If it seems like Canada's housing market bounces back and forth from doom and gloom to optimism and sunshine faster than a mortgage application can be submitted, it's likely because it makes for better headlines than the truth: The market is cooling, but it's heading for a soft landing, not a crash. Mortgage rates remain near all-time lows, making it more affordable than ever for consumers to take the plunge into homeownership. Meanwhile, property prices continue to remain high.
New home prices rise in March
According to data from Statistics Canada, new home prices increased 0.1 percent overall during March on a month-over-month basis. Most of this positive activity is being attributed to Calgary, where Canada's oil industry is giving workers the means for homeownership. The new housing price index shows that prices in Calgary rose 0.3 percent from February to March. Meanwhile, the Toronto-Oshawa region saw an increase of 0.1 percent following a flat rate in February. Regina, Saskatoon and Windsor are also reported to have experienced large price hikes during the same time period. In fact, while prices rose in nine cities, only three saw a decline, including Vancouver, where new home prices fell 0.2 percent from the previous month. Meanwhile, prices stayed unchanged in nine cities during this time period.
On a year-over-year basis, new home prices in Canada increased by 2 percent during March. While this marks a decline from February, when new home prices rose 2.1 percent on a year-over-year basis, it still represents a considerable increase.
Unfortunately, it's not all good news for the residential real estate market, as data shows that housing starts fell during April.
New home construction declines
According to the Canada Mortgage and Housing Corporation, housing starts fell from March to April, mostly due to declines in Ontario condominium construction.
On a seasonally adjusted annual basis, housing starts reached 174,858 units during April. This marks a decline from 181,146 during March. While this certainly represents a decrease, it's actually in line with what industry experts forecasted when polled by Reuters.
"The new home construction sector is experiencing a soft landing, such that the pace of new projects is now in line with demographic need and economic fundamentals," said Sonya Gulati, economist at Toronto-Dominion Bank. "We expect the slower pace to continue, allowing inventory overhang from previous years to gradually deplete."
The decrease in housing activity is being attributed, at least partly, to mortgage tightening rules put in place by Finance Minister Jim Flaherty. The most recent set of rules, enacted in July 2012, shortened the maximum amortization rate for a government-insured mortgage, making it more difficult for prospective homebuyers to obtain home loans. This marked the fourth rule change in as many years.
While many in the industry were, and still are, less than pleased with the restrictions, Flaherty said that the rules were intended to prevent Canadians from taking on debt they couldn't afford, leading to an unstable market and, eventually, a housing crash.
Mortgage calculators can help prevent debt
Regardless of how individuals feel about Flaherty's mortgage restrictions, most Canadians would probably agree that preventing unnecessary debt is a good thing. However, one way that individuals can do this when shopping for a home loan is by utilizing an online mortgage calculator. Mortgage calculators allow consumers to compare and contrast loans, calculating exact expenses based on mortgage amounts, interest rates, amortization periods and other pertinent information. They're a great way for homebuyers to weigh their options and make a more informed decision before singing on the dotted line.