The Canadian housing market and economy hanging in the balance

Mortgage Professionals Canada economist provides views on evolving conditions in the housing market and the implications for the mortgage market

TORONTO, June 28, 2016 /CNW/ - Mortgage Professionals Canada Chief Economist Will Dunning, in a report released today, cautioned against further tightening of mortgage lending conditions in Canada, which would significantly reduce housing activity. He said housing activity is a primary driver of the Canadian economy and any adjustments to mortgage lending that takes people out of the market could have severe adverse effects. Dunning discusses this delicate balance and other findings about the climate of the housing market in his new report, Looking for Balance in the Canadian Housing and Mortgage Markets.

For the past few years, Canadians have been waiting for the housing "bubble" to burst; however, Dunning explains that to the contrary, there is insufficient proof that a bubble exists. For one, statistical research shows that growth of house prices has very little influence on market activity and, therefore, there is no evidence of a "speculative mindset".

Secondly, low interest rates have created "affordability space" in which Canadian house prices could rise. Rather than illustrating that housing market bubbles have been created, this data shows that housing markets in Canada are very good at incorporating fundamental economic conditions, as well as other local conditions.

"Economic fundamentals can change," says Dunning. "One of those fundamentals is availability of finance. There is a risk that changes in policies of lenders or mortgage insurers that reduce access to mortgages could cause an unnecessary drop in housing demand and housing prices, and bring consequent economic damage."  

In light of widespread calls for further tightening of mortgage lending conditions in Canada to address what is considered to be excessive risk, Dunning points out that, based on available data, there is no evidence of an increase in risk by borrowers or lenders. Policy changes made by mortgage insurers or lenders are a much greater risk to the housing market and would make it harder to finance home purchases.

"Now that the energy sector is no longer a major economic driver, a healthy housing sector is even more essential," says Dunning. "It would be tragic to unnecessarily impair this key economic force. Such errors have the potential to cause a sharp downward adjustment of prices." 

Economic confidence is what most influences purchasing decisions by future homeowners as discussed in The Next Generation of Homebuyers, the latest Spring Survey by Mortgage Professionals Canada. Most of these Next Gens feel that Canadian real estate is a good long-term investment and 72 per cent view having a mortgage as good debt, as long as they see Canada is on a strong economic footing.

Canadian Housing Market Findings

  • Job growth has been the predominant driver of housing activity, but record-low interest rates make this an unusual time as interest rates have greater influence
  • Canada currently has a "sellers' market" where there is a strong demand for housing and a flat supply
  • During the past five years, the average resale price in Canada (as reported by the Canadian Real Estate Association) has increased by an average of 6.4% per year
  • When housing affordability is calculated using the actual interest rates that can be obtained in the market, conditions are excellent across the country (even in spite of higher house prices), which has bolstered demand. A non-trivial rise in interest rates that is sustained for more than a few months could push mortgage costs to unaffordable levels and sharply limit housing activity
  • The recent strength of housing indicators is largely centred in two major markets:  Vancouver and Toronto, and their surrounding areas
  • Anecdotal evidence suggests that, in Vancouver, activity by foreign investors is distorting the housing market; observers are now starting to question if a similar effect is developing in Toronto

For Will Dunning's full report of Looking for Balance in the Canadian Housing and Mortgage Markets, click here.

For a full copy of The Next Generation of Homebuyers, click here.

For an infographic depicting Canada's Next Generation of Homebuyers, click here.

About Mortgage Professionals Canada
Mortgage Professionals Canada (formerly CAAMP) is Canada's national mortgage broker channel association representing more than 11,000 members from coast to coast. We recognize that Canadians need and deserve more. We believe in competition as it produces better options and demands ever-improving service and products. We believe in choice as it benefits Canadians and delivers an environment of opportunity. We believe in professionalism as it demonstrates commitment, trust and excellence. The mortgage broker channel is a critical and valuable profession. It creates possibility, fuels the economy and provides Canadians with choice when making among the most important financial decisions of their lives.

SOURCE Mortgage Professionals Canada

For further information: Will Dunning, Chief Economist, Mortgage Professionals Canada, O: 416-236-5115,; Karolina Olechnowicz, Senior Consultant, Media Profile, O: 416-342-1822,

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