Canadian Real Estate Bubble?

There has been a fair bit of talk of a US style real estate melt down here in Canada. The Canadian Real Estate Association reported in January a 19% increase in average prices and record sales volume for 2009. While there is no doubt that Canada's and real estate market is red hot at the moment with tight housing supply and demand fueled by low interest rates all leading to increasing prices there is in my view no similarity between the current Canadian real estate market and the very troubled American real estate market.

First a 19% average price increase is being measured from a low point based on a recessionary downturn. Secondly there is no real evidence of a speculative real estate market, and finally our mortgage practices simply don't compare to those in the United States.

Quite simply our mortgage lending practices are far more responsible and measured than those in the United States that created the conditions for their massive market meltdown. In the United States sub-prime mortgages were being approved for unqualified people who couldn't possibly hope to make payments, in addition mortgages with escalating interest rates were common place. As such those approved could pay for a year or two and then rates sky rocketed and the mortgage was no longer affordable and the ability to stay in the home was compromised. These products and practices to my knowledge do not exist in Canada.

Take pride in the fact that our regulated market helped Canadians and Canadian Financial institutions avoid the worst of the world financial melt down driven in large part by irresponsible lending practices and the sale of bogus asset backed securities in the Unites States.

All this being said thousands of Candians are buying homes at record low interest rates and each home owner must look to the future and ask the question "what happens in 3 - 4 - 5 years when my mortgage is up for renewal and rates are 2 or 3 percentage points higher?" Each of us must take responsibility and look to the future to ensure our home ownership is secure and affordable and start planning ahead for when rates are higher.

I'm am always pleased to discuss my clients personal mortgage and home ownership situation to help you ensure you've protected yourself against future changes in the market. In addition the Canadian Finance Ministry today announced changes that continue Canadian efforts to ensure responsible lending practices to avoid future problems.

Take heart, I don't beleive we are in a real estate bubble and I anticipate a soft landing for our red hot market as we anticipate increased inventory easing the pressure of the existing demand, further as interest rates rise demand will dampen to some degree. Yes there are risks if for example the sellers market continues for too long a period or speculative buying start to drive prices ever higher, however on balance i am confident in the future of the Canadian Real Estate Market.