Don't be worried about the housing market, economist tells first-time buyers

76% of surveyed prospective buyers expect home prices to increase over the next five years, according to a survey released last week by Mortgage Professionals Canada where more than 1,000 non homeowners aged 18-39 were surveyed regarding their homeownership plans. Given the soaring real estate markets in Toronto and Vancouver, and home prices remaining stable elsewhere across the nation, is this expectation realistic?

Will Dunning, chief economist with Mortgage Processionals Canada, thinks so.

“It really depends on interest rates. We have a housing market that’s based on the interest rate we have, to a large extent. We’ve been hearing for the past 8 years: ‘Interest rates are going to inevitably rise.’ Well, if it does happen, and interest rates rise substantially and are sustained at a higher level, then that does change everything, it really will,” Dunning says. “I don’t personally expect that to happen, for interest rates to rise a large amount and be sustained, so I’m not anticipating a big disruption in the market.”

Some of the proposals to slow down the market in Toronto and Vancouver, such as raising the down payment amount from 5% to 10%, would adversely affect first-time home buyers across the country. If that were to take place, industry professionals say that first-time buyers will have a difficult time buying anywhere, simply because wages aren’t increasing at the same rate in order for people to save that kind of money. But the most important thing for first-time home buyers is to make sure that they don’t get a bigger mortgage than they can afford, and that the likelihood of property appreciation increases the longer that they own it.

Dunning – who recently bought a house himself – says first-time buyers now are much like first-time buyers in the past, and are pretty well-supported with their positive economic outlook.

“Interest rates are not an impediment to price growth; the question is, how strong will the market be and will the strength in the market cause prices to rise in that context. So that really depends on job creation and consumer confidence and other good things. I don’t see any huge risks in the economy – I don’t think we’re going to have a sizzling hot economy, but enough job growth to sustain housing demand, given the interest rates we have.”

Of course, nothing is certain. “We’re always wrong – economists are always wrong,” Dunning laughs.

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