Real Estate Bubble in 2012? Nah, It’s Starting to Float Back to Earth: Globe and Mail
This article appeared in the Globe and Mail on December 30th, 2011 and was written by Katherine Scarrow.
As global housing markets coughed and sputtered in 2011, Canada’s barrelled ahead, even turning a few nervous heads along the way.
In fact, recently the Economist branded Canada one of the nine countries where “home prices are overvalued by about 25 per cent or more,” and among the four where prices are in line with those in the United States “at the peak of its bubble.”
Is there really a cause for alarm? Are we doomed to ride this white-knuckled roller coaster in 2012? Probably not, according to Benjamin Tal, deputy chief economist of CIBC.
“The housing market of tomorrow will not be as exciting as the housing market of yesterday,” he said in an interview.
While the current real estate market is overshooting, with home prices far higher than than they should be, we shouldn’t expect a crash either, he explains. As long as interest rates remain relatively low and subprime mortgages kept at bay, the most likely scenario is that the market will plateau.
“Prices are already softening, housing starts aren’t in the sky, MLS [multiple listing service] activity is starting to soften, so it suggests the market is already starting to level off, and that’s what we need,” he said.
How will a more relaxed real estate market affect new home buyers, investors and renovators in 2012? Here are Mr. Tal’s predictions:
1. First-time home buyers
- Affordability and interest rates will be the major concerns in 2012. Prices will continue to be expensive, especially in urban centres like Vancouver and Toronto, since interest rates are likely to remain low for the time being.
- But rates won’t stay low forever, which is why you should estimate mortgage payments based on interest rates that are 2 or 3 percentage points higher than current interest rates, and if you cannot afford that, get a smaller mortgage and buy a less expensive house.
- Expect an end to bidding wars, or at least a temporary ceasefire. New home buyers will have the luxury of time in terms of looking at properties without being rushed into decisions. That’s the positive. The negative is that prices continue to be drastically higher than they were five or 10 years ago.
2. Investors and flippers
- If you’re in it to flip it – meaning you buy a home hoping the price will rise by just doing minimal changes – those days are over.
- In some pockets of the country, you may even see prices go down.
3. Renovators
- The cost of renovations will not increase significantly so long as interest rates remain at their current level, so it’s a good idea to take advantage of this time to finance these projects.
- For those looking to take on a second mortgage, remember to make sure you’re equipped to finance them if interest rates creep up.
- Variable-rate mortgages are still a good option for those who are able to withstand fluctuations in the market and “ride the ups and downs without getting a stomach ache.”
Pritchard is located 30 minutes or 39 kilometers south east of the City of Kamloops. The majority of the properties in Pritchard are small to large acreages. There is one area where smaller city lots exist (approximately 0.25 acre lots) and are largely dominated by modular or manufactured homes. Pritchard is a rural area with few amenities close. There are a lot of recreational, outdoor activities that are easily accessible in Pritchard area.
The area of Pritchard is located along Highway #1 East of the City of Kamloops. This area is split by the Highway, one area of Pritchard rests at the valley bottom along the South Thompson River and the other area of Pritchard stretches into the southern hills and mountains. The smaller residential lots are located at the valley bottom across the Pritchard bridge on Decamillis Road, Bostock Crescent, Gerella Road, Gore Road, Anker Road and Foort Road to name a few.
There are a number of outdoors activities to enjoy in the Pritchard area. In the summer it is easy to power boat from Pritchard, up the south Thompson River to Shuswap Lake. There are a number of fishing lakes in the area, cross country skiing, off road adventures on ATV, dirtbike or snowmobile, horseback riding, canoeing, kayaking and hiking.
Cheapest is not always best. We know that’s true when we’re shopping for anything else. But we still tend to believe that lowest rate is the one and only factor in choosing a mortgage. Most Canadian homeowners would be shocked to discover that their low-rate mortgage could actually cost them more in the long run.