White Hot North: Residential Real Estate Investment in Canada
Residential real estate is breaking records in Canada. In Q4’2020, he represented 9.3% of the country’s GDP.
Buying, selling and building new homes in Canada currently accounts for more of the country’s economy than in any other developed country.
There is no place like home
So why is there so much investment in building residential structures? Here are a few reasons:
- Increase in immigration to Canada
- Lower mortgage rates
- Increase in savings rates
The stable sink Immigration to Canada is an important factor in the increase in residential real estate investment. Before the pandemic, the country hosted around 300,000 newcomers per year – increasing the demand for housing, especially in urban centers like Toronto and Vancouver.
Mortgage rates are also steadily falling, making it easier to buy a home. According to the latest data for 2020, Canadian 5-year uninsured mortgage rates stood at 2.1%, compared to a sharp peak in early 2019 of 3.7%.
Additionally, some people may have become more able to afford a new home, as rising savings rates have become a widespread trend during the pandemic, which could increase demand. This, combined with increasingly flexible remote working options, is increasing real estate activity across the country.
Higher stress tests
The increased demand has caused prices to skyrocket. As it stands, if the housing bubble does not burst, prices will continue to rise and could become a major divide between those who can afford the price hike and those who cannot.
Two major Canadian cities – Vancouver and Toronto – are already among the least affordable cities in the world due to low vacancy rates and huge demand.
According to CBC, the country’s main banking regulator is proposing to raise the level of the mortgage stress test. The idea is to increase it to 5.25% or 2 percentage points above the market rate, whichever is greater. This would be an increase from the current rate of 4.79% posted by the largest lenders in Canada.
Borrowers will need to prove their ability to take out a loan at the higher rate, regardless of the lender’s ability to provide the loan at a lower rate, in order to relieve some of the pressure on house prices.