Category Archives: opinion

Bank of Canada attacks housing market

The most recent interest rate hike from the Bank of Canada is seen as an attack on the Canadian housing market in this article. Provincial governments are trying to walk a fine line of supporting housing markets in their current state without prices shooting up or collapsing over the next year.

Given the enormous price gains in recent years, the market remains hyper-inflated, and the four-month downturn into a bear market hasn’t even brought prices back to the year-ago level, with the average price for all types of housing up 3%, and the condo price up 21.4% year-over-year.

To cool a similarly nutty housing bubble in Vancouver, the government of British Columbia had passed a year ago similar legislation with a 15% nonresident foreign speculator tax. But worried about an outright implosion of the bubble, it has since been subsidizing with taxpayer money down-payments aimed at first-time buyers and condos, which has inflated the condo bubble and condo speculation to new heights.

Politicians – they’re desperately dependent on extracting property taxes from homeowners – don’t want the world’s most majestic housing bubble to implode. They just want it to remain stable so that taxes can be extracted from willing homeowners that have gotten rich off years of house-price inflation. But for now, the Ontario government is letting the market ride.

Read the full article over at Business Insider.

Mortgage rules are working to cool market

Pointed out by SouthSeaCompany: Mortgage rule changes are cooling housing market: Morneau

“Finance Minister Bill Morneau says last October’s sweeping mortgage rule changes aimed at cooling Canada’s housing market have successfully dampened high-risk borrowing.”

“But despite a report urging Ottawa to look at ways of boosting support for Canadians entering the housing market, the Minister ruled out any new measures along those lines, expressing concern that such an approach would encourage higher house prices.”

Read the full article over at the Globe and Mail.

Falling interest rates drive gains

From the ‘duh’ files: falling interest rates contribute to rising home prices.

A recent study points to yet another powerful, if-often-ignored, driver of home prices — falling interest rates.

Despite the recent, small interest-rate increase by the Bank of Canada, real mortgage interest rates have fallen precipitously since 2000. In 2000, typical mortgages were obtained at an interest rate of seven per cent. Last year, they averaged 2.7 per cent — almost two-thirds lower.

What has this meant for the purchasing power of Canadians?

Interest-rate declines reduce the amount that income borrowers must spend on interest payments, which gives them greater capacity to borrow with the same amount of income. Consider that the average Canadian family income was $50,785 in 2000 (including couples and singles). With mortgage rates at seven per cent, the maximum mortgage amount this family could secure was $180,949. At 2016 rates (2.7 per cent), the same family could borrow $276,610, an increase of 53 per cent.

Read the full article here.

That foreign buyer tax

Well it’s been a year since the BC government brought in a ‘foreign buyer tax‘ in the Vancouver metro area.  How’s that affected the market?

“The public perception is that it hasn’t brought down prices and has had no effect,” said Simon Fraser University professor Josh Gordon, a political scientist in the university’s school of public policy. “But the slowdown in price increases is a positive.”

Even before the tax was implemented, Mr. Gordon said it was unlikely to have a huge impact since it was not targeting all foreign money, much of which comes in with new immigrants who are not affected by the tax.

He and others have always said that the province – or country – would need to add many more measures: more investigation into the sources of money coming into the country; more rigorous pursuit of people avoiding capital-gains tax on their real-estate transactions; a more comprehensive tax that targets people not paying income-tax in Canada.

Mr. Gordon believes that, if the lack of dramatic impact from the tax proves anything, it’s that people in Vancouver have a profound belief that the market will continue to rise.

Read the full article over at the Globe and Mail.

CMHC keeps crying ‘Wolf’

The Canadian Mortgage and Housing Corporation keeps on giving the national real estate market it’s worst possible rating. You can probably guess which cities get singled out as the most at risk:

CMHC’s valuation is part of its quarterly Housing Market Assessment, something the Crown corporation calls an early warning system, alerting Canadians to areas of concern developing in housing markets so that they may take action in a way that promotes market stability.

In terms of the 15 individual markets studied, CMHC said it saw strong evidence of overall problematic conditions in Victoria, Vancouver, Saskatoon, Hamilton and Toronto – the same five markets singled out a quarter ago.

CMHC defines problematic conditions as imbalances in the housing market that occur when overbuilding, overvaluation, overheating and price acceleration, or combinations of those issues exceed historical norms.

Read the full article here.