Legend Of The Fall - Is A Correction On The Horizon?
The Canadian Imperial Bank of Commerce came out with a report Wednesday on the heels of a Royal Bank of Canada study suggesting that Canada’s real estate market is already heading towards a correction.
Figures published in the The Financial Post say that Canadian house prices are 14 percent above their fair market value, with BC and Alberta homes being the most overpriced. The average price of a home has risen by 23% since its low point at the beginning of 2009.
Affordability is down, especially in hot markets; however, this doesn’t seem to be affecting the majority of homeowners, who, according to a senior economist with CIBC, spend 15.6 percent of their average gross personal incomes on mortgage payments. This doesn’t sound like a lot, given that the ideal portion of gross personal income budgeted for housing should be around 30 percent.
The worrisome group is comprised of older Canadians with incomes averaging $50,000 or less. On average, according to an article in Canadian Mortgage Broker News they spend 60 percent of their gross incomes on mortgages, taxes and heating bills. However, this group accounts for only 13 percent of all mortgages in Canada.
Not everyone agrees that we’re heading for a major price fall. The Canadian Real Estate Association suggests that news of a dramatic correction may be over-hyped. As well, CENTURY 21 Canada President Don Lawby tells the Financial Post that he doesn’t see where a US-style correction could come from. His view is that neither the number of homeowners who are overburdened by their mortgages, nor our delinquency rate, is high enough to force an implosion of the real estate market.
The strongest group in the mortgage market is made up of Canadians who are 35 years of age and older, and earn $50,000 annually or more. They now account for 65 percent of the mortgage market, according to CMBN article, up from 50 percent in 2003.