Canada's Housing Bubble

Dec 24, 2009 James Wong richmondbcrealestates.com

How interest rates affect home prices

Since the bursting of the “dot.com” bubble and the tragic event of  “9/11″, the easing of interest rates in the US and Canada had resulted in easy credit and low mortgage rates. Home prices in metro Vancouver more than double in price from 2001 to today. The housing market bounced back and recovered from a a drop around 15% in late 2007. Home prices recovered all that was lost and buyers confidence returned to the market.

The ultra-low mortgage rates attracted many buyers who might not be able to handle much higher rates when their mortgages are due for renewal.

interestchart.png

Low interest rates will not last long

The chart above clearly showed that the current ultra-low rate can only go up. Current prime rate at 2.25% when forced to increase another 2% to 3% will add a few hundred dollars more to the monthly mortgage payment to home owners who are riding on today’s low mortgage rates. If mortgage rates are at the 5% to 6% range, we could face many years of price decline. Home affordability will be significantly affected when rates jump a few per centage points.