As much as today’s housing market may seem unique, the current speculation about a crash in the market is not new. In fact, since the last Canadian recession in 2009, talk of a so-called “bursting of the housing bubble” has never ended. And it still hasn’t ended.
However, according to RBC economist Robert Hogue, the ongoing talk migh be just that: talk. He believes that, although a correction is certainly in order, a crash is unlikely. And he believes that Canada’s demographics are key to supporting the housing sector.
Demand may still be strong
The fact is that immigration is set to increase substantially in the next few years, which means demand will remain high, which means that, even with any expected slowdown, demand is unlikely to fall of a cliff. Instead, Hogue describes a situation, involving housing prices, interest rates and mortgage rates that will look a lot more like a return to normal than a steep crash.
It should be remembered that the housing market during the two-years-and-counting of the pandemic was a situation never seen before. All of a sudden, demand went way up, while supply remained low. The end result was a constant barrage of bidding wars that saw housing prices rise to unprecedented levels.
A post-pandemic return to normalcy?
So, it was always going to be the case that these prices would correct themselves, especially as the pandemic waned. Of course, at present, an important driver of downward prices is the rise of interest rates, not only by the Bank of Canada, but by central banks worldwide. The U.S. Federal Reserve just raised rates by .75 percent, this highest hike since 1994. The Bank of England has raised its rate to 1.25 percent, the highest it’s been in 13 years. And the Bank of Canada is expected to match these increases in its next interest-rate decision cycle.
Yes, this puts even more downward pressure on the housing market. But, again, let’s not forget that interest rates are still at historical lows, and they, too, were part of a policy to combat the effects of the pandemic and lockdowns.
In other words, according to people such as Robert Hogue, we’re not witnessing the coming of a crash, but a return to normal. And that might not be such a bad thing.
ASCEND MIC is a mortgage investment corporation, with offices in Toronto and Richmond Hill, that specializes in various aspects of mortgage investing, lending, administration and more.