Canadians Upbeat about Real Estate Market

The percentage of Canadians predicting house prices will continue to rise in their neighborhoods was above 40% for the fifth week, according to a recent poll reported in the Financial Post. This shows consumer confidence is at its highest level for four years.

Confidence has improved due to the real estate market accelerating during the last few months, amid diminishing concerns that the Bank of Canada will put up rates anytime soon. Even though household debt is increasing, policymakers are choosing to focus on stimulating the economy. The percentage of those surveyed who believed their home value would increase over the next six months was 40.7%, and even though this is down slightly from the 42.8% recorded two weeks earlier, the figure has averaged 41.9% during the past five weeks. This is up on an average of just 37.3% over the last 12 months. The percentage of Canadians who think property prices will fall dropped to 9.7%, the lowest rate seen since January.

At the same time, the Canadian Real Estate Association released data showing home sales in April increased by 2.7% which is the fastest pace seen since last August. This was largely due to an increase in homes transactions in Toronto and Vancouver. April marked the third consecutive months of gains after a four-month decline over winter. The average price of a home sold in April increased by 0.8% compared to March, and by 7.6% compared to a year earlier. In addition, work on building new homes increased to 194,809 units in April which is a massive 24% increase compared to the previous month.

Over the past 12 months the Bank of Canada has chosen to focus less on rising household debt and more on inflation. Inflation rates haven't exceeded the 2% target set by the central bank since February 2012. But figures recently released show inflation did hit 2% in April, the biggest increase seen for two years. However this rate was anticipated. The Bank of Canada's focus on inflation rates has led to commercial banks to lower mortgage rates, even though financial regulators have tightened up mortgage rules to protect households more vulnerable to a home price correction.

Earlier this year, Canada Mortgage & Housing Agency restricted access to mortgage insurance for people purchasing a second home and increased its premiums. In addition, the federal government has shortened the maximum amortization period on mortgages. These rules are not designed to target the average homeowner, but instead have been introduced to protect more vulnerable borrowers.