Much of the blame or credit for Canada’s real estate market has been laid at the feet of Jim Flaherty, Canada’s finance minister. Looking at the real estate market now and into the future, it appears that Flaherty’s scheme to slowly deflate the housing bubble is paying off for prospective home buyers and Canada’s economy.
Finance Minister’s Real Estate Policy Can Be Measured
Flaherty’s strategy involves tightening lending requirements for home loans. After that policy is announced, data shows that home buyers stampede into the real estate market to beat the deadline before the new rules go into effect. After the new regulations are set in place, sales would typically fall flat. Then, after a few months, home buyers would stream back into the market after they realized that interest rates were still at bargain basement rates.
The effect of Flaherty’s real estate policy can be measured from quarter to quarter. Toronto-Dominion Bank economists tracked the finance minister’s scheme and found that the lag time between the change in lending requirements and pop in real estate sales is two or three quarters.
Data from the Canadian Real Estate Association confirmed the theory presented by the bank’s economists. The association released numbers this week that showed that sales of existing homes went up 2.4 percent in March. That followed a 2.1 percent decrease in February. Sales have been consistently slowing since the spring of 2012, the association said, and have been flat since 2012 ended.
Real Estate Market May Be Stabilizing
What this data suggests is that the housing bubble is slowly deflating, and the market may be stabilizing, said Royal Bank of Canada economist Robert Hogue. The mortgage insurance rules that Flaherty set in place in July 2012 are starting to fade out, Hogue said, meaning that sales in real estate should rally in the next few months.
With the finance minister attacking the housing bubble, Bank of Canada Governor Mark Carney has had the luxury of maintaining the benchmark interest rate at 1 percent. Boosting the housing market was one of the goals that Carney had in mind by keeping the interest rate low.
Carney faced a problem that included home prices and household debt at record levels. However, the remainder of the economy was flat. In order to cool off the surging home prices, Carney had the option of raising the benchmark interest rate, but that would come at a cost. Raising interest rates would slow economic growth in the rest of the economy.
Watch the Finance Minister to Time a Real Estate Buy
That’s when Flaherty stepped in and changed the rules in real estate. First, he lowered the insured mortgage amortization period to 25 years. The rate had been 30 years. This move had the affect of increasing mortgage rates by less than one percent.
The Bank of Canada has released figures that show that the Canadian household debt is stabilizing at the rate of growth in income. Existing home sales fell by more than 15 percent in March as opposed to March of 2012 while the average price of a home hit $378,532, which is 2.5 percent greater than in March of 2012.
What this means for Canadians is that the housing market may be stabilizing, and buyers can enter the real estate market without fearing wild swings in prices and interest rates. To find the best price, buyers should watch the finance minister and time a real estate buy to find the ideal time to enter the market.