Update On The Canadian Real Estate Market
In the past year, residential sales have shown signs of slowing down and a rise of non-residential, mixed use, and commercial investment opportunities. For real estate in Toronto, great news came in from the city’s real estate board, reporting that home sales went up 11.5% last month compared to last year. For real estate in Vancouver, however, the drop in sales is steep, as it has plummeted by 38.8% percent in the same time period. This is after Vancouver saw their prices rise because of market speculation and foreign investment. With concern that these are signs of the housing bubble bursting as the Finance Minister has recently announced stricter rules for mortgage lenders and foreign buyers in an effort to stabilize the housing markets. The Canada Mortgage and Housing Corporation (CMHC) recently reported that the two cities, as well as Quebec City and Hamilton, were flagged as overvalued; five other cities, including Montreal and Calgary, have been labeled with caution of also reaching overvalue. It has brought cause for concern similar to the American housing market a decade ago with peaked and blew up.
The new restrictions implemented attacked three issues seen in Vancouver’s rise and fall. The plan claims it will improve tax fairness, introduce risk sharing for lenders, and restrain house price inflation in Toronto and Vancouver. Speculators, particularly for foreign countries, have previously avoided being taxed on their gains and the new rules force them to report it on their tax returns. The government is ensuring these rules allow a capital gains tax exemption only by homeowners selling a primary residence, not part-time residents. Some have gone far as saying Vancouver is the center of money laundering for homes. First-time homebuyers have been approved of a loan with very low interest rates and the government now is forcing insured mortgages to be tested against the five-year rate. Based on this new rule, the approval rate will drop to about 20%.
The good news is that the Canadian market will stabilize and not have a hard landing as the American market did, according to Moody Analysts (who are being sued by the U.S. Justice Department for inflating the value of mortgage-backed securities up the crisis in 2008). Canada had maintained a healthy baking system when the Great Recession took place and are learning what the Americans did to crash so they will not have to. Both Toronto and Vancouver are expected to pull back from speculation and the decline is to moderate rather than heavy. In fact, with decline in Vancouver, housing turns into a buyer’s market and was named as the top investment, development, and housing market in the country. Canada’s recently new government is quickly tackling the problem before it gets worse and prevent any catastrophe that is a repeat of ten years ago, and, despite concern in Canada’s economy, the Canadian real estate market will continue to attract high levels of domestic and foreign investment.