ALL the Real Estate Buying Taxes.
The missing link between home ownership and perpetual renting remains supply. Either supply of homes to purchase, or supply of money with which to purchase.
The 2019 Budget addresses neither of these supply issues.
1. Zero effort on creating additional housing supply.
2. Zero effort on creating access to money. On Jan 1, 2018 the Fed clawed back 40%+ of purchasing power (mortgage money) from you.
3. Dollar for dollar there is also a useless tweak to the RRSP loan program. Useless when the math is done.
4. A convoluted ‘shared ownership’ plan that creates more questions and concerns than it answers. Besides which it is only available if you borrow roughly 80% of what you currently qualify for today, which is closer to 50% of what you qualified for up until Jan 1, 2018.
5. Additional layers of complexity, that once the math is actually done on will demonstrate zero point zero zero zero zero one percent value to Canadian’s.
Already a homeowner? There is nothing in this budget for you. Access to your home equity remains extremely difficult, more expensive thanks to the Fed. And your ability to move to a new home remains impaired by your existing mortgage which you may no longer be able to re-qualify for under the new rules. Still no grandfather clause for you.
*The one minor exception re existing homeowners is for those divorcing (in 2020, so hang in there) for whom access to an extra $10,000 of RRSP money may somehow matter. (You can already break that money out of your RRSP if you truly need it, so all Fed is saving you is between zero and $4,500 depending on your tax bracket) – this will be of a slight benefit to somewhere around 16 Canadian households in 2020.
What about the ‘shared ownership’ thing? The 5% or 10% downpayment help?
To do the math on this is premature, we will have to wait and see what the details truly are. Does the government forgive part of the loan if the property drops in value at a time when you are forced to sell due to a life event? Do they share in the profit when the property rises in value? Lots of questions.
But again, how many CDN’s with combined household incomes of $120,000 or less are not already borrowing close to the maximum they qualify for? Very few. So this program helps… very very few.
How many CDN’s can reduce their approved shopping budgets from ~$580,000 to $480,000 just to qualify for this program? What’s left to buy in their markets at that price?
These are the same people that qualified for up to $800,000 a little over a year ago before the stress test was implemented. The same people that do not miss their payments through thick and thin. But we are all being restricted anyways… just in case.
The 2019 Budget measures are effectively a further incentive towards restricting demand. Yes more ‘demand side economics’ which simply do not work.
In any event, there are many unknowns around these programs that will go unaddressed until as late as September of this year.
Should you wait to buy until then?
We’ve discussed this topic before; No.
You should never wait to buy.
When should you buy? The day you find a property that fits your budget and lifestyle for the foreseeable future (defined as ‘ability to hold the property for seven years’). That’s when you should buy.
Waiting for the government to ‘fix’ the housing situation is not a prudent option. Clearly.
In its fourth fiscal plan, the Trudeau government spent its entire revenue windfall leaving the deficit projection little changed. In this election budget, Finance Minister Bill Morneau announced $22.8 billion over six years in new spending initiative mostly for homebuyers, students and seniors. Trudeau promised in his first budget to have eliminated all red ink by this year. He will instead head for an October election with an annual deficit of nearly $20 billion. Ottawa is projecting a string of double-digit deficits through the end of 2022.
In BC total housing sales are down, inventory of places for sale is up ….and prices are up?.
This flies in the face of what we are used to seeing in our traditional markets which were strictly Supply vs Demand driven.
If supply is high and demand is low then prices drop. Likewise, if supply is low and demand is high then prices rise.
In an attempt to make sense of this, one must first consider the way statistics are reported. We all know the problems with using ‘average’ prices – where the price fluctuation from month to month depends on the price range of homes being sold. A month in which multi-million dollar homes selling will skew the averages up versus a month in which several cheaper homes are sold.
Similar to this – but a little more reliable – is using ‘Median’ prices to determine a rising or falling market. Here, a middle sale amount is chosen where 50% of the sales are above this number and 50% of places sold are below this number.
Here we can usually see a market shifting – especially if there is a change to the demand side such as the government suddenly changing the rules around mortgage qualifications. However, as with average prices, median values are also going to be affected by the price ranges of homes being sold in any given month.
This brings us to the Housing Price Index (HPI) – which operates the same way the Consumer Price Index works – taking a typical basket of goods (called a benchmark home) and monitoring the changing value of that basket or home.
The definition of a “typical” benchmark home takes into account various property attributes – above ground living area, age, lot size, # of bedrooms, bathrooms, covered parking etc. as well as its proximity to amenities.
However, what it does not take into consideration is the condition of the home. Suppose the benchmark home in Coquitlam is defined as a 35 year old 2000 square foot, 3 bed – 2 bath home on a 7200 sq ft lot. Also suppose that there are a number of these homes for sale – such as there is currently. Also suppose that demand is down (currently sales are down almost 40%).
The reality of our market right now is that the 35 year old properties that are selling for good prices are the ones that have been renovated – either partially or completely. And it is those renovated homes that are selling before the un-renovated homes…..and selling at prices higher than the ”benchmark” price.
