Home prices across most of Canada – particularly in high-demand urban centres like Toronto & Vancouver – are continuing to climb. This is happening even though the federal government introduced legislation in October designed to cool the market.
So why does it seem that prices have gone completely the other way? Simply, prices had to climb. In a nutshell, here’s why. One of the first rules learned in economics is supply and demand. In laymen terms, the price of an object is directly related to the number of items available for sale compared to the number of interested (qualified) buyers.
For instance when there are more items for sale than there are people wanting to buy them, yet the price tends to go down. However If there are fewer items for sale and more buyers, the price tends to go up.
Given this rationale, there are three likely reasons why our housing market has continued to appreciate at such a rapid pace:
- There are too many buyers
- There aren’t enough houses
- A combination of the two
The government believes the driving force behind the consistent rise in home prices is too many people wanting to buy. They have put radical rules in place trying to restrict the numbers of buyers and, to a large degree, have been successful. So, why haven’t prices gone down? The reason is that the issue was never a problem with the buyers. There hasn’t been enough of a population spike to create the price increase and foreign investors are estimated to make up less than 2% of the total market – not nearly enough buying power to account for the type of price pressure we’re experiencing.
So, logically, if the problem isn’t buyers, the problem must be caused by of a lack of inventory. If this is the case, the next question is: Why is there a shortage? Did the number of houses decrease? Obviously not
For more information on price increasing contact Noble Mortgages @ 416-241-2227
To be continued………