The amount Canadians owe compared with how much they earn hit a new record in the second quarter, driven in part by the country’s hot housing markets, according to new figures released Thursday by Statistics Canada. TD Bank senior economist Leslie Preston said low interest rates have made borrowing more attractive, especially for homebuyers, and predicted the debt ratio could continue to trend a little higher in the next few quarters. The ratio of household credit market debt to disposable income rose from 165.2 per cent in the first quarter of the year to 167.6 per cent in the second quarter. That means households held $1.68 in credit market debt for every dollar of disposable income, Statistics Canada said. PropertyGuys.com Lead Analyst Walter Melanson has an interesting take on the issue.
Sales of existing Canadian homes fell in August, notching the fourth straight monthly decline, the Canadian Real Estate Association said on Thursday in a report that suggested Canada’s long housing boom has begun to slow.
The industry group said sales fell 3.1 percent in August from July, the largest monthly drop in nearly two years, as a tax on foreign buyers in Vancouver sent buyers to the sidelines and doused activity in Canada’s most expensive market.
Actual sales, not seasonally adjusted, were up 10.2 percent from August 2015, while CREA’s Canadian home price index was up 14.7 percent in August compared with the year before, reflecting the blockbuster pace of activity prior to the slowdown. In a separate report, CREA also revised down its forecast for sales and prices in 2016 and 2017, suggesting Canada housing boom peaked in early 2016 and has begun to cool. CREA said the drop in sales activity in August was driven in part by a sharp decline in British Columbia as the provincial government imposed a 15 percent property transfer tax on foreign buyers of homes in Vancouver. Toronto now seems to be drawing the attention of more foreign buyers.
Canada Mortgage and Housing Corp. says the pace of housing construction slowed in August, mostly because of a decline in multi-unit projects. Across the country, the housing starts trend decreased to 195,640 units in August compared to 201,379 in July.
Alberta housing sales have continued to slump this year after falling sharply in 2015 because of the drop in oil and gas prices, a new Canada Mortgage and Housing Corp. report shows. New home construction in Calgary remained sluggish in August and the city’s rising vacancy rate is making some landlords nervous. Prices in Edmonton and Calgary in July followed the provincial pattern
But it’s not all bad news – the pace of new home construction in Ottawa increased last month. The hot housing market in the London area continued in August with new home starts keeping pace with the surging resale market. Housing starts in the St. John’s metro area trended upwards for this August as compared to July. And housing starts in Thunder Bay Census Metropolitan Area (CMA) were trending at 162 units in August, up from 145 units in July. In Regina, new housing starts are up 74 per cent in August year over year. And Hamilton saw the third highest spike in housing prices in the country in August. Hamilton (2 per cent) was one of four markets that exceeded the countrywide index, behind Toronto (2.8 per cent), Victoria (2.2 per cent) and ahead of Vancouver (1.7 per cent). Nationally, prices were up 1.5 per cent.
In other numbers news, in Canada Mortgage and Housing Corporation (CMHC)’s recently released second quarter financial results, the organization stated that during the last quarter, it generated $338 million in net income from its mortgage loan and securitization guarantee programs, which operate on a commercial basis without support from taxpayers.
Toronto and Vancouver are two of Canada’s biggest cities, and also the countries two hottest real estate markets. But according to an economist at TD Bank, the Toronto market is now out-scorching Vancouver’s. As TD Bank’s Diana Petramala says in the Globe and Mail, the average price of a home in Toronto is up 18 per cent since last year and hit record sales in August. Thanks in part to a new land-transfer tax on non-resident buyers, she notes, housing prices in Vancouver are beginning to drop a bit. And according to Stefane Marion, Montreal-based chief economist and strategist at National Bank of Canada, Vancouver’s housing market may enter a correction with price declines of at least 10 per cent.
Meanwhile, a report by Sotheby’s International Realty Canada says sales of luxury homes in Vancouver cooled in July and August, however the high-end market picked up in the Toronto area. The real estate firm says the new foreign buyer tax introduced in Vancouver in August has injected uncertainty into that city’s market, which is expected to moderate headed into the fall. The report predicts Canada’s two hottest luxury real estate markets will see “a clear divergence” in the coming months.
So, if you’re a Vancouver homeowner thinking about leaving work in the next few years, it may be time to cash in your lottery ticket (also known as your house) and trade it in for a comfortable retirement. But if you’re looking to buy in the GTA after renting, you might be in for a shocking surprise.
4.Things just keep getting crazier in British Columbia
The Canada Revenue Agency has launched a review into the actions of B.C. real estate speculators in light of a Globe and Mail report that uncovered possible tax evasion and fraud. On the weekend, the B.C. government urged the CRA to track down tax cheats and toughen up its rules after a Globe and Mail investigation showed a network of speculators flips homes for a profit and evades taxes by classifying them as principal residences even though they never lived there. In fact, several critics are joining the B.C. government in urging Ottawa to crack down on tax cheaters and toughen existing rules, after uncovering possible tax evasion and fraud by real estate speculators in Vancouver’s overpriced market. The province’s Finance Minister called on the Canada Revenue Agency Saturday to “diligently” enforce the law, indicating he will pressure his federal counterpart, Finance Minister Bill Morneau, to make improvements. Meanwhile, an in-depth review of Canada’s anti-money-laundering efforts has uncovered serious concerns that organized crime is using the country’s hot real estate sector to illegally funnel cash. The report from the Paris-based Financial Action Task Force makes special note of real estate as an area of the economy with a high risk of illicit activity, one of a few weak spots in what the report calls a comprehensive federal regime to combat money laundering and terrorist financing.
