Sign of what’s to come, or fluke?
By Mercedes Deutscher, News Editor
Recent data from Canadian Real Estate Association and BMO shows that Metro Vancouver experienced a drop in house pricing.
From July to August, the price of average home sales dropped 19 per cent. While the average price of homes had been slightly lowering, this was the first significant drop in the Vancouver housing crisis, doubling the drop in costs that came alongside the 2008 recession.
So what caused such a sudden and drastic drop in Vancouver homes? Many believe it to be the foreign buyers’ tax, which taxes foreign, non-residing homeowners 15 per cent on home purchases. According to Canadian Mortgage and Housing Corp, the percentage of foreign buyers dropped from 13 per cent (shortly before the tax was announced) to 0.9 per cent after the tax was enforced. There was also a decrease in standalone housing sales, which have been the most popular among foreign buyers over the past few years. It is becoming increasingly difficult for these buyers to avoid the tax, as the only way around it would be to pay other taxes in Canada.
Others attribute the drop to new costs within the buying process. There is a new rule in regards to down payments, where buyers will have to place a 10 per cent down payment on homes costing over $500,000. The previous rule only required buyers to pay 5 per cent. As for BC buyers, those who purchase a home that costs greater than $2 million will be required to pay a 3 per cent tax on the sale.
While averages are slipping, it is due to fewer people buying homes in Vancouver. The Teranet National Bank Index shows that condo sales will drop 5 per cent, townhouse sales will drop 9 per cent, and detached home sales will drop 20 per cent.
Although the housing bubble has the greatest inflation in Vancouver, similar bubbles are beginning to appear in metropolitan areas all over Canada. It’s led to greater discussion and more attention by the Liberal government on the issue of housing.
Data on housing prices in Canada, and especially in BC, should become increasingly detailed. The federal government now requires home sellers to disclose their sale details with Revenue Canada.
The federal government is also putting prospective homeowners through a “stress-test.” The test will require those looking to receive a mortgage to receive it at the Bank of Canada’s rate—4.64 per cent. The rate is approximately double what most lenders would usually mortgage for. The government hopes that the test will remove the overall amount of debt that Canadians are burdened by.