First of all, let me start by providing a synopsis of 2017. Last year, the real estate market came out of the gates strong and active, right from January. We experienced multiple bidding wars and a huge number of bully offers during the first three months of the year. In all of my 27 years as a real estate professional, I hadn’t seen a market so active. It was a strong sellers’ market for those first months.
Then, as a means to curtail the activity, the federal government began intervening in April. They first introduced the foreign home buyer tax, a 15% tax that applies to the purchase or acquisition of an interest in residential real property located in the Greater Golden Horseshoe (GGH) area by an individual, foreign corporation, or “taxable trustee”. The real estate market responded with a slowdown, as the public became more cautious and tried to determine what direction the market would go. (As it turns out, foreign buyers represent less than 3% of buyers.)
The Bank of Canada also introduced two modest interest rate hikes last year, each a quarter of a percentage point. In my opinion, those increases didn’t have much of an impact on the real estate market as the changes were modest.
Lastly, a new mortgage “stress test” came into effect in Canada on January 1 this year. Canada’s banking regulator introduced the new rules to extend the requirement for a mortgage stress test to ALL homebuyers, including those with larger down payments. (Previously, the stress test applied only to mortgages with lower down payments and those with a term of less than five years.)The new minimum qualifying rate that has been introduced by the Office of the Superintendent of Financial Institutions (OSFI) is even for uninsured mortgages, which have down payments of 20 per cent or more, and applies to new mortgages as well as mortgage renewals if borrowers switch lenders. In my opinion, home owners could still be privy to larger mortgages, as creative financing options will still be available. (Contact Team McDadi for further details.)
Despite the challenges as outlined above, it is my opinion that 2018 will yield a strong, more normal real estate market. There will be a healthy supply and demand of homes. Also, none of the economic fundamentals have changed in the GTA; conditions remain favourable. We should have solid GDP growth. Immigration should remain high, as will the demand for homes. The public may want to see where the market is going, before committing themselves, but all-in-all, demand will still be there.
As a side note, I wish to expand upon the influence the media had. It is my opinion that they played a significant role in terms of creating unnecessary concerns about the real estate market and a possible slow-down. A similar phenomena may occur in 2018, and I caution the public to think for themselves and research the economic fundamentals which evidently influence the real estate market.
If you have any questions, please call Sam McDadi Real Estate at 905-502-1500. We would be happy to speak with you.