is it going to pop?"
The simplest answer to those questions is, nobody can say for sure. Rather than conclude if the housing market is indeed in a bubble, we do well to observe carefully first what is happening in the market. For instance, the Canada Mortgage and Housing Corporation (CMHC) predicted last spring that there would be a potential 18% drop in home prices compared to levels before the pandemic. This prediction turned out wrong as Canadian average home prices surged by 22.8 percent year-over-year in January.
Former CMHC President and Chief Executive Officer Evan Siddall wrote in one of his tweets that unforeseen circumstances such as shifting preferences, reverse urbanization, and increased savings rates are just among the few factors that helped prevent the worst-case scenario from happening.
You might wonder now, why is it that home prices are continuing to grow in the midst of a recession? There were interventions from the government. For example, Canadian banks offered historic low interest rates to jumpstart the economy. This encouraged many Canadians to take on this rare opportunity to get into the housing market. But of course, this situation also set the stage for the inevitable high demand, low inventory crisis. And it's important to take note that banks are not particularly concerned with monitoring real estate conditions since their main concern is basically just to get the economy going. There's an assurance though that the government who let these conditions take place won't let things turn for worse.
As briefly mentioned earlier, there has been a shift in customer behaviour as more buyers now prefer to look for small-town properties. This is mostly because of the work-from-home conditions where people need more space for privacy from their kids stuck at home as well. This trend has been growing for some time but seems to be hastened by the pandemic. For those who are worried about a downturn, they need to make sure that when they buy a property at this time, they're going to love that property and see themselves living there for a long time. As the conditions improve in the cities, people will slowly return back to them. Selling small town home may become an issue as people start selling their homes and not enough demand for them. That will drive prices down in those areas.
These are the significant market conditions we need to take into consideration before concluding if the housing market is in a bubble or not. It might be a possible bubble in the making, or just a pandemic trend that can potentially improve in the succeeding months. Time and again, the Canadian housing market has set a record of exceeding expectations.
If you have any questions or need help buying or selling your home, I can help. You contact me at 647-834-9928 or send an email to firstname.lastname@example.org