Canada's Astronomical Housing Prices | Refresh Financial

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Canada’s Astronomical Housing Prices: Could a Bubble Burst Be In The Future?

bubbleRecently, we discussed the fact that half of Canadians are just $200 per month away from not being able to meet their expenses. We also know that interest rates in Canada have remained relatively low for the past few years. Because credit is so accessible with such low rates, more and more Canadians have huge debts looming over them. One slight change in income or expenses could see them having to foreclose on their homes, default on credit and bills, and declare bankruptcy.

This current state of affairs in Canada makes you wonder - what would happen if interest rates rose?

Enter the great Bubble Burst everyone’s always talking about. Imagine you’re just a few bucks away from not being able to make your mortgage payment. Now, imagine interest rates rose and you can’t make your mortgage payment anymore without cutting out something else equally as necessary. Now, imagine the very same thing happening to half of all Canadians.

Many home sales would be the result of foreclosures and the market would be saturated with homeowners desperate to sell. Prices would drop, with huge losses taken on home sales. The housing bubble would be burst wide open and many of us would have to start all over again, perhaps with a fresh, new bankruptcy on our credit reports.

While there are other causes of housing bubbles bursting, such as recession and market slow-down due to new government measures, these don’t seem as likely as an increase in interest rates. Interest rates have remained relatively low for a while now in Canada and a slight rise in the near future is not impossible. Canada’s economy is relatively healthy and shows very little signs of slowing down enough to cause a recession. The newest government measure in Vancouver has slowed the market a little bit, but not enough to cause a bubble to burst. Housing prices on the West Coast are still astronomical and out of reach of ordinary Canadians.

What we have to pay most attention to are rising interest rates. A higher interest rate could pull the bottom out from many of us. If you already own your own home and you’re one of the many Canadians living $200 away from not being able to pay your bills, this is definitely something to be aware of. It might be worth finding somewhere to live that doesn't eat so far into your budget, and give yourself some breathing room, just in case interest rates rise, your other expenses rise, or something else unforeseen happens.

However, there is one upside to a bubble burst in Canada's housing market. If you’re looking for a home and struggling to find one you can afford in this insane market, a bubble burst could work in your favour. It could enable you to get into a beautiful home at a low price.

As far as likelihood of a bubble burst happening, despite all these reasons, we don’t believe there’s much of a chance of that happening. The downside to living in a country with a high quality of life and beautiful surroundings, is that it will always be in demand. As long as the demand for housing exceeds the supply of homes on the market, we will continue to see blindingly high home prices.

Do you think the housing bubble will burst? Let us know in the comments!

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