“The Canadian housing market is now in its third month of what is expected to be a soft landing. The weakness was triggered by changes to provincial and federal housing policy, but it will ultimately be higher interest rates that help solidify it,” Diana Petramala, economist with TD Bank, said in her analysis of CREA’s release. “Mortgage rates have moved in tandem with the Bank of Canada rate hike last week and will likely to continue to edge higher with three additional rate increases expected by the end of next year.”
The Canadian Real Estate Association released its June housing statistics Monday, which indicated home sales fell to levels not seen since June 2010.
National home sales fell 6.7% in June.
A major reason for that decline, according to the association, was Ontario’s Fair Housing Plan.
“Changes to Ontario housing policy made in late April have clearly prompted many homebuyers in the Greater Golden Horseshoe region to take a step back and assess how the housing market absorbs the changes,” said Gregory Klump, CREA’s Chief Economist. “The recent increase in interest rates could reinforce a lack of urgency to purchase or, alternatively, move some buyers off the sidelines before their pre-approved mortgage rate expires. In the meantime, some move-up buyers who previously purchased a home before first selling may become more motivated to reduce their asking price rather than carry two mortgages.”
Toronto home prices have dropped nearly 14% since Ontario enacted that plan, which included a foreign sales tax.
Prices dropped 6.2% one month after the announcement of Ontario’s housing plan and 13.8% a month later. However, prices were up 6.3% yer-over-year in June.
Home sales in Toronto fell 15.1% month-over-month in Toronto. They were down 37.7% year-over-year.
According to the Bank of Montreal, the foreign sales tax has impacted the market in more ways than just discouraging overseas buyers from parking their money in Ontario real estate.
“With all eyes on Toronto, it’s quite clear that policy changes, regardless of the number of non-resident investor transactions they’ve impacted, have worked to alter market psychology—and that is a positive outcome given the speculative dynamics in place a few months ago,” Doug Porter, BMO chief economist, said in his latest report.
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Canada’s market may be in the midst of a soft landing, and the foreign buyer tax is having an impact, according to recently released stats.