New government Policies and Borrowing Costs Stunt Turnover in Canada’s Housing Market
According to the polls, all new government policies, as well as borrowing costs, will stunt turnover in Canada’s housing market. Any increase will be a sharp slowdown from the 8.5% increase, which were made in 2017. The soaring rates stocked record levels of the household debt as compared to the income, however it also supported the overall economic growth. Since 2007 to 2009 financial crisis has impacted the strength of the market and consumer debt has swelled. The borrowers have already borne 3 interest rate hikes from the BOC (Bank of Canada) with the Central bank expected to double for this year as well.
In addition, tighter mortgage lending rules, borrowing costs introduced at the start of the year have significantly dampened house resales. In the meantime, BC (British Columbia) the home to Canada’s most expensive real estate market, announced in previous months that it would crack down on property speculators by the expansion of its foreign buyer tax and have introduced a new speculation tax.
The rising interest rates along with tighter regulation have led to a significant increase in the uncertainty in the market that will weigh on the purchasing intentions, a TD economist said. In addition, the cost of transactions has increased directly in some of the markets such as B.C. and Ontario. It has further dampened the appetite to sell or buy properties.
According to real estate professionals, whenever the interest rates rise, it means that the economy is performing well, people are making money and are likely to purchase a home so they don’t need to panic. Canada’s economy had a strong growth in the year 2017 and is expected to expand further to 2.2% in 2018. It is supported by the unemployment rate holding below 6% until July 2019. With fewer homes coming to the market means that the rates are now expected to rise 2.5% nationally this year. It is faster than the 1.9% predicted in the polls in December. The next year it will rise 2.8% and then climb further to 3.2% in 2020.
The Toronto price gained expectations have barely changed since the December with the increase in the forecast at 2.1% this year and 3% next. Whereas in Vancouver where the increases touched an annual rate of over 30% last year, the housing prices will increase up to 6% in 2018 and 3.1% in 2019. When asked to give a rating of the house prices on a scale of 0 to 100, where 1 is extremely cheap and 10 is expensive, the median answer for Vancouver was 9.
Apart from that, as of January 1, most of the Canadians who are planning to purchase a home with a down payment of 20% or more will face a stress test which will ensure they would be able to resist the higher interest rates. It’s a measure which is already in place for house buyers with less down payments, for those who require mortgage insurance.