Concerns have been running high about the heat of Canada’s pandemic-fuelled housing market, and policy makers have stepped in.
The mortgage stress test was tightened. As of June 1, the qualifying rate rose to 5.25%, from 4.79%, reducing homebuyers’ buying power by about 4%. A national 1% tax on the value of vacant homes owned by non-residents is to start in January, 2022.
Not according to some economists, who say policy makers’ “light touch” has only “prolonged the much-needed rebalancing of Canada’s housing market.”
RBC senior economist Robert Hogue argues in a report that none of the actions “address the thorny problem of low supply in a market hungry for new ownership options.”
In fact, some will only serve to stoke that demand, such as the First-Time Home Buyers Incentive in Toronto, Vancouver and Victoria and broader eligibility for the GST rebate on new housing, he said.
“With meaningful relief of market tensions till several months off,” RBC expects sales to stay historically strong and prices to continue to rise. “A much-desired soft landing has been pushed into 2022,” said Hogue.
RBC now expects sales to climb 16% this year over last, a big increase from its January forecast of a 6.5% increase. It has also boosted its price forecast to a gain of 13% to $697,400 nationally from 8.4%.
B.C.’s surprise foreign buyer tax and Ontario’s Fair Housing Plan in 2016 and 2017 were major catalysts that helped rebalance the market, RBC says.
Without these, other factors will work on the market, but not quickly. A gradual rise in interest rates, stress test tightening, rising prices and a return to the office will cool demand “a few degrees” over time.
One thing the federal government did not do was prod municipalities to improve the speed or burden of the housing project approval process, or tackle planning and zoning issues that would increase supply.
“Slow approvals, and zoning and other regulatory obstacles have been at the core of Canada’s escalating prices over the past 10-15 years,” said Hogue.
RBC expects sales to continue to moderate this year and into 2022, with an annual 21% drop next year to 505,300 units. That sounds like a lot but Hogue says that’s still a solid level historically. In 2022, the economists see a price gain of 3.3%.
The soft landing is good news for homeowners, who will hang onto a huge price appreciation, but not such good news for first-time buyers.
Affordability will continue to worsen. RBC says that the price gains during the pandemic have seen mortgage payments for a standard house in Canada ($724,000) rise $330 to $2,500 a month. If prices rise as much as RBC thinks they will over the next 12 months it will add another $150 to that monthly payment.
“Clearly, future buyers will face more intense affordability pressure across many parts of the country. Home ownership will become a more distant dream for an increasing number of Canadians. And a heavier debt load will come to those who will realize it,” Hogue said.
Posthaste: Home ownership to become distant dream for more Canadians as policy measures fall short, warns RBC - Financial Post
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