BMO claims that Canada’s housing market is ready to pop are exaggerated, say economists at BMO Nesbitt Burns. But as a substitute, they say the market can more logically be labelled “moderately overvalued” based upon a comparison of house prices with personal income. In addition they observe that mortgage servicing costs for “typical” homebuyers are operating near the long-term norm of 34%.
They noted, nonetheless, that Canadians would have a tough time dealing with a sudden three% hike in mortgage rates. That will diminish affordability “substantially” and in turn drive down demand and residential prices.
“Barring a sharp spike in mortgage rates or a setback into recession, a substantial worth correction is unlikely to occur,” economists Earl Sweet and Sal Guatieri wrote in their research report.
More worrisome, they dispute, is extended low interest rates, which may “recharge the housing market and blow up a true bubble that ultimately bursts when rates normalize.”
They downplayed this risk, although, pointing to the prevalence of fixed charges in mortgage financing, which reduce fluctuations in borrowing costs.
Sweet and Guatieri additionally predict the normalization of rates of interest could take a number of years yet, with Canadian charges rising 2 to 3 points in that time. They think incomes should catch up to costs by then.
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John Rossi is a graduate of Bachelor’s of Business Administration (BBA), with Majors in Marketing and Management. He consistently exceeds every customer expectations by offering a fulfilling experience and exceptional value in “Vaughan Home Sales” by not only being competitive but by leading the way.
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