Regulators have frozen the bank account of a B.C. company and ordered two of its operators to immediately cease providing unlicensed real estate services, following the earlier suspension of two licensed B.C. realtors in related disciplinary orders. And students have poured almost $60 million into real estate in one of Vancouver’s most expensive neighbourhoods, the area’s MLA said Wednesday. A total of $57.1 million worth of housing in ritzy Point Grey was bought by people who marked down their occupation as students, according to a study of nine land title documents by B.C. NDP housing critic David Eby. The least expensive home was $1.85 million, while the priciest came in at $31.1 million.
Foreign buyers are leaving Vancouver en masse, instead heading to cities like Seattle and Toronto to invest in real estate, according to numbers provided to Global News from Chinese realty website Juwai.com. Juwai.com is “where Chinese find international property” according to their website. They claim to have over 2.4 million real estate listings across 58 countries and have for a long time, marketed Vancouver to their clientele as an attractive place to purchase homes.
British Columbia will haul in more tax revenue from the sale of homes this year than its combined revenues from the province’s historical economic foundation of mining, energy, forestry, Crown land tenures and natural gas. The first fiscal update on this year’s budget, released on Thursday by Finance Minister Mike de Jong, forecasts the property transfer tax will bring $2.2-billion into the treasury, a massive increase from the $1.2-billion predicted in the budget introduced in the spring. Direct revenues from the province’s top five resources are forecast to total $1.8-billion. The B.C. government has announced a $500 million investment to help deal with housing affordability in Metro Vancouver after forecasting a first quarter budget surplus of $1.94 billion for the 2016-17 fiscal year.
Vancouver’s new empty-homes tax, the first of its kind in Canada, will rely on homeowners to declare whether they are living in their properties or renting them out as part of an effort to battle foreign capital, absentee owners and speculation.
The vacancy tax, first floated by the city this spring as a bold solution to its overheated real estate market and the lack of rental housing, would be charged to people who leave their unit empty for a year or more when it’s not their principal residence. Vancouver’s proposal to create a vacancy tax for unoccupied homes illustrates the problem. The city is proposing to start taxing people, hoping the added cost will spur absentee owners to rent or sell. If there really are a lot of empty homes, then the flood of inventory hitting the sale and rental markets would, in theory, cool both rental and purchase prices.
The crux of the Lower Mainland housing crisis supposedly hinges on the lack of supply and an insatiable demand for land that can be developed. Municipalities insist they are hung up on a way to boost the supply of affordable housing, in part, because Metro Vancouver is so hemmed in by water, mountains and land designated for agricultural use.
5.Big time officials and everyday Canadians are getting worried
Bank of Canada Senior Deputy Governor Carolyn Wilkins warned against being too optimistic that home prices will rise, saying that residential property represents about one-third of total Canadian household assets. The housing risks represented by the red-hot Vancouver and Toronto markets might need additional measures to sufficiently address, the Canadian Finance Minister said last week in Hong Kong. But the head of the International Monetary Fund says any government moves to tackle Canada’s housing market should be targeted at specific regions like Toronto and Vancouver, rather than imposed nationally. But, proposed federal government measures to cool Canada’s hottest local housing markets could have unintended consequences of making it harder for borrowers in some parts of the country to qualify for affordable loans, mortgage industry officials warned.
Meanwhile, ordinary Canadians are increasingly worried about the real estate market, according to a Manulife survey published Wednesday, which found that nearly three-quarters of respondents believe housing in the country is unaffordable.
Eighty per cent of those polled in the survey conducted by Environics Research in May said owning a home was their primary goal, but only a quarter said they plan to buy one within the next year.
And why shouldn’t they be worried? It has long been suspected that Canadian banks were playing a less-than-honourable role in the foreign investment rush taking place in the country’s real estate market. Now, questions about precisely how they have been helping fuel the obscene rise in house prices in places such as Vancouver and Toronto have been partly answered. It would appear the Big Five banks (and likely others) have been doing this by giving foreign clients preferential treatment when it comes to qualifying for loans – a level of banking bias the likes of which Canadians have never witnessed.
Aware of these, and other, concerns surrounding the housing market – including the fact that every Canadian might soon be able to grow marijuana at home – the Canada Mortgage and Housing Corporation has launched an initiative to collect “bold and innovative ideas” from Canadians, which will allow them to help shape the nation’s housing strategy. Jean-Yves Duclos, minister of Families, Children and Social Development, has released a video on the website LetsTalkHousing.ca, inviting participation in the consultations.
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Gavin is a media relations consultant and news junkie based out of Collingwood, Ontario.