OTTAWA — With interest rates at historic lows, the housing market is booming and that’s raising concerns a housing bubble is emerging that might burst when rates rise again.
But some of Canada’s leading economists and the Canada Mortgage and Housing Corporation predict 2010 will be a growth year as buyers return to the market and rates rise slowly.
“The rate increases will be there, but the affordability of housing is very favourable because we’ve not had those big jumps in house prices in Canada,” said Warren Jestin, chief economist for Scotiabank.
Mark Carney, the governor of the Bank of Canada, has all but promised to keep interest rates at 0.25% until June 2010, but Don Drummond, chief economist for the Toronto-Dominion Bank, says it’s more likely they’ll stay that low until the fall.
“I think they’re afraid of pulling the trigger too fast and tipping us back into a double-dip recession,” said Drummond.
“The monetary authorities often talk about 1937 when there were some glimmers of hope in the economy and the central banks tightened it up and killed it off temporarily.”
The average price for a resale home in Canada rose about 10% a year from 2004 until 2008, when prices fell 0.7%. This year they rose by about 3% and CMHC predicts they’ll rise 3.7% next year to $324,500. The national average price in 2004 was $225,678.
The cause of rising house prices in the past few months has been attributed, in part, to increased demand that hasn’t been met by the number of homes up for sale. Economists say when more houses come on the market it should help flatten out prices.
Economists also say buyers are driving up prices by rushing to buy now so they can take advantage of low interest rates, but that should also cool a bit when rates begin to rise.
As such, Carney has warned Canadians against taking on debts at variable rates that would be unmanageable in a few years time. The last time rates went up, for example, they jumped to 4.5% in July 2007 from 2.0% in September 2004.
“The advice I give to my children is if you can afford the long-term interest rate, lock in and you’ll be safe,” said Jack Carr, an economist with the University of Toronto.
peter.zimonjic@sunmedia.ca
