A Pressed Cheat Sheet for:

THE CANADIAN HOUSING MARKET

Published Feb 7, 2017

~5 minute read

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Finish school, move out, get married, buy a house, have kids, then repeat for the next generation, right?

Not quite. Any millennial will tell you that plans have changed.

In Canada, more people aged 20-29 live with their parents than in any other living arrangement. 42.3% to be exact. Compare this to 1991 (around the time many millennials were born), that number was just 32.1%.

What’s going on?

It’s a combination of things, think cultural preferences, lower marriage rates, and more people opting to add letters to their name (PhD, MBA, etc.). All of this while house prices continue to rise.

The Current Situation

By the numbers:

11% – the year-over-year increase of house prices in Canada’s 11 major cities as of August 2016. That’s compared to just 5.3% the year before.

16% – price increase of an average two-story home in Canada.

$762,975 – the average cost of a home in Toronto where the average family income is just $75,270.

$1 million – how much some people in the Greater Toronto Area are paying for a home. 77% more people spent this much in 2016 vs. 2015.

The highest price rises came out of Vancouver (25.75%), Victoria (17.55%), Toronto (14.59%), and Hamilton (12.96%).

Prices fell out west in Calgary (-4.48%) and Edmonton (-0.34%) thanks to the unsteady oil industry, while Quebec City (-3.18%) also experienced a slump.

Why is this happening?

Foreign buyers: Last summer, the B.C. government introduced a 15% foreign buyers tax. The goal was to curb sales of homes to foreign buyers so that the market could cool down. It was controversial (and still is), but the numbers are in and there is no doubt that it helped. In the seven weeks that led up to the introduction of the tax, foreign buyers made up 13.2% of all sales in the region, but since the tax was introduced they make up only 1.3%. Note: some critics argue that this is because prospective buyers rushed to buy before the tax came into effect, inflating the numbers.

Limited availability: In Vancouver, one of the country’s hottest real estate markets, the number of homes available for sale dropped 24% between November 2016 and January 2017. It is basic supply and demand. The demand for homes is high but the supply is low. Sellers are demanding more money and buyers are willing to pay.

Cities are awesome: People are moving to cities in record numbers, globally. 54% of the world’s population lives in a city, and that’s supposed to rise to 67% by 2050. In Canada, over 80% of people live in an urban centre, and ICYMI, cities are expensive.

Poor regulation and shadow flipping: The real estate industry isn’t as regulated as you might think (or hope). Here’s an example: An agent makes a commission from selling a house to a “shadow buyer”, then works with that buyer to sell the same house at a higher price to a different buyer. New developments are often bought and sold multiple times before they are even built.

Low-interest rates: The interest rate set by the Bank of Canada was just 0.5% at the end of 2016, which means that borrowing money is cheap – and this includes mortgages. The Bank of Canada keeps low rates when it’s trying to help boost a struggling economy. But critics think that this could get dangerous. They believe higher interest rates could cool down the housing market before the bubble bursts.

Low Vacancy: Even though foreign buyers are notorious for leaving their investment properties unused, vacancy rates in Canada are only between 3-4%. If you want to move into a new house, then you need to convince someone else to move out. And the only way to do that is to offer them a lot of money.

Though backed by real numbers, all of the above are just speculation. People are buying houses because the prices are rising, and prices are rising because people are buying houses. Prices would have to drop by 30% to return to normal levels. 

The bottom line

In 2017, house prices in Toronto are expected to increase another 8%, and in Vancouver another 2%. The government is trying to help through initiatives like Vancouver’s foreign buyer’s tax (above), and in October 2016, they implemented new rules that make it harder for people to get mortgages; a strategy aimed at cooling down the market. But, all of this takes time.

You’ve considered waiting, renting, and buying way, way up North, but you still think buying a home in the city is best for you? Make sure you ask your realtor about all the rebates and benefits you can take advantage of. For example, if you are a first-time home buyer, you likely qualify for the Home Buyers’ Plan and in Ontario, the LTT rebate was just increased. Good luck!

– Contributed by Richard Beattie

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