I predicted last week that the market would still remain very active for the next 6-9 months. However, something has come to my attention that has affected my prediction. The banks can’t raise interest rates, we know that but what they can do is tighten up lending criteria. I’m seeing so many properties sell for 200-300k OVER the asking price and they sell firm with no conditions. IF the buyer hasn’t done their proper due diligence and assumes they can mortgage the property without a problem they may be headed for a surprise close to closing. Remember, in most case the bank puts up the majority of the money in a home purchase and they sort of become your partner in the property. If the market corrects and the value of the property drops, the buyer could walk away leaving the bank holding the bag. We have far stricter rules in Canada than the U.S. for things like this but it’s definitely possible. So, if you buy a property firm with no conditions and then a week before closing the bank appraises the property at say 100k less than what you agreed on, you’re on the hook for that 100k or the property won’t close. If the property doesn’t close you will most likely lose your deposit and the sellers of the home will have to put the home back on the market. If this happens enough it’s like a domino affect and inventory will increase rapidly.

So, in my opinion the banks are going to step in very soon to try to put a cap on all the craziness and tighten the rules – not the government.