The mortgage rules implemented by Financial Minster, Jim Flaherty, are believed to be taking a toll on a variety of buyers, including first time home buyers, business-for-self, and the high end homeowners, which has negatively impacted sales.
Vancouver’s September sales plunged 15.1% from the previous year. However, sales were up 2.5% from August, the worst month on record since 1998. Toronto has also taken a hit on sales, but similarly to Vancouver, housing prices have remained steady.
The Financial Post notes that the high-rise or condo sales across the GTA for the year are 19% above the long-term average, but the remaining high-rise inventory is the second highest on record. They also mention that the low-rise homes sales are now on pace for their second-worst year ever and 35% below the long-term average, which The Building Industry and Land Development Association (BILD) is attributing to high prices, a lack of product choice in ground-related housing, and constrained land supply. They also point out that the industry launched fewer new projects over the summer, which resulted in fewer home sales in September.
Although sales are dropping across the country, Calgary and Halifax have remained strong.
Early in the month, the feeling was that Canadians were heeding the warnings of the government on debt levels. However, mid-month Stats Canada announced that the second quarter household debt levels rose to 163%; the same household debt level the United States and United Kingdom reached just before the housing crash of 2008.
RBC economist, David Onyett-Jeffries shared his thoughts with the Toronto Star:
“Household debt levels remain the number one domestic risk to the Canadian economy…However, Canadians hold fewer high-risk mortgages and have more equity in their homes than Americans had at the time the housing bubble burst south of the border…We don’t anticipate any sort of crashing in the housing market. We view some moderation, but that’s to be expected.”
Other economists, such as Capital Economics’ David Madani, have concerns that young new homeowners will feel most of the effects. David states “I’m more concerned about the newer crop of homeowners that have little equity in their property. If there’s a correction, their equity goes up in a puff of smoke and they’re underwater.”
All buyers may have more interesting times ahead as the Government continues to drop hints of raising rates and considering the removal of CMHC (mortgage default insurance) from their portfolio as a mechanism to reduce risk to the Canadian tax payers.