Is Guelph and surrounding area in a housing bubble?
The general definition we use to describe a housing bubble is two to three consecutive years of unsustainable price appreciation. Unsustainable price growth would include a 10% or more price increase year-over-year. According to The Guelph and District Realtor’s Association (GDAR) as of September 9, 2016 the average sale price of a home has increased by 11%, homes in Centre Wellington have increased by 8% and homes in the Puslinch/Eramosa rose by 28% (which could be an anomaly given that this area is now moving towards more executive-style homes which speaks to the migration from Toronto).
Canada Market and Housing Corporation (CMHC) forecasted correctly that we have had stronger than expected demand in the area, which if you’re selling your home is a good thing! Also interest rates have been historically low in Canada for an extended period which is driving home price appreciation and affordability. The combination of the area’s low unemployment rate and diversity in the economy means people feel confident in purchasing a home because they have a job.
CHMC forecasts growth for the rest of the year to be more moderate, but we’re not in a housing bubble (yet).
What happens if I don’t live in this area?
Nationally the housing market has strong variation between provinces. Communities that have good net migration and employment will have the strongest housing markets and price appreciation. With Guelph’s proximity to an often unaffordable Toronto market, migration has been on the increase in the area driving growth.
Most local real estate boards have excellent market information. A The Mortgage Centre, we also have access to Canada Housing Market’s (CMHC’s) latest housing reports in key census areas across Canada. Because we primarily work on a referral-only business model, we aim to support our clients with any of their housing questions. Please call or email me and I can help you decipher specific information to help you make good decisions with your mortgage financing and a possible move.
Are we generally over-leveraged?
The standard calculation used by the industry is no more than 40% of one’s gross income can go towards paying your debts. Your employment status will drive what you can afford. Statistics Canada reports for August that there was a rebound in the employment rate after a drop in July numbers. However, nationally the unemployment rate crept up to 7% overall. Guelph’s employment rate however will grow by 5% in 2016 and then by 3.2% in 2017. Stronger employment in the area will support housing demand. Guelph and the surrounding area has consistently had strong job growth because of the diversity of the economy and our designation as a “place-to-grow” under the provincial governments Places- to- Grow Act.
With more net migration from Toronto, buyers consider lower house prices as a good trade-off to a longer commute.
What’s happening in with mortgage rates?
Of course the most commonly asked question is where are rates headed and should we choose a variable or fixed rate mortgage? CMHC and many bank economists are forecasting a slight increase in rates of approximately .5% for 2017. Keep in mind that when qualifying for the a variable rate mortgage or one to four year fixed term, government regulators require all mortgages to be qualified under the Bank of Canada posted rate which is 4.74% (which is just over 2% of where rates currently are). In that case rates would need to go up by 2% to have a significant impact on the housing market.
The majority of the people moving today or renewing and refinancing their mortgage review their budgets to determine the best monthly carrying cost. If you haven’t completed this, please contact us to schedule an appointment.
The likelihood of a significant rate increase is low, and given the tight regulatory requirements imposed by lenders we forecast little impact of rates in the housing market.
What to do next?
Planning is key and to do what’s right for your financial situation. If you’re not coming it see us at The Mortgage Centre, ask your banker what is driving their recommendation? Often time’s bankers have to sell products versus understanding what’s best for their clients.
We’ve helped thousands of people with their mortgage financing and we are professionals who make recommendations in the interest of our clients. That experience counts when you’re negotiating often the largest debt that you may have.