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Wednesday 9 January 2019

The declining real estate market

Tighter mortgage rules, combined with rising interest rates, means it’s getting harder for people to obtain the large mortgages necessary to get into the market. (Photo Illustration by Ed Freeman/Getty Images)
Canadians are testing what a world with rising interest rates will look like. And there is no doubt that Canadians are not ready for what happens next.

For his part, Kirk Marsh, who is a real estate investor, buys houses and condominiums to fix them and then place them for sale. He realized for the first time that the mood was changing in the Vancouver real estate market a year ago. Marsh says, “It’s not like the TV shows you see you make $ 100,000 or more at each time, it just is not like that”. Despite the adversities, Marsh has done well, is always able to find buyers and move forward.

However, he says, “Today, everything has stalled”.

As of last year, it began to increasingly denote how crowds and wars were decreasing more and more. In such a way that “There is simply no one in the open houses now”, he says. “Especially at the center, you will usually see a group of very aggressive people coming out”. But he is also very aware of the slowdown because he is trying to unload a renovated two-bedroom condo in New Westminster, east of Vancouver. The unit, with a sale price of $ 569,000, had been in the market for two months in mid-December, almost without interest.

Two salient factors make Marsh feel that fundamentals remain solid for Vancouver real estate. The strong local labor market and the entry of new residents to the region

Even so, he also knows that Ottawa’s strict mortgage rules, combined with the relentless increase in interest rates, means that it is increasingly difficult for people to obtain the large mortgages needed to enter the market. In such a way that he himself admits that he does not know where the buyers will come from and that in the same way that is really worrying him.


A big change with the passage of time


Do not forget that things are not as before. And is that the willingness of consumers to borrow and spend has been the main economic engine of Canada for more than a decade. In fact, when turbulence and uncertainty slowed business investment and crushed exports, Canada’s economy continued to grow. While for its part, unemployment decreased.

Currently, rates are rising and many highly indebted households feel crushed. In 2018, the Bank of Canada increased its reference rate three times to 1.75 percent. Two or three more hikes are expected in 2019. For the first time in a quarter of a century, households have to renew their mortgages at higher rates than when they signed for the first time.


Source: Jason Kirby | MacLean’s

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