Larry Matthews
The Great Recession. That’s how the last few years are going to go down in the history books. Canada has weathered the latest economic storm rather well as compared to many other countries. However that old saying comes to mind “It isn’t over yet.” Let me explain. The housing or real estate crash has been devastating in the US with some markets losing up to 50% of value. Imagine having a home worth $200,000 with a $150,000 mortgage and suddenly your home is only worth $100,000. Millions of American home owners experienced that exact scenario and millions moved out and let the banks foreclose. Who could blame them? This scenario flooded the already troubled markets with more inventory and prices were pushed even lower. The ensuing credit crunch meant mortgages were harder to get and there were even fewer home buyers. Talk about a domino effect!!
The Canadian government felt compelled to do something to prevent that scenario from taking place here in Canada. Their solution was to tighten the mortgage lending rules thus reducing demand for housing thus preventing what they perceived as a looming housing bubble (Inflated housing prices) which would eventually crash as it did in the states. Here are some of the problems related to that strategy.
1. The real estate market as in all markets is subject to supply and demand. Interfering with the open market place by government upsets the normal flow of the market. Predicting the results of that interference at best is only guessing. Should our government be guessing or in short gambling with our future? Time will tell.
2. The real estate market in every community across Canada is local. When the federal government interferes with lending policies at a national level it affects every community in Canada. While it may slow the market in Vancouver it may stop the market in Thunder Bay or have little effect in Calgary’s booming economy. With out question it will have dire consequences on those local communities across Canada as the housing market stalls and construction jobs are eliminated. In short those local economies who least can afford it will be hurt the most. More of our young people are forced to relocate for work as jobs are not available at home.
The danger with these current policies is the possibility of actually creating the exact scenario you are trying to avoid. So much of the economy revolves around a strong housing market. Money flows into the economy at all levels when values are stable (or rising). Many home owners rely on the tax free equity in their homes to borrow against for any number of reasons including debt consolidation, renovations, car purchases, helping their children through university and for small business funding. As the ability to tap that equity erodes the over all economy is impacted. Not to mention all the jobs that is dependant on the housing industry. Contrary to the governments opinion that Canadians have been fiscally irresponsible with their finances I have not found that to be the case with most of my customers over the past 37 years in this industry. Most have just come to rely on the equity in their home to off set the ever increasing cost of government at all three levels. This includes property taxes, gas prices and fees. Add to this hydro, home heating costs and insurance. Not to mention those oh so cheap groceries today.
The over all impact of this policy is the negative impact on the collective mindset. As this attitude filters through society lenders and under writers become less inclined to approve loans and money stops flowing. Homes stop selling, buyers stop buying and builders stop building. Small business people stop hiring and confidence is eroded.
Now for the big question is this where we are heading? Or better yet is this where we are now? That depends on your location. Over all in Canada real estate sales in Canada were down 15% in Sept 2012 from Sept 2011. Those stats are from CREA (Canadian Real Estate Association) Many of the experts are predicting a crash similar to the US. Many are saying we will have a slow down but a soft landing. Locally we have moved from a good sellers market through a balanced market to a buyers market in about 2 years. Real estate is our highest priced commodity and requires substantial purchasing power to keep it moving. That purchasing power requires access to funding. The government has tightened that access 4 times in the past few years. Combine that with increased pressure on lenders and under writers to be much more diligent before approving a loan and you can see what could be the proverbial perfect storm developing in the real estate market.
Am I predicting the perfect storm? No I hope we have a soft landing and in a year or two our market will be fine. Locally our economy has some positive aspects including the ship building, increased mining activity and there is some increased activity in the oil industry off shore. Halifax could be on the cusp of a construction boom which might bring a lot of trades people back home from the west. That’s all down the road. Right now if you are trying to sell your home that doesn’t help you. Right now realize what your Realtor™ is up against. There are too many homes for sale and not enough buyers. You have two options wait it out and see what happens or reduce your price to be more competitive. Your Realtor™ can not manufacture a buyer that doesn’t exist. Right now selling your house is like the lottery you can’t win it if you’re not in it. Houses are still selling just not like they used to. (Depending on location of course.)
In closing my opinions are based on 37 years as a licensed Realtor, Mortgage Broker and Real Estate Appraiser. My opinion is based on those three unique perspectives of the real estate industry. Do I know what the future will bring? No. The only thing I know for sure is that every day above ground is a good one and that I appreciate all the support I get from my loyal customers and enjoy helping them solve their real estate problems.
Yours in Real Estate
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