Canadian real estate prices are still at record highs, but there has been a shift in the market that has some Canadians wondering what’s going to happen next. Let’s quickly recap on some recent happenings before we update you on the current market conditions:
- British Columbia lifts its foreign-buyer tax for those with work permits.
- The Ontario government introduces a 16-point fair housing plan that includes a foreign buyer tax and rent control, in hopes of helping people find affordable homes in the hot housing market.
- The Ontario Securities Commission claims that brokers falsified information on mortgage loan applications submitted to Canada’s biggest non-bank lender, Home Capital Group Inc.
- Multiple warnings are issued about an inflating housing bubble in Canada.
Sales slip nationwide, but prices increase
Although many of the above factors are pretty new, they appear to have affected the markets. The Canadian Real Estate Association (CREA) recently released their April sales numbers and they are trending downwards.
According to the CREA, there was a 1.7 per cent decrease in sales over the MLS system last month compared to March. The biggest decline was in the Greater Toronto area with sales slipping 6.7 per cent. Across the country, nearly two-thirds of all local markets saw a dip in sales.
Despite the drop in sales, prices increased by 10.4 per cent year-over-year with the average Canadian home selling for $559,317. This price increase may seem odd, but prices tend to take time to decrease so it’ll be interesting to see the numbers in May and June. Sellers may not see the crazy gains or bidding wars that were around just a few months ago.
What the Ontario Fair Housing Plan means for real estate?
Back in April, the Government of Ontario revealed the Ontario Fair Housing Plan. This 16-point plan was meant to cool the buyers’ market and help renters at the same time by updating laws relating to rent control. Let’s take a look at a few of the measures to see how they may have affected the markets.
15% foreign buyers’ tax
This was essentially a copy of B.C.’s tax that was introduced in the summer last year. Out west, sales and prices immediately fell, but have since rebounded. We’ll have to see if this tax has a lasting impression in Ontario.
Rent increases capped at 2.5%
By introducing rent controls, renters will now no longer be subject to large rent increases. This is great for renters, but owners may decide that being a landlord is no longer appealing since their returns may potentially lessen. As a result, many landlords may be looking to sell their units instead of leasing, which may be part of the reason why there’s been an increase in listings, but not sales. The number of newly listed homes in Canada increased by 10 per cent from March to April. In Toronto, listings increased by a whopping 33.6 per cent.
Tax on vacant homes
The housing plan also introduced legislation that, if passed, gives municipalities the ability to introduce a tax on vacant homes. The aim of this point is to clearly push owners to sell unoccupied homes or rent them out. Again, this could potentially mean more units becoming available.
Reports on the future of the housing market are troubling
According to New York-based investment bank Goldman Sachs, there’s a 30 per cent chance of a housing bust in Canada within two years. In its latest research note, Goldman Sachs blames overvalued homes and all over construction for the country’s elevated risk. Normally, Canadians wouldn’t think much about a report coming from a U.S. company, but some Canadian firms have put out similar messaging as of late.
Back in February, BMO Chief Economist Doug Porter said Toronto is already in a housing bubble. Shortly after, the Canada Mortgage and Housing Corporation said in its quarterly housing forecast that Canada’s housing markets are displaying “problematic conditions.” Even the Bank of Canada Governor Stephen Poloz issued a warning about unsustainability in Toronto.
And let’s not forget about the Home Capital Group situation which could possibly affect the markets too.
What’s more concerning is how this volatile market could affect current homeowners. In a recent Manulife survey, it was reported that 70 per cent of mortgage holders would not be able to handle a 10 per cent increase in mortgage payments as they lack the financial flexibility to adjust to rising interest rates, unexpected expenses or interruption of income. The survey also highlighted that average mortgage debt increased by 11 per cent last year to $201,000.
Government intervention may play a part in a housing correction, but it appears Canadians everywhere are starting to understand the current conditions of the housing market. No one knows if prices will ever drop, but the last thing anyone wants is to pay more for a home than they have to. So if you’re looking to buy a home, make sure the numbers make sense to you before jumping into any agreement.