Recently we have seen talk from all levels of government about the housing market. There is a consensus that the market may be a looming liability for the Canadian economy, and without a doubt it is a topic of conversation and concern for the average person. There is recent talk of increasing regulations and other measures to help bring the market back to equilibrium, however this is often motivated by other factors than simply controlling prices.
Certainly, there are arguments that support the case for some government regulations in certain sectors of the housing market. Rules designed to ‘slow’ the pace of growth have not thus far been successful mainly as they have targeted the wrong segments of the market. Property speculators and offshore buyers simply looking to ‘park’ money in real estate, for example, are relatively immune to small taxation or down payment regulations. The most recent efforts to ‘control’ the housing market via a rule mandating a small increase in down payments on property over $500,000 on insured mortgages has had little, if any impact on clients we see.
From our antidotal experience, we find that a vast majority of our clients are still purchasing well within their financial means. What is often left out of the news is that the average down payment has increased substantially. Clients who purchased their first condominium last decade have been cashing out and moving up the property ladder with down payments in the mid six figure range. Large tax-free capital gains, a dual income household and a partner who has also owned/owns property are a typical of the ’30 Something’ buyers that represent a majority of our clients.
Most homeowners are not speculators or investors. They are purchasing property for the same reason they did a decade ago; to have a home in which to live and raise a family and increase their household net worth by paying down low-cost mortgage debt. Price fluctuations in the short-medium term are irrelevant unless they need to sell. With vacancy rates near 0% there is always the option to hold property as a rental in a scenario where prices come down to the point where there is minimal equity in the property. Rates may rise, however we have been waiting for a decade for this to happen, and during this waiting period they continue to come down to record lows. Variable rate mortgages can be locked in to a fixed term to help protect clients if and when rates do go up. A 5 year fixed mortgage is now offered at 2.39% with many mainstream lenders.
The notion that the ‘free market’ will determine prices is a cornerstone of our economy. In respect to housing, a well-balanced and fair real estate market is beneficial for developers, tradespeople, unions, municipalities and other levels of government that rely on the housing market for jobs and revenue. The service and retail industries, among others also benefit from spill-over effects from this. It will be interesting to see what proposed regulations are brought forward and even more interesting to see if they have any impact on the small sectors that seem to unduly influence the market and headlines. Unfortunately, governments have generally proven incapable of introducing any meaningful legislation until after the market has self-corrected.