The Rising Cost Of Real Estate In Oakville
Reports have indicated that Canadian home prices are still rising and the government may be forced to intercede. According to statistics released by the Canadian Real Estate Association, the national average sales price rose by 7.1% on a year to year basis. Real estate experts have said that this figure has surpassed the 10 year average growth rate. It was also noted that the number of home sales processed through the MLS system rose by 5.9% from April to May. According to a report released by a data company, Canada’s residential real estate market is overvalued by 20%. In the second quarter of 2014, the average price of a home in Canada increased by 4.5% with this price increase recorded across all housing types.
Factors Contributing to Rising Costs of Real Estate In Oakville
According to a report released by TD Economics, Canada’s home prices will continue rising for the rest of the year. This could be attributed to the following factors:
Low Interest Rates
TD Bank has forecasted a 5% rise in home prices by the end of 2014. Earlier in February 2014, the bank had anticipated a drop in the number of home sales as a result of an increase in mortgage rates. It was expected that an increase in rates would lead to a decrease in demand; therefore, home prices would actually fall.
When interest rates increase, the cost of borrowing becomes more expensive and affordability decreases. The Canadian real estate market features low interest rates which have increased affordability thereby pushing the demand for houses. When demand for housing exceeds supply, it is referred to as a sellers’ market and this has widened the affordability gap in some of Canada’s major cities. This has been the case in major metropolitan areas such as Toronto, Vancouver and Hamilton. According to the Teranet house price index, Vancouver and Toronto home prices increased by 6.1% while Hamilton prices went up by 7.3%.
Due to low interest rates, first time home buyers who had been pushed out of the market are coming back. Economists say that this has partly contributed to the rise in demand for single family homes and condominiums.
Although the government has tried to cool the market by placing strict mortgage rules and reducing the amortization period, economists suggest that these are not long-term solutions. Canada’s high household debt and unemployment levels have partly contributed to the housing bubble. In the last two decades, Canada’s household debt to disposable income level has risen from 80% in 1990 to slightly above 160% in 2014.
Forecasts have shown that Canada’s housing market may cool down the following year. This could be attributed to an increase in the number of new listings which is expected to soften housing demand. This is likely to push Canada’s housing market to a buyer’s market which is characterized by an increase in bargaining power as a result of more supply. Economists have noted that building permits for residential construction has picked up in recent months