Bubble Watch: Real Estate
I live in the
Most analysts agree that low historical interest rates have been the primary driving force for the real estate bubble. Lenders also have a lot of influence on the perceived affordability of consumers. Creative financing arrangements have been pushed through by financial lenders in the United States. Here in Canada,
A side effect is that new home owners are having less equity in their home, putting them in a dangerous position if and when the bubble bursts. Another side effect is the windfall that the CMHC, a crown corporation of the government, is experiencing because of the high demand. The CMHC is making a killing due to high volumes of mortgage insurance being sold.
To avoid buying mandatory mortgage insurance, a home owner must be able to represent home equity of at least 25%. Most new buyers are already stretching their purchases due to the high prices and often elect to use whatever money left towards furnishings and renovations rather than equity.
My contrarian streak means that I will be looking for opportunities when the current seller’s market turns into a buyer’s market. Vacancy rates are rising as more renters keep buying to fuel the last phase of the bubble. As interest rates continue to rise, the supply and demand relationship will change. Those buyers who are ‘under water’ due to depreciating prices and low equity will also have the added burdern of mortgage insurance to worry about! The moral, what you think you can afford may not really be what you should be affording!
Canadian Business: ‘Mortgage Insurance: Homebuyer Beware’ by Peter Shawn Taylor
