A sober look at the Canadian real estate market:
According to investment analysts, Canadian citizens are feeling more optimistic about their financial futures than they have since 2011. Consumer confidence indexes leapt by a full five points to a resounding 99 halfway through 2012. Data collected by Nielson reflected the fact that only seven out of 58 analyzed countries enjoyed such dramatic rebounds. Ideally, such optimism would have a profoundly positive impact on the economy, launching increased spending and rising property values. Idealism, however, has no place in the property market today. Happy homeowner outlooks could potentially dig consumers into deeper debt holes because the optimism boom bares no reflection on the reality of the national economy.
Forty percent of Canadian citizens believe that property purchase is currently an excellent idea. Inflation levels are dwindling, which is responsible for much of the boom. Hourly earnings have also climbed by just over three percent. Nationally, retailers are focusing on exploiting the opportunity to claim additional market share by offering reduced prices. In Canadian minds, financial circumstances are looking bright, yet in reality, citizens are heavily weighed down by increased debt loads. Only 38% are funneling their negligible disposable incomes into debt relief. Almost half of Canada`s consumers are aware that they exist in a recession, but many of these foresee a far brighter future for the economy within the next 12 months. The perspectives of central banks are far gloomier than those of consumers. As 2013 dawned, The Bank of Canada saw a subtler outlook for the rebound. Intentions to stimulate the potential rebound have been reigned in as bonds rise and the Canadian Dollar declines. The Bank of England aims to push up rates, an action that has been avoided for three years.
Analysts such as Nielson offer little more than the personal perspectives of local consumers. A more realistic perspective of the housing market can be found from investment analysts seeking to draw a clearer picture of household debt and property sales. Price rises have begun to dwindle as the housing market finds balance. In an attempt to calm down debt loads, attempts are being made to discourage lending by increasing interest rates on loans. At the close of 2012, those in the know were in a panic about the imminent rates increases that were expected to arrive. Governor Mark Carney had been encouraging rate hikes to save unwary consumers from taking on additional debt loads. On 23 January, these expectations were analyzed again in terms of the low inflation rate and currency changes. Carney took a kinder approach to rate hikes and increases are now expected to occur only in April 2013. Some more optimistic analysts predict rate increases only in 2014.
One of the main goals of stimulus packages is the intention to keep inflation beneath two percent. The property sector is also a concern, but it appears to be balancing itself out despite continuing increases in building. The resultant rising inventories are not expected to cause dramatic imbalances in the housing sector.
Certain strategists are even interpreting the pending rate increases as prequels of future rate cuts. Carney has stated that he has not ruled out the option. The housing sector has improved slightly, which means that adjustments have become less necessary. Investment analysts predict that Canada will have experienced a full economic recovery by 2014, a slightly less optimistic vision than that communicated in 2012.
Debt to income ratios are expected to find equilibrium at the current level as consumers spend more carefully on credit. Despite these positive changes of opinion, if the housing sector rebounds, the results may negatively impact income-debt ratios in the future, which is decidedly risky for the economy. For ten years, the housing market has been working towards a boom and a growth of property credit is one of Carney`s most profound concerns. Demand for property experienced a sudden upsurge, followed by a dramatic decline in demand. Real estate professionals found themselves in a sudden market crash. In response, The Bank of Canada tried to induce a bubble by pushing interest rates down. The decline might have dire impacts on the local economy. Job loss, recession and the debt crisis happened simultaneously, pushing housing values down by as much as 22 percent. It is suspected that consumer confidence was responsible for the crisis. Inflated property offers may well have banished households into too much debt, perfectly demonstrating the power of overconfidence. National debt relief remains one of the most efficient ways to stabilize first world country housing bubbles that coincide with credit balloon.