How The Credit Cycle Impacts Ontario and Canadian Real Estate Prices
Credit cycle can be simplified into four categories – recovery, expansion, downturn, and repair (as shown in the graph above). The cycle is based on availability of credit, and the expansion and contractions it makes. Since credit availability and income are major factors in home buying, it plays a pretty big role in the housing cycle as well.
The Bank of Canada just warned about 8% of the population will be impacted by rising interest rates.
A recession is a necessary correction of human and financial capital. During the repair phase, the reallocation begins. Households deleverage, meaning household debt decreases. Unemployment begins to drop, and credit defaults start to bottom. Interest rates are about as high as they can get, and may start getting cut. Asset prices start to make a gentle climb back higher.