Last fall the Ontario Real Estate Market was experiencing explosive increases in property values, particularly in the Greater Toronto Area. In an effort to cool the soaring market, some significant rule changes were implemented.
All high ratio insurance applications must comply with the new mortgage rate stress test requirement.
Canada’s Finance Minister announced new measures to address housing risks. As of October 17, 2016, the “stress test” would be standardized for all insured mortgages. The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada. This rate is usually higher than what buyers can negotiate.
Land Transfer Tax Rebate increased to $4,000
In an effort to help first-time homebuyers—but not hurt the equilibrium of housing markets outside of Toronto—the Ontario Liberal government announced that they would double the first-time homebuyers’ maximum Land Transfer Tax refund to $4,000 effective January 1, 2017. Eligible homebuyers in Ontario would pay no Land Transfer Tax (LTT) on the first $368,000 of their home’s purchase price.
“This detached home was listed at $1.285-million. It sold for $2.1-million – $800,000 over asking”
By April 2017, headlines such as this flooded Toronto financial news and social media as buyers competed in aggressive bidding wars. Property values were still increasing as much as 30% in one month. Ontario’s Fair Housing Plan introduced a comprehensive package of measures to help more people find affordable homes, increase supply, protect buyers and renters and bring stability to the real estate market. Implementation of a new 15-per-cent Non-Resident Speculation Tax (NRST) on the price of homes in the Greater Golden Horseshoe (GGH) purchased by individuals who are not citizens or permanent residents of Canada or by foreign corporations would be effective April 21, 2017. Read Ontario’s 16-point plan to cool Toronto and the Greater Golden Horseshoe region’s red-hot housing market.
How has this affected us in our local markets?
Let’s take a look at Listowel and the surrounding area. We did have a hot spring market. No, we were not selling properties at hundreds of thousands over list price but inventory was selling quickly at inflated prices. We were seeing property increases as much as 14% in one month. In many cases we had properties conditionally sold within 2-3 days of being listed, usually close to or at list price, some a little over.
The July stats according to the Huron Perth Real Estate Board are showing sales had dropped by half in comparison to June. Listings are staying on the market longer and price reductions are becoming more prevalent as sellers need to adjust to a now cooling market. Desirable properties and new builds in popular neighbourhoods are still in high demand.
The market has cooled, no doubt about it. House prices go up, House prices go down.