What do recent home-sales stats mean for Canadian buyers and sellers?
If you’re a homeowner who’s thinking about selling, or an aspiring homeowner looking to buy, recent real-estate news may have you scratching your head about what to do next.
In mid-May, the Canadian Real Estate Association (CREA) reported that national home sales fell nearly 14% in April compared with the previous year. January, February and March also saw lower sales relative to 2017. Market observers note that multiple factors have contributed to uncertainty among buyers and sellers: rising borrowing costs, the introduction of a foreign-buyers’ tax and other recent policy changes meant to cool housing markets in Ontario and B.C., and a tougher “stress test” for mortgage applications.
In response to April’s slow sales, CREA representatives blamed the stress test, which came into effect in January. All home buyers must now qualify for a mortgage at the Bank of Canada’s five-year posted rate or 2% higher than their negotiated contract rate, whichever is higher. Previously, this requirement applied only to buyers with down payments of less than 20%. The change essentially means that buyers will be able to spend 20% less.
Since last May, the Bank of Canada has increased the interest rate for mortgage stress testing five times; it now stands at 5.34% and is expected to rise further. A report released by Mortgage Professionals Canada in November predicted that 18% of prospective buyers who need a mortgage will fail the stress test, meaning they can’t buy their preferred home – and 40% to 50% of them won’t be able to buy at all.
While the numbers may seem bleak, they don’t tell the whole story. Housing markets across the country vary widely. National figures are heavily skewed by the Greater Vancouver Area and the Greater Toronto Area – two of Canada’s most expensive markets – and both have seen a significant decline in sales since last April (a record month for Toronto).
Your best bet is to consult an experienced real-estate agent who’s familiar with the nuances of your local market. “For the past four months, the Toronto market’s average selling price has actually gone up 9%, even with the stress test, non-resident tax and rising interest rates,” says Fred Ly, a sales representative with Century 21 Atria Realty in the Greater Toronto Area. “That’s really healthy, and it contradicts the negative outlook that the CREA stats point to.”
As for the tougher mortgage stress test, some real-estate agents welcome the change. Ly and his business partner Duke Pham see it as a positive measure for the housing market’s long-term sustainability. “In 2017, a lot of buyers stretched themselves really thin financially because they worried that holding off for a month meant prices would go up $50,000 to $100,000,” says Pham. “Now buyers are afraid to overcommit – they’re more reserved and buying homes they can comfortably afford.”
Is the price right?
Tougher mortgage rules and other market-cooling measures don’t necessarily mean that home prices will fall significantly. “There’s still a lot of uncertainty, and people are waiting on the sidelines,” says Ly. “Buyers are expecting prices to drop because of the non-resident tax and the stress test, but they aren’t dropping because sellers can still afford to maintain the mortgage costs on their homes and investment properties.”
So what’s a home buyer to do? If you’re a first-time buyer, buy a place you love and can afford, and be prepared to hold on to it for five to 10 years, say Ly and Pham. “Whether you’re living in the home, buying for investment or buying to flip, be conservative and think of the worst-case scenarios,” advises Ly. “What if it doesn’t sell? Can you sustain the cost of the mortgage and property taxes by yourself for five years?”
As for home sellers, Pham advises listing your property if you’d be content with the price you could get today. No one can predict what the market will do a month or six months from now, so the best time is whatever meets your personal needs. “Some people want to hold on and wait for prices to go up, but the price of your next property will also go up,” Pham points out. “If you’re happy with today’s price, just let it go.”
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