Housing Market Frenzy during a Pandemic?
Yesterday we went to renew our mortgage and found out that the paperwork from the bank had taken almost six weeks to process because there is such a backlog right now. This is because, in Canada, the housing market is going absolutely nuts! Prices are rising, even though so many people are unemployed, which seems counter-intuitive. There are frequently bidding wars happening for properties around Vancouver.
Why is this happening? It’s because the mortgage rates have been slashed to an all-time low, so many young families have been able to afford a mortgage for the first time ever. It reminds of back in 2008, just before the great housing market crash in the U.S. caused a North American recession. This leads me to worry about what will happen when this pandemic is over and interest rates return to pre-pandemic levels. Will many people default on their mortgages because their monthly payments go up to an unmanageable amount?
This is more likely to happen if they have a variable rate mortgage, so it’s much better to get a fixed-rate right mortgage now with the longest term possible. These are harder to come by though, because the banks are only willing slash their rates as long as the Bank of Canada rate stays low. I am guessing that as soon as everyone is vaccinated and back to work, mortgage rates will go up significantly.
Rich people problems you say? Not entirely. Many young people have just entered the market for the first time with a five percent down payment and monthly payments that cost less than renting. These are the folks (my children’s age) who I am worried about. I encouraged my stepson to get in on the action, but now I am thinking maybe he could not afford the post-pandemic payments.
It will be interesting to see what happens. I follow the real estate market purely out of interest. I don’t usually blog about economic matters, but this current trend caught my attention. Do you know anyone who has just bought their first home? Is this trend happening in the U.S. as well? Please share any thoughts.
