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National housing markets

The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.

The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.

After struggling through another year of rising prices and lack of choice, prospective home buyers in Ontario and Alberta received some welcome news last week: the red hot real estate market is expected to cool this fall. But in British Columbia and Quebec prices are forecast to continue climbing by more than the inflation rate due to pent up demand and historically low mortgage rates. Speaking on a panel of real estate experts brought together by Century 21 Real Estate Canada Ltd. to discuss prospects for the fall market, Carl Gomez, an economist with RBC Financial Group, said while activity in Ontario and Alberta will remain healthy, it's clear that the markets in both provinces have peaked. But it's a different story in B.C. and Quebec, said Gomez. "Historically low mortgage rates have unleashed a huge wave of pent-up demand. But supply has not kept up, which means price increases in these markets will continue to run well ahead of inflation this fall." The panel, chaired by Century 21 Canada President Don Lawby, comprised Gomez, Peter Norman, Vice-President of Toronto-based Clayton Research, which specializes in real estate economics, and John Turner, Director, Channel Development, Retail Financing Products at BMO Financial Group. The discussion was webcast live to CENTURY 21 offices across Canada. Lawby said a key point made by panelists was that there is not a market bubble waiting to burst. "Activity has been strong in recent years, but it's backed by strong fundamentals." He added: "We're definitely not facing the boom and bust scenario of the early 90's in Ontario. Instead, we expect a return to more stable markets in most regions this fall as prices and sales volumes level out. See 'Homes' P.# Con't from P.# "In areas where pent up demand has not yet been satisfied, such as B.C. and Quebec, prices will continue to rise due to the shortage of suitable homes for sale, and it will be a sellers' market for at least the rest of the year." Turner said the difference between the current market and the previous boom is affordability. "The cost of carrying a mortgage as a share of pre-tax income has fallen significantly in recent years and remains well below the level experienced in the late 80's and early 90's. For example, the cost of carrying a five-year fixed-rate mortgage is currently 37.1 per cent of income, compared to the 55 to 65 per cent range at the start of the 1990's. "There is also less evidence now of the rampant speculative activity that contributed to the market correction a decade ago. All these factors lead us to believe that a soft landing for Canada's housing market is the most probable scenario." Norman said while there is still growth in the market, it is slowing and will ease further in the months ahead. "After the peak we expect lower levels of activity, but relatively stable prices. Low interest rates are fuelling affordability, but there is a risk that the exceptionally low rates - and elevated affordability - are extending this demand cycle beyond its underlying fundamentals." Buying a home in a hot market - Tips from the experts: Carl Gomez: "Regardless of market conditions, potential buyers should always be vigilant about purchasing a home. If you are a first time buyer, get pre- approved for a mortgage so you know what you can afford. Then look for a home that fits your needs (location, price etc.). Also, check to see how local market conditions are doing and check to see how comparable homes have performed when they were sold. Try not to panic or make a rash decision on an offer for a home. In most markets incidents of multiple offers are very low." Peter Norman: "Stay calm; the market is not spiralling out of control, so don't be afraid to pass over some homes if there is competition. Do your homework; make an educated decision about the underlying value of a particular home before making an offer. Watch out for profit seekers testing the upper end of the market. As always, have your finances in place, and be prepared to make as clean an offer as possible when the right home presents itself." John Turner: "Personally, I would probably choose a longer-term mortgage. With long- term rates still near historical lows, it is a great time to lock in. However, it is important for anyone considering a mortgage to determine his or her risk profile and preferred mortgage term. Take advantage of the tools offered by financial institutions. For example, at BMO Bank of Montreal we have a terrific questionnaire called the MortgageMate that will help you understand what type of mortgage is right for you. The other thing I would do is get pre- approved for a mortgage so that I know exactly how much I can afford and I have my interest rate guaranteed."