Homebuyers and real estate investors alike entered the year with a sense of anticipation that they had dodged the recession bullet and the perceived loss of equity that the 'Mother of all Recessions' was going to bring about had not actually materialized.
Then there was the fact that Mark Carney and the Bank of Canada, who had lowered rates as low as they could possibly go, stated that he would keep them there until July of 2010. As the real estate market drove into the spring of 2010, it started gaining momentum, fuelled by historically low interest rates on one side and a fear that these low rates would be taken away forever on the other.
Combine this with the fact that markets in B.C. and Ontario had the pending fear of HST looming on July 1 and the 2010 spring market was one of the busiest on record. The hype around this flurry of activity resulted in the fear of a recession being replaced with the fear of a housing bubble. Headlines in the summer of 2010 now stated that the recovery was unsustainable and that a housing bubble was looming due to lack of affordability.
As we entered the fall and winter of 2010, consumers and investors braced for a drop in prices and a rise in rates, some knowing that either one could be near fatal to their investment dreams.
Yet, after raising rates three consecutive times, Mark Carney had to forego plans to continue raising rates and take a pause and like a cat with nine lives, the housing market continued its resiliency and carried on.
While all the talk about bubble markets and the lack of affordability was creating a degree of fear and anxiety in the market, there was one key fundamental that was being under-reported. In order for a bubble in the housing market to burst, it would require a spike in interest rates combined with a spike in unemployment combined with a high percentage of 'low quality mortgages.'
For the rest of the article, download a copy of our January 2011 issue.
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2010 has been a roller-coaster year of emotions for Canadian borrowers; one that has included fear, hype, anxiety and, in some cases, relief.