Rock bottom interest rates are working their magic as real estate sales leap up to record levels. Was that the shortest correction ever? Even as unemployment levels creep up, house sales are brisk and prices are rising, leading some to believe we’re in a housing bubble. Scotia Capitol is the latest to use the ‘B’ word in public:
“Is Canada in a housing bubble? Probably, but low rates, mortgage innovation and a relative shortage of new supply are likely to keep it going for a while yet,” Scotia Capital analysts wrote in a report.
And as CREA economist Gregory Klump points out, when it comes to people losing their jobs it’s more of a glass-half-full scenario:
“If we have 10-per cent-unemployment, that means 90 per cent of people are employed,” he said. “People are re-entering the market – they have the confidence to take advantage of bargain-basement prices. There’s been a release of pent-up demand, and that has a long time to play out. Prices have gone as low as they are going to go.”
Whatever is in that glass, it’s working. Sales in BC hit record levels in October. And every real estate sales organization and mortgage broker seems to think that it should pretty much carry on indefinitely, and this enthusiasm seems to have been absorbed by the population in general:
According to the CAAMP report, Canadians are increasingly confident that the value of their homes is rising and optimistic about their local housing markets. It also said that the Canadian mortgage market is rebounding and will surpass the $1 trillion mark in 2010.
Scotia Capitol economist Derek Holt points out the obvious when it comes to record low interest rates:
Mr. Holt expects the average mortgage to creep toward 5 per cent within three years, which could mean hundreds of dollars more a month for the average mortgage holder.
For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,300, assuming a 25-year amortization period. A move to 5 per cent would boost the payment to $1,750.
“I think that causes a slight pullback on prices,” he said. “Right now, you have conditions that only come around once in a century and it can’t stay that way forever.”
But it’s not like Canadians aren’t used to dealing with heavy debt loads, and we have a distinctly Canadian way of dealing with debt-based money problems: more debt.