The housing market around the country is surging, especially in Toronto and Vancouver, where the real estate markets are increasing by double, and sometimes triple digit, numbers. Of course, this can only go on for so long before there is a problem, especially if people who cannot afford a mortgage rate increase begin to fall behind.
This is why the top banks in Canada are urging the federal government to put restrictions on who can get a mortgage in order to help slow the rise in house prices.
The heads of the six largest banks in Canada are worried that the same sort of bubble burst that happened in the United States in 2008 could happen later this year if things are not done now. Currently, the average home price is $337,410, which is 19 percent higher than it was in the previous year and that figure continues to grow. While Toronto and Vancouver were the first to begin surging ahead, the rest of the country is quickly following suit and that means home prices are going to increase.
Come June, the .25 percent prime interest rate is going to increase, probably by quite a bit, and that is going to put added strain on individuals with mortgages they can barely afford right now. This has many banks worried about a potential meltdown.
It would seem that the government agrees with the banks but is being slow to act because the Canadian housing market is actually causing the rest of the economy to improve right now. Finance Minister Jim Flaherty said that there should be tougher rules in place for how much down a person can put for a home, and how long their mortgage term can be. It is expected at some point this year the minimum a person can put down on a home will be 10 percent, up from five percent currently. As well, the length of term for a mortgage will go down to 35 years.
Until June, the housing market will continue to improve and grow and that means a lot of people will be getting homes. Hopefully, the people who are getting homes can afford them and do not have to worry about the increase in interest rates. Only time will tell whether or not this current housing market surge will continue, or if a US-style meltdown is going to happen come July.
