Are We Worrying Ourselves Into A Market Crash?
Matt Chan • October 23, 2012
Potential Home Buyers And Mortgage Holders – Is This Talk About A Market Crash Overblown?
Here is a great article by Gary Marr on the effects of worrying about a market crash in Canada:
Yes, if you are home buyer looking for a mortgage, you should be concerned about a potential market correction. However, is it realistic to believe that we will face an enormous housing collapse that happened in the US. Well, there are a lot of interesting points to note that our correction will be different than the US housing market crash.
First, Canadians who have high debt in Canada have far better credit than our counterparts in the US. This is an indication that Canadians have a much better track record than Americans in managing our debt load responsibly.
Second, existing Canadian homeowners and new home buyers have a much higher proportion of mortgages in locked fixed rates which is much more stable and predictable than a variable rate. According to the article, approximately 29% of Canadian home owners are on a variable vs. 70 to 80% of Americans who were on variable
Furthermore, we have a Canadian government that is absolutely committed to avoiding a market crash and has made specific measures to do this including monitoring the interest rate and tightening up the mortgage rule guidelines for both potential home buyers and current home owners looking to refinance. The stats seem to support this. Mortgage arrears is only slightly down according to TD bank.
If you are a potential first time home buyer, this is still a great time to seriously consider purchasing your home. Fundamentally, it does not make sense to market time especially when you have to move in and out of a temporary residence. Take advantage of the situation to find your ideal home while you have selection and access to historical low rates. Over the long term, real estate has consistently been proven to be a great investment.
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