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Canada's Non-Stop Housing Boom

Jul. 17, 2017 2:29 AM ETEWC, QCAN, FCAN, HEWC5 Comments


  • June's housing builds rise as interest rates increase in July.
  • People will have to finance new homes at higher borrowing rates.
  • Government policy and market sentiment are out of line.

Canada's market has shown through June's economic data, the number of houses being built on an uptrend. Courtesy of the CMHC, 215,459 housing starts tallied for the previous month accompanied by the announcement to raise interest rates. Housing sales have been falling in markets such as Toronto, but construction has continued significantly. The increasing amount of homes being built should send some worries and could create multiple issues. Coupled with interest rate increases will make mortgages more expensive through higher borrowing costs, and housing particularly is a debt-based asset (home prices rise despite rate hike). Purchasers will be looking at paying higher prices because of borrowing costs for these newly built homes. Housing construction is essentially speculating that these homes can be purchased by individuals who are either from buying overseas (implications of foreign buyers) and people who seek to purchase a new or first home, mainly through financing. Capital gains increase on real estate is quite present and it further initiates the borrower to have to finance a longer sum and increasing rates has borrowers worried. The notion construction booming is great for builders through financing projects and selling them off at the high market prices, this could fuel potential excess supply if the demand sentiment changes (speculative euphoria), and market prices decline.

The construction boom is lucrative for financiers of real estate development during high market prices ensuring increased profits. Similarly, people look to renovate their current real-estate if they know the investment adds equity to their house. The short-sightedness of construction focuses on the prices now and not other future factors. If home prices decrease the new renovation may not have been worthwhile, mortgages if too large could render negative equity and the new amount developed could become excess supply. Also, if interest rates continue to increase further it will bring about questions regarding

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