Credit Junky Nightmare – Credit Cycles Effect on Housing Market (Part 2 of 3) May 14, 2008
Posted by radley77 in Calgary real estate, mortgages, supply and demand.Tags: Calgary real estate, credit markets
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Changing credit conditions impacts the demand for real estate. If credit lending practices are loosened, it allows new participants to purchase real estate. The increased demand for real estate creates upward price pressure until the demand can be satiated.
Likewise, if credit lending practices are tightened, less participants can purchase real estate which reduces demand for real estate.
So how have credit conditions in Canada changed over the past couple years?
The following is a timeline of roll-outs of new CMHC products which demonstrates the rapid loosening of credit that occurred in 2006 through mid 2007:
- February 2006: CMHC to insure 30 year mortgages on a pilot basis
- June 2006: CMHC introduces 35 year mortgage and interest-only mortgage insurance
- December 2006: CMHC introduces insurance for 40 year mortgages
- September 2007: CMHC offers insurance for 100% financed investment properties
Recently, due to the turmoil in credit markets, the amount of subprime mortgages funded in Canada has dropped substantially. As an example, Xceed’s (Canadian subprime lender) funded mortgages have plummeted from $340.0 million to $65.7 million. This one lender has resulted in a quarter billion less financing for real estate in Canada over the same reporting period last year. Tightened lending standards helps explain why YoY sales volumes are down considerably.
In summary, credit conditions affect the demand for real estate, so it is prudent to pay attention to how it impacts the supply/demand balance.
Ok, I am very confused. Some are saying this is the best buyers market in years. Others say the bubble will really burst at the end of the year. I am not a market specialist by any means, just looking to buy a house for my family. So, to buy or not to buy? Also, how is the renting market right now?
Good to have you back Radley.
Bonita. The simple answer to your question is to WAIT!
You sound unsure of buying a property. Why enter into a lifetime of debt if you’re not sure about the direction of the market.
The longer you wait, the more you’ll save.
I though you ran off and passed out under a rock.. No new posts for like a month and a half.. and I checked back almost every day
I noticed there’s a significant change of tone in this article. Radley bought a house, so I don’t imagine he’ll be posting too many more bearish housing articles. It’s sad because this is the best blog I’ve found on the subject.
Funny how owning a house can influence your perception of what the market is going to do. I personally am hoping for a 20-30% decline in Calgary; I just don’t pull a $120,000 salary that’s needed to carry a 1300 sq/ft bungalow’s mortgage.