|Mark Carney Concerned about some of Canada’s Condo Markets|
April 22, 2012 Kate canadianmortgagesinc.ca
Bank of Canada governor, Mark Carney, had a busy week this week. First he announced that the Bank would keep interest rates at their historic lows – for now; also saying that given improvements in the Canadian and global economies, the Bank will most likely start to raise them sooner than expected. Then on Thursday he was in Ottawa talking about HELOCs, warning of the dangers Canadians are taking with them. On Saturday he was doing an interview with CBC Radio, talking about Canada’s condo market and the overvaluations happening in many of Canada’s hottest markets.
Mr. Carney didn’t say exactly which markets he was referring to, but he did say, “There are issues, particularly in some parts of the condo market, without question, where activity has been particularly strong, has reached back to the levels of the late 1980s. And in some of our major cities, without question, valuations are extremely firm, to put it one way. And so some caution is warranted in that environment.” It’s not hard to guess which markets the governor is referring to. While Vancouver’s condo market has cooled considerably from where it was a year ago, it’s still the priciest place one could choose to own a home in Canada. Condos in Toronto on the other hand, have gone up 10.5% from where they stood a year ago, and the market shows no signs of slowing.
Mr. Carney went on to say that some policies have already been changed, when regulators making it tougher for people to get home equity loans, and when Finance Minister Jim Flaherty tightened mortgage rules three times since the financial crisis hit.
The governor also nodded once again towards the fact that the Canadian economy is doing much better, and is almost back to what it was before the recession hit. That, combined with the fact that our household debt continues to rise, does mean that the Bank may have to raise interest rates once again, and Mr. Carney said so once again on Saturday. “It’s in this environment that given the fact that rates are exceptionally low, there’s considerable monetary policy stimulus, that we have signalled that if this continues, in light of this situation, some modest withdrawal of that considerable monetary stimulus may become appropriate.”
He also said that the Bank wouldn’t take the decision lightly, “But obviously that’s a decision we weigh carefully against how things evolve here in Canada, and more importantly, how things evolve globally because there are big global risks.”
But should overvaluation concern those currently looking to buy a condo? Or should they rush to get one now before those interest rates do rise? Truthfully, the market will continue to be hot, especially in major cities, as long as interest rates stay low. But when those interest rates rise, and they will rise, condo sales – along with everything else – is sure to decrease slightly. But with a “modest withdrawal” of low interest rates will cool the markets, it will also be gradual – and so, still won’t cause any bubble to burst.
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