Government Policy & Canadian housing market

Are we heading for a crash?

Government policies play a major role when it comes to controlling demand and supply in the housing sector. Following a few months of the short Canadian recession in 2008-2009, our late Canadian Finance Ministry, Jim Flaherty, tightened the rules for government-backed mortgages four or five times over the next three years. In July 2012, he made it tougher for first time buyers to qualify for a mortgage. The maximum amortization period for insured mortgages was reduced to 25 years, down from 30 years. In spite of these measures, low interest environment fueled our housing market since 2008 recession.

The average price of a detached home in Mississauga rose from $687,119 in Sep 2012 to $802,764 in Sep 2015, as per TREB. That’s 17% price appreciation in three years. During the same period Mississauga condo apartment rose only 4%. Today, Mississauga condo apartment’s average price is $283,000 compared to $273,000 in 2012.

Can you imagine if our Late Finance Minister Jim Flaherty had not tightened the housing rules, what may have happened?  Our housing market would have become so hot that market might have crashed by now.

The New Elected Party will call the shots when it comes to our housing market

As per the International Monetary Fund and the Canada Mortgage and Housing Corporation last month’s report the growth may be unsustainable and Toronto, Regina and Winnipeg were all at risk for a housing correction.

Views of our Political contenders about Canadian housing market

In an interview with BNN last month, NDP Leader Tom Mulcair said that historically low mortgage rates are fueling mortgage growth. He feels there is a serious danger and in some cities, the prices are too high. He does not rule out that there could be a housing bubble. In his interview, he did not mention if his party would further tighten the market.

Liberal Leader Justin Trudeau has not addressed the potential for a housing market correction in his campaign, but he did raise concern about the housing sector not been able to keep pace with the rest of the Canadian economy.

Trudeau said in one political debate, “We need to make sure while housing prices are rising, incomes are rising as well.”

The current Conservative party has made housing a big part of their re-election campaign. Rather than cooling the market like what ex-Finance Minister did, our Honorable Prime Minister Stephen Harper is looking to build on its continued growth. Last month, he pledged to add another 700,000 Canadian homeowners by 2020.

He said, “Our Conservative government’s low-tax balanced-budget plan will ensure that home ownership is within reach for even more Canadians,”

A combination of tax breaks and other promises will help make home ownership more affordable, says Harper. The Conservatives promised to let first-time buyers withdraw up to $35000 from their RRSPs to buy a home and introduce combination of tax breaks to help keep home ownership more affordable. Conservatives have also vowed to phase-in a permanent home renovation tax credit.

After listening to Mr. Harper, how many of you would remember a similar speech of ex-US President George Bush that had fueled the housing boom in the US in 2002 before it crashed in 2008!

President Bush had said, “We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.”

A Crystal Ball on our Real Estate Market

Sorry, I don’t have a crystal ball, but I can certainly see some trends in our housing market. We all know that the housing market depends on the economy, oil prices, interest rates, jobs etc. The steps taken by the political party who we elect will certainly call the shots in taking our housing market to the next level. We can either see stable prices, slower growth or a huge price increase in the next three or four years before going into a crash.

In general, I see a huge growth in our rental market, better price appreciation in condo apartment market that are priced below $350K mark in Mississauga and Toronto. For more info, read my Mississauga Real Estate Market 2015 blog.