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Factors Affecting the Price of Real Estate in Canada

Factors Affecting the Price of Real Estate in Canada

By

David Doe
*

Published in

Real Estate
*

10 Dec 2021


Due to increased demand for homes and property, real estate in Canada has gained a lot of traction in recent years. Many factors, however, have an impact on this market. As a result, describing this market is difficult !

There are numerous factors that influence the home price of real estate in Canada, including demand, government restrictions, mortgage interest rates, and availability. Let's have a closer look at them. This is something that both buyers and sellers are affected by. For the past few decades, the Canadian real estate market has been booming. This is what has attracted a large number of investors to this industry. It has also aided in the massive expansion of the Canadian economy. Let's take a look at the major factors influencing the real estate market !

Value of the Canadian Dollar

Value of the Canadian Dollar

The weakening of the Canadian dollar can have either a positive or negative impact on this market. Some argue that Canadians can save a significant amount of money by minimizing their travel expenses when purchasing a home. That is only applicable to Canadians. It's important to remember that non-residents own the majority of the country's real estate. The majority of them benefit from the local currency's downward trend. When the Canadian dollar is strong, house prices are extremely high !

interests rates

The Interest Rates of the Federal Reserve

The interest rates of the American and Canadian central banks differ. The rate set by the Federal Reserve in the United States, on the other hand, has a significant impact on mortgage rates in Canada. The majority of Canadian mortgage lenders are known for following global bond rates set in New York. Homebuyers are constantly on the lookout for low-interest rates. If you charge them a high fee, they will prefer to invest the same amount of money in safe bonds. Because the Federal Reserve has already raised interest rates, mortgage rates are expected to be a little higher in the coming years. It has a great impact on the rising prices in real estate in Canada !

Canadian Economy

Canadian Economy

As winter approaches, the real estate market tends to slow down. The state of the Canadian economy as a whole can have a significant impact on home prices. If Canadians believe real estate prices will continue to rise, a small inc in interest rates will not deter them from purchasing a family home. However, rising rates combined with a weakening Canadian economy may reduce the total number of domestic buyers, putting downward pressure on the market !

Analysts are weighing resurgence in oil and gas, rising manufacturing, and a weaker loony against concerns about trade in a Donald Trump-dominated North America, and their predictions for the Canadian economy have been all over the place. Last week, the Centre for Economics and Business Research in the United Kingdom predicted that Canadian growth would slow to 2% as the country's economy fell from 10th to 12th place, behind Indonesia and South Korea !

International Buyers

International Buyers

As the Chinese currency depreciates, China has attempted to crack down on money-laundering techniques, but millions of Chinese continue to look for good foreign investments, including Canadian real estate. (Reuters) The "foreign investor" was named Canada's business newsmaker of the year by the Canadian Press news agency. While many have dismissed the impact of foreign buyers on the domestic real estate market, there is no doubt that a sudden drop in foreign buyers, particularly from China, could cause house prices in Canada to slow !

The sheer size of the Chinese investment is significant. As the Chinese currency depreciates, millions of middle-class investors are looking for safe havens for their money. The Chinese government has so far been unable to stop the flow of money out of the country, but that may change in the future !

Construction

Construction

Although construction workers are building more real estate, the CMHC is keeping a close eye on whether new construction is keeping up with demand. (It was once said that land prices would never fall because "they ain't making' any more of it.") That is no longer strictly true now that high-rise condos are a major part of the real estate market, rather than just suburban building lots !

There hasn't been a shortage of real estate developments in Canada's most expensive cities so far. There hasn't been a shortage of buyers for newly built apartments. The Canada Mortgage and Housing Corporation, as well as real estate analysts, will be watching to see if construction and potential buyers remain in balance !

Demand

Demand

Another factor that affects interest rates is inflation. Low interest rates result in a surge in demand. Low-interest loans are appealing to consumers. During certain periods, demographics have an impact on demand. For example, older generations, such as the baby boomers, are expected to remain in their homes for a long time. In the future, young people and immigrants will continue to fuel the market. Rising demand is one of the most important factors due to which real estate prices are rising in Canada !

migration to cities

Migration To Cities

The housing market in Toronto is primarily supported by immigrants. Every year, approximately 75,000 immigrants are estimated to arrive in this city. Over the last two decades, there has been a rapid increase in population. As a result, there is a lot of demand in the housing market. High market demand can easily and quickly skew housing prices. Even as population growth continues, the federal government is attempting to moderate it by enacting new regulations. Demand has a significant impact on home prices. When there are a lot of new home buyers, demand will be very high !

Regulation By Government

Regulation By Government

Premier Christy Clark increased taxes on foreign homebuyers, but critics argue that a new provincial loan to assist first-time homebuyers will boost demand. The way governments react to changes in real estate prices is a wild card in the housing market. Governments are willing to intervene when they are blamed for unaffordable prices, regardless of how strong their stated commitment to market forces is, as we've seen at both the federal and provincial levels !

Final Thoughts

So, these are all the factors that influence home prices, but the problem is that a sudden change in rules, such as Canada's foreign buyer tax, can cause equally sudden distortions in the expected path of house prices. If prices start to fall, governments will inevitably be concerned about the impact on the broader economy, where real estate has become a reliable source of jobs and growth !

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