In the GTA, the demand remained extremely high during the past two years. In order to meet those demands, a huge number of condos and houses were being built. Now with the demand going drastically downward, the market will get concentrated with supply.
Toronto, Ontario (PRWEB) July 17, 2012
As new mortgage rules were introduced this year in order to cool down the red hot market, Toronto was highlighted as the most worrisome spot. This was largely due to the hot condominium market in the Greater Toronto Area. Despite the above average price in the area, the sales remained high up till now. In order to meet the rising demand, a huge number of units were built and many projects are still underway. However, Toronto Mortgage expert from Syndicate Mortgages indicates a serious danger sparked by the new mortgage rules.
While the stricter mortgage policy didn’t have an immediate impact on the mortgage rates as expected, it has greatly affected the market by reducing the number of buyers. With shorter amortization period and lenders being forced to make their criteria strict, a great number of buyers do not qualify for a mortgage. As a result, the number of buyers even in the GTA has reduced by a significant level.
Explaining the worst consequences associated with the above stated scenario, an expert analyst and mortgage broker from Syndicate Mortgages said, “In the GTA, the demand remained extremely high during the past two years. In order to meet those demands, a huge number of condos and houses were being built. Now with the demand going drastically downward, the market will get concentrated with supply. This can have a devastating effect on the economy.”
Another reason why this supply-demand issue is cited as a major threat is the price of property in the area, which remained high despite the change. According to the policy-makers, property in Toronto was already overvalued and lower mortgage rates were increasing the number of people who won’t be able to afford it in the long run. While the Toronto mortgage rates are now expected to increase sooner than expected, prices may remain unaffected.
“The phenomenon may sound strange but demand is hardly a driving force for the price. Lower prices may amplify the demand but a lower demand does not always cause a price drop. This is a fact that makes things seem even worse for the GTA,” explains one of the expert.
All these stats have lead to a slowdown of the sales in the Greater Toronto Area. On one hand prices in the region have seen a hike during the past month, while on the other, the sales have slumped consistently for the past two months. According to the statistical survey, the sales of property in GTA for April, May, June and July have been lower as compared to last year’s sales.
One noticeable point here is that the new mortgage policy became effective in July, while the sales were already slowing down months prior to the federal decision. This means the market was probably slowing down or adjusting itself on its own accord. According to the expert, this indicates that a forced intervention was not required at this stage. “It’s true GTA has remained a hot spot for a while but statistic show that it was coping with things quite well. The government, which apparently was too worried about the value and price issue, will now have to deal with a bigger more critical supply-demand problem,” said the mortgage expert at SMI.
An estimated year-over-year rise in price is expected to be around 3.2% by the end of 2012. Before the new mortgage rules were announced, it was expected to be 2.8% only. However, it is still too early to predict how long the high prices will sustain, specifically in case of higher mortgage rates.
About Syndicate Mortgages Inc.
Syndicate Mortgages Inc. is one of the leading Canadian mortgage brokerage firms. Founded in 2008 in Ontario, the company specializes in residential, commercial and construction financing across Canada. With years of experience and expertise in the mortgage industry, and access to an array of lending institutions across Canada, Syndicate is known for finding the best mortgage rates for their customers. Syndicate has branch locations across Canada.