Market Update: September 2021

Well, for better or worse, Canada will be having a federal election on September 20th.

I’ve been reading some fascinating, crazy, ridiculous, and even a few actually good ideas related to real estate that the major Canadian political parties have been proposing during this current election campaign. Before getting into this month’s monthly market report I wanted to highlight some of the brilliant ideas, specifically focused on real estate and housing, being proposed by the two leading parties: the Liberals and the Conservatives. I will try, as best as humanly possible, to be unbiased and objective.

Let’s start with the current incumbent government, the Liberal Party

You can read their plans for housing here.

They propose a new $1 billion “Rent-to-Own” program by giving loans and grants to develop and scale-up rent-to-own projects with private, not-for-profit and co-op partners.

They also plan to introduce a new tax-free First Home Savings Account to help young people afford a down payment faster. As if the current RRSP, TFSA, RESP, RDSP etc. are not enough, we have yet another new registered savings account. This will be only for Canadians under 40 years old to save up to $40,000 toward their first home, withdraw it tax-free, with no repayment requirement.

They propose to double the First-Time Home Buyers Tax Credit from the current $5,000 to $10,000.

They plan to invest $4 billion into the Housing Accelerator Fund to grow the annual housing supply in the country’s largest cities every year, creating a target of 100,000 new, middle-class homes by 2024-25. They also want to build and repair more affordable housing, and convert empty office space into housing.

They plan to ban new foreign ownership in Canadian housing for the next two years. This will apply to non-recreational residential property.

They also plan to undertake a review of the tax treatment of REITs (Real Estate Investment Trusts) who are trying to amass large portfolios of rental housing.

They also propose to ban blind bidding as part of a new Home Buyers’ Bill of Rights, which the real estate industry is already speaking out against.

Lastly, they propose a new anti-flipping tax on residential properties, requiring properties to be held at least 12 months. It seems that this applies even to principal residences. But they will exempt people being forced to sell due to changes in life circumstances such as pregnancy, death, employment, divorce, or disability. Great! More complexity in the tax system, along with more expensive, time-consuming, stressful CRA audits. Not to mention many of the home flippers out there are not huge corporations, but instead Mom and Pop style investors who are working hard to create extra wealth for themselves.

Now, let’s look at the Conservative plan.

You can read here.

They propose to build 1 million new homes in the next three years by freeing 15% of federally owned buildings for conversion to residential development and many other ideas.

They, like the Liberals, also plan to ban foreign investors not living or moving to Canada from buying homes here for a two-year period, after which they will review the policy.

They will encourage a new market in 7 to 10-year mortgages to provide stability for first-time home buyers and lenders, remove the requirement for a stress test when a homeowner renews a mortgage with another lender, and increase the limit on the eligibility for mortgage insurance and index it to home price inflation.

They will also fix the mortgage stress test to stop discriminating against small business owners, contractors and other casual workers.

Their platform also states explicitly they will never tax Canadians’ capital gains on the sale of their principal residences.

Here are my thoughts, more generally, on both parties’ ideas.

Isn’t housing more of a provincial or regional issue? I’m not too sure why the federal government and federal parties feel a need to meddle in housing markets. There was a very interesting article in the National Post this week that made this very point. It seems that the federal politicians are running for Premier, not the Prime Minister. They seem to be forgetting the difference between the roles of the federal versus the provincial governments.
The Canadian housing market is not a monolithic one-market entity. Rather, each city, each region, even each neighborhood has different characteristics and demographics. In my humble opinion, housing should be a provincial, regional, and local matter, not federal. Perhaps the only appropriate role federally would be for the federal government to acknowledge that one of the main factors contributing to an increase in real estate prices in Canada over the past 20 years has been the Bank of Canada’s setting of the benchmark interest at well below interest rates would have been. Of course, central bank policy is set by the Bank of Canada, independent of politicians or the federal government, so there is actually not much the federal government can do here.

I would anticipate that most of the proposals by both parties are actually going to increase demand for housing as opposed to increasing supply. Their promises of trying to increase the supply of housing, in my opinion, are far-fetched and unrealistic.

August Market Report

While home buyers have remained active in Metro Vancouver throughout the summer, the supply of homes for sale has declined steadily since June. The Real Estate Board of Greater Vancouver reports that residential home sales in the region totaled 3,152 in August 2021, a 3.4 per cent increase from the 3,047 sales recorded in August 2020, and a 5.2 per cent decrease from the 3,326 homes sold in July 2021. Last month’s sales were 20.4 per cent above the 10-year August sales average.

August was busier than expected, and listings activity isn’t keeping up with the pace of demand. This is leaving the market under supplied. There were 4,032 detached, attached, and apartment properties newly listed for sale on the Multiple Listing Service in Metro Vancouver in August 2021. This represents a 30.6 per cent decrease compared to the 5,813 homes listed in August 2020 and a 7.9 per cent decrease compared to July 2021 when 4,377 homes were listed.

The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 9,005, a 29.7 per cent decrease compared to August 2020 (12,803) and an 8.6 per cent decrease compared to July 2021 (9,850). Housing supply is the biggest factor impacting the market right now. To help relieve pressure on prices and improve peoples’ home buying options, the market needs a more abundant supply of homes for sale. Housing affordability has been a key issue in the federal election. I would encourage the political parties to focus on policy solutions that will help streamline the creation of more diverse housing options for hopeful home buyers today and into the future.

For all property types, the sales-to-active listings ratio for August 2021 is 35 per cent. By property type, the ratio is 25.3 per cent for detached homes, 51.8 per cent for townhomes, and 39.2 per cent for apartments. Generally, analysts say downward pressure on home prices occurs when the ratio dips below 12 per cent for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

When assessing the market, it’s important to understand that while year-over-year price increases have reached double digits, most of the increases happened three or more months ago. To better understand the latest home price trends in your preferred location and home type, please get in touch with me and I will be happy to assist you.

The MLS Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,176,600. This represents a 13.2 per cent increase over August 2020 and a 0.1 per cent increase compared to July 2021.

Sales of detached homes in August 2021 reached 945, a 13.7 per cent decrease from the 1,095 detached sales recorded in August 2020. The benchmark price for a detached home is $1,807,100. This represents a 20.4 per cent increase from August 2020 and a 0.3 per cent increase compared to July 2021.

Sales of apartment homes reached 1,631 in August 2021, a 22.4 per cent increase compared to the 1,332 sales in August 2020. The benchmark price of an apartment property is $735,100. This represents a 7.6 per cent increase from August 2020 and a 0.2 per cent decrease compared to July 2021.

Attached home sales in August 2021 totalled 576, a 7.1 per cent decrease compared to the 620 sales in August 2020. The benchmark price of an attached home is $952,600. This represents a 16.5 per cent increase from August 2020 and a 0.3 per cent increase compared to July 2021.

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