For the last decade and a bit, Canada has enjoyed a robust housing market that has defied just about every attack. Everything from the 2008 crisis to stagnant incomes to increasing debt has been shrugged off like it doesn't matter. In the provincial capitals, prices have doubled or are close to doing so. And the rise has been shared by the entire market, prices of all real estate (from agricultural land to condos) have seen faster growth than historical rates.
So what's driving it?
Pose this question in any setting, and you'll end up with the following list:
1. Increased Immigration:
2. Low Interest Rates:
3. Demand from investors and corporations
4. Government Policies on Home Equity Loans & Loan to Value limits
5. General Population Growth & Urbanization
While all the above play some part in the continued rise of house prices, it is my belief that low interest rates are the catalyst to this phenomenon. My basic theory is that the price of a house is not really a consideration for most buyers. It is paid attention to in passing only because it decides the monthly mortgage amount to be paid. The monthly payment is what home buyers focus on.
Ask yourself this, if you get a house for a monthly mortgage payment of $3,000, would you care if the market value was $500,000, $1 million or even 2 million? Of course not! you're not paying the asking price, you're paying $3K plus the down payment.
Now, with interest rates so low, you can actually borrow more and keep your mortgage payment the same as when the rate were higher. And when faced with a house you like and the ability to pay for it over 25 years, house prices get tossed by the wayside.
Data to back this up coming shortly.
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