Squirrelers recently wrote about the paradox of low interest rates and falling housing prices in the U.S. He notes that due to the fallout from the crash and the stumbling economy, mortgage rates are among the lowest they’ve been for a long time, while house prices are also falling.
Canada, however, is a different story. Here, mortgage rates are also very low, but housing prices are still quite strong. Average prices have risen from $142, 038 in 1990 to $339,042 in 2010. That is a nominal return of 4.45%, and after adjusting for the CPI, that is a real return of ~2% per year.
Now, Canada’s economy has improved substantially since the early ’90s, but Canada also has a lot of land. Mortgage rates, on the other hand, have declined from double-digit figures to historic lows today. One can get a variable-rate mortgage for 3% or a 5-year fixed for 3.49%. This is much more affordable than the double-digit rates of yesteryear. The danger is that if rates go back, heavily-indebted Canadians could feel a lot of pain.
What are your thoughts on the Canadian housing market? How long will the party continue for?