Canada won’t experience a U.S.-style housing market collapse, according to the author of the Bank of Montreal’s latest housing report. But the Canadian housing market is expected to cool.
Chief economist Sherry Cooper tells BNN the housing market will experience a slowdown. “For the whole year of 2011, house prices only increased 0.9 percent in Canada.” She says that in Vancouver, house prices fell more than one percent. Cooper says there is over-valuation of between 10-15 percent.
According to the report, the “housing boom will more likely cool than correct -- even in condo driven Toronto.”
Cooper says the surge in construction cranes in downtown Toronto are a result of rent control and land regulations.
“The condo market has pretty much supplanted the traditional single-use apartment rental building [in Toronto]," Cooper says. She adds that the vacancy rate in rental condos in Toronto is about one percent.
BMO says low interest rates should help keep prices from falling too drastically and allow incomes to play catch-up.
Cooper says that unlike the U.S.'s real estate bubble, most Canadians have about 70 percent equity in their homes and 68 percent of all mortgages are fixed-rate.
“In addition, when interest rates start to rise, those people who have variable rate mortgages will no doubt lock in,” Cooper says.
She adds that Canadian banks are encouraging people to reduce their amortization and put more money down and lock in the extraordinarily low interest rates. “We’re talking about 10-year mortgages now, for about four percent interest,” Cooper says. “Anybody who doesn’t think that’s a low interest rate, doesn’t know what the world is about.”