Other than the weather, 2016 has not been particularly kind to Canada.
The Loonie is the lowest it has been in 15 years, a barrel of gas is trading for less than $30 and Canada's National Men's Junior hockey team didn't even reach the semi-finals! Compare these factors against the rising U.S. greenback and you get one gloomy economic forecast. However, there is one section of our economy that seems to be unaffected, as the real estate market is showing little signs of slowing down on a national level.
Despite the troubling forecast, don't expect any price breaks in Canada's real estate market for 2016. TREB is predicting an increase in the average price of a home to rise by nearly 10 per cent, a number skewed by big markets where demand outweighs supply like the GTA.
The Canadian housing market is coming off a truly remarkable run, and RentSeeker is here to help you prepare for the road ahead. These will be some of the biggest factors affecting the housing market in 2016 and must be considered by anyone who is currently in or thinking about entering it.
Oil Prices
Oil prices have hit lows we haven't seen in decades as the price of a barrel plummeted more than 60 per cent since June of 2014. Currently trading for less than $29 a barrel, the 'bottom of the barrel' seems more like an endless pit.
Certain oil producing countries and companies have flooded the market with a surplus of supply, driving down the cost of crude. As a result it's been a downhill slide for the Canadian energy sector that plays a huge role in the national economy.
The oil, gas and mining sector accounts for more than a quarter of the national GDP and many workers have been laid off as Canadian oil production has come screeching to a halt.
When the energy sector is in good shape, so is real estate, particularly in Western Canada. However, the market in British Columbia is soaring as house prices in Vancouver continue to skyrocket, although Alberta is definitely taking a hit after experiencing numerous years of growth.
The Low Loonie
The Canadian dollar is worth less than 70 cents U.S., a rate we haven't seen since 2003 -- a time before Netflix and when most people didn't have Internet access on their cell phone.
Furthermore, our currency has lost more value against the U.S. than other major currency, including the Pound or Yen, leading some economists to state that we're flirting with recession.
Depending on where you live in Canada, these overwhelming numbers will have a drastic affect on the housing market in your area. At this point, many economists believe the worst is still yet to come, and that may be tough to believe for those living in Western Canada.
Many companies in Canada are suffering from increased expenses and people are loosing jobs. The Toronto Star has shut down its printing plant, and Goodwill shut down 16 stores in Ontario -- two examples of companies that have experienced hard times and are cutting jobs.
When Canadians lose jobs, the real estate market suffers. We will see how the low Loonie affects the unemployment rate and which provinces will be hit the hardest.
Borrowing Costs
Mortgage rates can't get much lower! The low, low Loonie and price of oil have been major contributors to muted borrowing costs for Canadians. Mortgage rates are extremely affordable, making it easier than ever for many new home-buyers (despite the modest increase in a minimum down payment for properties over $500,000), especially in smaller markets outside the Big Three (Vancouver, Toronto, Montreal).
This CBC article states that "many economists predict Bank of Canada governor Stephen Poloz will be forced to lower the interest rate yet again because low crude prices are cutting into Canada's economic growth."
As long as borrowing money is cheap, real estate prices won't be. For those who are priced out of the housing market, while rents have also risen across the country, it is the only option for many. Apartment finders like RentSeeker.ca and classifieds like Craigslist and Kijiji are a good place to search for those looking for an apartment to rent across the country.
Foreign Investment
Foreign investment in the Canadian real estate market has always been a double-edged sword. For those who own property, increased foreign investment has been welcomed as they have seen their own property value increase. However, for the majority of Canadians who rent, foreign investment means increased real estate prices that were already unaffordable.
Many people who have lived in Vancouver for years are being driven out of the city due to over inflated real estate costs, and locals are demanding government intervention. A prime example of the double-edged sword, Dirk Meissner of the Canadian Press pointed out that the B.C. Finance Ministry could lose $1 billion in real estate sales and nearly 4,000 construction jobs if the government intervenes to minimize foreign investment activity.
For better or for worse, foreign investment is a major factor, and a low Canadian dollar makes foreign investment very attractive. Don't expect a decrease for in-demand cities like Vancouver, despite a gloomy economic outlook.
Our new prime minister inherited a difficult situation on the economic and political front, and the Liberal Party has a tough road ahead. The Liberals have traditionally not been a "finance first" organization, and the current economic situation is one of the worse we have experienced in decades.
Rona Ambrose has clearly stated her concerns that a "very new and untested" Liberal Government isn't prepared to deal with the future, but let's hope she's wrong.
Despite the rocky start to 2016, our real estate market isn't showing signs of slowing down. We'll just have to wait and see how things turn out.
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