The housing market should not be seen as "investment" that is what has caused the housing bubble. A house should be seen as a home.
Though I am not a fan of Garth Turners and have only read his site once, I believe he is fundamentally correct.
The Harper govt. changed the rules by which CMHC securitized mortgages and the Canadian Govt. became the biggest sub prime lender of sub prime mortgages in the world. 90 per cent of existing mortgages in Canada are "securitized" the same situation that happened in the USA.
Up until 2007 the loan requirements were tight and the securitized mortgage rates were low. In 2007 Harper's govt allowed CMHZ to back zero per cent down and extended the amortization period to 40 years. This is one of the things that kept Canada bouncing along nicely during the recession.
In 2008 the govt changed the rules again to 5% down requirement and 35 year amortization. These are still pretty loose requirements for qualification.
In 2007 people, mostly first time buyers where qualifying for mortgages at low interest rates and purchasing homes that they barely qualified for at low interest rates. this resulted in $138 billion in NHA securitized pools outstanding and guaranteed by CMHC --17.8 per cent of all outstanding mortgages.
By June of 2009, $290 billion were guaranteed by CMHC.
It does not take much of a genius to realize that the housing prices cannot keep increasing, increased prices removes buyers out of the market, the historical interest rate in Canada is 10.5 % over the last twenty five years.
Interest rates have no where to go but up, and they will because they will need to rise to control inflation, that 5% or O% down buyer has little or no equity in their home.
With interest rates rising, people can easily see hundreds of dollars of added mortgage payments each month, the market will get tighter because people will not be able to borrow money at the higher interest rates causing less buyers, people will not be able to afford higher interest payments on their mortgages, thus you will see the combination of the two come together.
Less people qualifying because of higher mortgage costs, higher mortgage costs causing people to sell their homes because their homes are now unaffordable to them, this will lower the cost of homes. Already where I am we are seeing condo's taking 9-13% hit on prices. I sold my home four months ago, others in the same complex are now selling below what I sold for.
Yes, the prices are going to come down. The bubble is starting to contract.
