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Comparing Trends in Real Estate: Canada vs. U.S.

· real estate,Canada,housing market,Homeownership

Arming yourself with the current real estate trends will give you a foothold in the industry– especially if you plan to buy, sell, or even invest. As the United States economy continues to improve, more Americans are hoping to buy a home before interest rates rise further. Additionally, home values continue to rise, and the low supply of homes available for sale does not align with high demand. On the other end of the scale, the Canadian real estate industry has a high demand with high prices that make the market incredibly competitive. Below we compare the trends of Canadian and U.S. real estate.

Loans and Mortgages
With the high housing prices in Canada, numerous homebuyers no longer buy with cash but through a bank. Home loans are becoming increasing more popular and allow individuals with lower credit scores to purchase a home and get out of the renting cycle. In addition to mortgage loans, interest rates on Canadian real estate are increasing. This means that borrowing from the bank just got more expensive. As this trend is in no way expected to cease, buyers should be prepared to pay more for a loan and start saving up for a larger cash down payment.

Many analysts speculate that the Federal Reserve will raise interest rates at least two times throughout 2018 in the United States. Although many lenders have priced in the expected target interest rate increases, the 10-year Treasury bill is expected to rise to nearly 3 percent. Mortgage interest rates often mirror the interest (+ 2 percentage points) on the 10-year.

Some real estate experts say that banks will start to aggressively pursue new borrowers. For years after the mortgage meltdown, banks tightened their lending requirements and many borrowers could not qualify for purchase or refinance home loans. However, many banks, especially nontraditional banks, are now offering new mortgage loan products with a diverse range of options. Borrowers who could not qualify because of minor credit issues or gaps in their employment will now have options to help them purchase a new home or refinance an existing mortgage.

Good News for Buyers or Sellers?
While the prices in Canada, especially Toronto and Vancouver, are sky high, they are slowing in terms of how much they are rising month to month. This is good news for buyers in Canada. It means that while interest rates are higher, those with more higher down payments will enjoy lower prices compared to the growth seen in previous years. And when the market speeds up again they will be selling for a healthy profit.

As the supply of homes for sale continues to remain low in the United States, sellers can raise their asking prices if demand remains strong. New-home construction is low as many developers and contractors are hesitant to start any full-scale projects. The shock of the housing crash a decade ago continues to linger with some contractors.

If home values rise significantly this year, it could price many new homeowners out of the market. Analysts say that several high-cost states, such as California and New York, are at levels that many new homeowners cannot afford. The estimated rise in home values for 2018 ranges anywhere from 3.3 percent to 5.5 percent.

If new home construction remains stagnant in 2018, there could be a significant increase in home values. Some analysts believe that many of the major housing markets in the U.S. today are already overvalued. Additionally, a rising mortgage interest rate environment combined with the new tax law limiting property and mortgage tax deductions could hit homeowners in several states hard.

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