OECD Tells Canada to Cool Off Housing Markets
The Organization for Economic Cooperation and Development (OECD) fears
that Canadian home sales may be ramping up to a bubble. According to the
OECD, the Canadian government needs to cool off the overheating housing
markets in Toronto and Vancouver.
Otherwise, external economic hardships coupled with favorable buying conditions could cause real estate prices to increase disproportionately, create a bubble, and then devastate the Canadian economy when it bursts.
The OECD stopped short of identifying specific methods that the Canadian government should use to cool off the housing market, but made reference to “macro-prudential” efforts Ottawa had successfully used in the past.
Most likely, this refers to an instance in December when Canada raised the down payment required to qualify for a government insured mortgage for homes valued between $500,000 and $1 million. In another instance, banks tightened their lending criteria to make sure that financing only extended to properly qualified borrowers that would be able to weather a later rise in interest rates without defaulting.
While these approaches had some positive influence, home prices in Canada have continued to skyrocket in a handful of markets. There are a shortage of listings, a growing foreign buyers’ market, and record low interest rates countering the measures enacted by the government. In fact, in Toronto, house prices have risen by 16.2% over the same month last year.
Otherwise, external economic hardships coupled with favorable buying conditions could cause real estate prices to increase disproportionately, create a bubble, and then devastate the Canadian economy when it bursts.
The OECD stopped short of identifying specific methods that the Canadian government should use to cool off the housing market, but made reference to “macro-prudential” efforts Ottawa had successfully used in the past.
Most likely, this refers to an instance in December when Canada raised the down payment required to qualify for a government insured mortgage for homes valued between $500,000 and $1 million. In another instance, banks tightened their lending criteria to make sure that financing only extended to properly qualified borrowers that would be able to weather a later rise in interest rates without defaulting.
While these approaches had some positive influence, home prices in Canada have continued to skyrocket in a handful of markets. There are a shortage of listings, a growing foreign buyers’ market, and record low interest rates countering the measures enacted by the government. In fact, in Toronto, house prices have risen by 16.2% over the same month last year.
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