You've seen the news, throughout the pandemic we have been told of how much an "unprecedented" time we are living in. Economists are doing their absolute best to estimate where we are heading, forecasting as best they can, but are left baffled by our economy's resilience to the pandemic.
But what are some tried and true, simple ways to view our economy and our real estate market?
In 2008, the market crashed due to over-leveraged mortgages being issued to buyers that had no means of servicing that kind of debt. Ultimately causing them to default and caused the great recession in the US.
In Canada, we were mitigated by this due to our stricter criteria for lending, which now are even stricter with higher stress tests and higher bars to clear for lending.
But this is an "unprecedented" time and some would argue our real estate market is seeing only a brief blip due to this significant change in inventory and interest levels. Those same people view the market as one that will ultimately crash in the near future.
But let's look at what is happening and what we can learn from 2008.
There are really three reasons for a market to crash, they would be:
Over speculation of the crash
Significant increases in prices
Higher rates of over-leveraging and higher loan to value ratios.
If we dissect each of these reasons we can start to see that the first two criteria are in full swing.
We are seeing buyers and sellers actively being more involved in the market. We have more news reports, more analysis, more forecasting from a variety of outlets. Not to mention, sellers and buyers are also creating their own opinions of what the market will do in the months and years ahead. Albeit a lot of this reporting is not coming from ground level, with agents like myself working through the pandemic. But if you follow me or this blog you will know I've been doing my absolute best to keep the consumer up to date with our ever-changing market.
If you follow my THE BREAKDOWN OF THE MARKET blog you will see that pricing has seen skyrocketing numbers lately due to a number of factors we have covered in the blog.
So we are left with the last criteria, over-leveraging. Are we currently seeing this happen? No. The government and lenders are ensuring this is not going to happen with higher stress tests and lending criteria. We are seeing the belts tightening when it comes to lenders giving out funds, even though it is happening at a higher rate lately. Lenders look at everything in the sale to ensure there are no issues with the security of the home against the loan. More and more buyers are also purchasing with cash and completely removing the lending component altogether.
So as we work through this spring and summer markets, we are seeing buyers put significantly more down into their homes through gifting from relatives, savings, RRSPs, and government subsidies. The banks are not relaxing these rules any time soon.
With inventory levels low, new builds expecting to increase into the summer months, we can expect the market to correct slightly, but not bursting any time soon.
If you'd like to learn more about the market, or how your particular community is performing, send me an email at firstname.lastname@example.org, and let's talk about what you can expect in your local market this summer.
Last Blog - Who Does the Stress Test Help? - Not Buyers!
Thanks. Take care!