Conclusion: when we see a report stating Benchmark prices are 2-3% higher than they were in July of 2017 one consideration must be given to the age and condition of the benchmark home as well as the market conditions today versus a year ago. I am sure you will remember last year with a supply of houses so low that even ‘garbage ‘ properties were selling within 2 weeks for full price or more.
Today, if a homeowner spends $60,000 renovating their 30 + year old home, they can expect to get a substantial portion of that back on the sale price. Therefore it will sell higher than a similar home with no renovations and higher than a ‘benchmark’ home.
Vancouver, BC – April 12, 2018. The British Columbia Real Estate Association (BCREA) reports that a total of 7,409 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in March, a 24.6 per cent decrease from the same month last year. The average MLS® residential price in BC was $726,930, up 5.3 per cent from the previous year. Total sales dollar volume was $5.39 billion, a 20.6 per cent decline from March 2017.
“More burdensome mortgage qualifications are having the predictable effect of swiftly curbing housing demand,” said Cameron Muir, BCREA Chief Economist. “You simply cannot pull as much as 20 per cent of the purchasing power away from conventional mortgage borrowers and not create a downturn in consumer demand.”
Despite the decline in consumer demand, the supply of homes for sale remains low in most BC regions. Total active listings on the market are essentially unchanged from March 2017, and are at or near a 12-year low across the province. As a result, home prices are expected to continue an upward trajectory.
Year-to-date, BC residential sales dollar volume was down 1.7 per cent to $13.9 billion, compared with the same period in 2017. Residential unit sales decreased 9.4 per cent to 18,927 units, while the average MLS® residential price was up 8.5 per cent to $732,243.
“If the BC economy tanks, we know who / what to blame. Take a look at the following from the BC Real Estate Association’s economist;”
The desire of some well-meaning British Columbians for government to drive down the price of homes through demand-side policy may sound practical at first blush. However, when you consider the broad and deep economic toll that a negative shock to home prices would exact on both homeowners and renters, it quickly becomes apparent that such an approach is at best, a mug’s game. BCREA Economics analysis* shows that even a relatively modest negative price shock will produce significant consequences to the BC economy.
FOREIGN BUYERS AND TAXABLE TRUSTEES PROPERTY TAX;
Foreign Buyer’s tax for Residential properties has gone from 15% to 20%, effective today. The area this tax covers has been extended from just Greater Vancouver to : The Capital Region District, Fraser Valley Regional District, Regional District of Central Okanagan and Nanaimo Regional District.
The areas for each region can be found at https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax/bc-areas
– If the property is farmland or commercial with a residential component, the tax applies on the residential component.
– Exemption for BC Provincial Nominee Program still applies.
SPECULATION TAX – NEW
1. The tax is meant to target foreign and domestic homeowners who do not pay income tax in B.C.
2. The tax will apply to same areas as foreign buyers tax apart from Okanagan, where it only applies to Kelowna and West Kelowna.
3. This tax starts in 2018 at $5.00 per $1,000.00 of assessed value and goes up to $20 in 2019.
Other details are not available at this time
PROPERTY TRANSFER TAX – Increase for Properties over $3 million.
1. Tax rises from 3% to 5% on value of homes over $3,000,000.00.
2. It remains at 1% on first $200,000.00, 2% on amounts between $200,000.00 and $2,000,000; 3% on amounts between $2,000,000.00 and $3,000,000.00 and 5% on amounts over $3,000,000.00.
PRE-SALE CONDO ASSIGNMENTS
1. Developers will collect and report information about pre-sale condo purchases; nothing else in budget about pre-sale contracts or assignments that we have seen.
B.C. HOME OWNER SECOND MORTGAGES
1. This program is now cancelled – don’t think it was used much anyway.
By now everyone is aware of the hot real estate market in Vancouver and the fact that it is difficult for Canadians to purchase. But there is a lot more to the story.
40,000 people per year are coming into British Columbia from outside Canada and CMHC says 90% of them are settling in the Lower Mainland. A further 10,000 are coming to BC from across Canada – and it is estimated 10% of those are settling in the lower mainland.
On top of this, Justin Trudeau just announced a new program that will be bringing 1 million new immigrants into Canada over the next 3 years. Traditionally, 20% of new immigrants to Canada settle in BC (2001) as of 2016 that percentage was down to 14.6%. So if my math is correct, that is another 50,000 people into BC annually (45,000 into the Lower Mainland) – on top of the 40,000 (36,000 in the Lower mainland) we usually expect each year – and all of them are going to need a place to stay.
According to CMHC, housing starts in the Lower Mainland as of June 2017 were just over 39,000 housing units and 95% of them were already sold. Already we are 47,000 housing units short.
Compounding the problem of the obvious housing shortage in the coming years, Trudeau’s government has decided he is going to ‘cool off’ the price escalations by making it harder for Canadians to qualify for a mortgage – in effect reducing demand.
How do you cool off a market that is strictly supply and demand driven? If the supply is low and demand remains constant then prices will rise. If demand is high and supply is low (or constant) then prices will rise. I surmise that Trudeau’s theory is if he can restrict demand then prices will fall. Hence the new mortgage ‘stress test’ rules. Yet that is only restricting demand from Canadians – read on.