A housing bubble, or real estate bubble, is a run-up in housing prices fueled by demand, speculation, and exuberant spending to the point of collapse.

Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices—and the bubble bursts.

*Sourced from https://www.investopedia.com/terms/h/housing_bubble.asp

As many of you know, the last 18 months have created a lot of demand for real estate. Now that many will continue to work from home, we have seen a large number of new buyers enter the market. 

The low interest rates are a great part of today’s landscape but as they increase, which they will, does that mean we are nearing a housing bubble?

Debt

Although the definition sounds partially appropriate, parts of it, such as “exuberant spending to the point of collapse” might not fit. Consumer debt has dropped and housing debt has increased.

The goal is that your home will build equity while consumer debt is only that, debt.  We, specifically in Ottawa, have seen our housing market creep up slow and steady over the last 10 years (longer but using my time as a mortgage agent as the benchmark).  

Interest Rates and the “Stress-Test”:  

We have seen record low interest rates, here in Ottawa, which has certainly helped buyers afford their payment. But we also have something that has helped buyers afford the home they buy and that is a “qualifying rate” or also known as “Stress-Test”. 

The stress test is used for all mortgage applications and forces the buyer to qualify for their mortgage payment at least 2% higher than the contract rate they will pay.  In my opinion, that is protecting us because it minimalizes the concern that buyers are over extending their buying power. 

Over or Under Qualified: 

We don’t over-qualify our buyers. In fact, it seems as though, we under-qualify them.  You might be able to afford that $500K home using the contract rate of 2.04% (rate used as an example) however, once you add the stress test rate of today’s qualifying rate of 5.25%, you may only be approved for $400,000 house* (numbers used as an example).  

In simplier terms, we are protecting our buyers and present home owner from acquiring too much debt that they can’t repay, more specifically, when rates climb, the payment will still be affordable. 

No one loves when new rules are implemented and limits buyers from becoming home owners. That being said, I do respect the rules as they are a preventative means to aid in our economy remaining strong.  

Ottawa-An undervalued Market

In speaking with many realtors and being a home owner for almost 20 years, I also believe that homes in Ottawa and surrounding areas have been undervalued for many years. 

We are only starting to see the true values of these properties.  Another truth is we have been in a sellers’ market prior to COVID and we were already seeing homes being purchased over asking price and in multiple offers.

The current landscape has certainly kicked that into high gear but when the world finally calms and we return back to our “normal” lives, new mitigating circumstances may create further demand for homes. 

Keeping the Housing Prices High

Upon return to normal life and things such as (but not limited to) immigration resume, there will be a whole new set of home buyers entering the market.  That may keep the housing demand high and that will ultimately keep house prices high. It’s tough to say if the increase in house prices we witnessed over the last 18 months will remain steady.

Future Predictions:

No one has a crystal ball to accurately predict the future.  Undoubtedly, some markets may change faster than others and though I’m cautious to say we will remain in a sellers’ market for a long time, I feel confident to suggest that we are likely not going to see substantially decreased values anytime soon.

The housing bubble, though by definition should be ready to burst, I would be very careful about waiting for that to make your move.  No one knows what will happen – this can go either way.

Your time is now:

Ottawa’s housing market is active and if you have been waiting on the side lines to see what happens in the future. Don’t wait too long to learn your options because the question you don’t want to ask yourself is, “why did I wait so long?”.

About Erica Vincelli:

Erica Vincelli is an award-winning, licensed mortgage agent, born and raised in the beautiful city of Ottawa.

As a homeowner, real estate investor and landlord since the age of 21, she understands and has personally experienced many of the same struggles of obtaining a mortgage through the banks.

When options are not properly explained, you may get trapped in a high penalty mortgage or worse, one you can’t break free from at all. The fine print can be the most important detail and our team is here to provide clarity and do the heavy lifting for you.

Having a passion for helping people, a love for numbers and first-hand real estate experience, Erica has the confidence to negotiate for your best mortgage.

Erica and her team are determined to change the way you experience and understand your mortgage and are happy to share personal reviews from clients as proof of that commitment.

Our goal is to assist you in becoming mortgage free faster and for less money.   

Placing your trust in our team means you will be treated respectfully throughout the process along with ongoing communication and updates, all from the comforts of your home or work, with limited interruption.

After all, the most important part of this process should not be getting the mortgage but rather the excitement of owning your very own home.

* To determine your affordability, you should seek professional guidance by a licensed mortgage agent *

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