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Help understanding housing prices

**Originally posted in the forums by Jleslie in Nov. 2006**

I’m trying to find answers to something that’s been bothering me lately. I am by no means an economist, and I hope these thoughts don’t seem too silly so here goes:

My questions are about housing prices and how banks effect them. I was born and raised in the Canadian province of Saskatchewan. The price of a normal starter house in Saskatoon when I left was probably around 120,000 USD. The neighboring province of Alberta was probably double or even triple that. It would be even higher in a city like Vancouver, or Toronto. I have recently moved to the UK (London) and prices here are at least double again. I’m afraid I don’t have exact figures, they aren’t really important because I think most people would agree with me so far.

Now, to the best of my knowledge the longest mortgage available in Saskatchewan is 30 years. I believe banks in Alberta and BC offer 50 year mortgages. I’ve heard 70 years in Ontario (could be wrong), and here in the UK apparently you can get a 100 year mortgage.

This makes sense in that longer mortgages would likely be necessary in order for someone to afford to buy in the more expensive market. But, my question is, what comes first? Does the increase in value force the banks to offer these deals, or do the banks CAUSE the increases by offering these deals? I suspect that they are intertwined and it’s impossible too separate the cause and effect nature. However, either way, does this system have an end? Is there a time when the average person can no longer enter the property ladder? Is there a limit to what the banks can offer?

I hope that made sense :), and I thank everyone in advance for hints they can offer.

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