April 10 2008 by Ellen Roseman
Canada’s housing boom continues to roll along. We’ve avoided the U.S. real estate bust so far. But how long can prices keep growing?
Mortgages with longer payback periods (30, 35 and 40 years) are very popular with buyers. They bring down your monthly payments and let you get into the real estate market sooner or afford a bigger, better house. Now it’s clear that the extended mortgage has extended Canada’s housing boom.
Check out this report today by the TD Bank, Canada’s Red Hot Real Estate Markets to Cool. Here’s the key part:
The rate of increase in prices has exceeded the growth in household income, with the result that national housing affordability has deteriorated significantly.
The weakening in affordability is not consistent with a continuation of the price and sales growth that was experienced in 2007.
Why didn’t real estate conditions cool sooner? in our opinion, some of the new financing arrangements may have delayed the impact.
If there’s a real estate slowdown coming soon, how will it affect those with 40-year mortgages? They’re building equity at a glacial pace — and since many start with only 5 per cent down or nothing down, they could easily end up owing more than their homes are worth.
When I expressed concerns about long-payback mortgages yesterday, my column had the highest readership of anything published at TheStar.com. And, of course, many readers had their own views of this trend to lending liberalism.