Canada’s Real Estate Market: A Review of 2016 and Outlook for 2017

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2016 was an unforgettable year, though some may want to try. Through the loss of several music legends, a rise in world-wide violence and a tumultuous political situation south of the border, it’s easy to dismiss last year as a negative. Yes, there were several monumental events that affected life for Canadians, though as many in the Real Estate industry would agree, one of the biggest news stories of 2016 was the continued highs of the Real Estate market.

Sellers reaped the benefits of record breaking sales, while buyers fought tooth and nail in bidding wars of epic proportions. Canada’s #1 Real Estate Finder and Real Estate Marketing website  RentSeeker.ca, looks back at a year that truly, trumped the odds. From record breaking home sales to the introduction of several new mortgage rules, 2016 brought plenty of change. Against the odds, despite government intervention and contrary to many expert opinions, 2016 was a record breaking year for the Canadian Real Estate Market.

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Overall Numbers

Firstly, there was 6.3% increase in the number of home sales in 2016 compared to 2015, with a record number of 536 118 residential properties changing ownership. This impressive number includes a very slow Alberta market that was dragged down by the battered energy sector. The CREA home price index indicated that the price of a Canadian home (including semis and condos) was up 14.2% year over year as of December 2016. Vancouver experienced a year over year increase of 16% and Toronto a monstrous 17% increase.

Furthermore, a StatsCan report on construction spending showed that new residential construction projects were up 8.4% as of April 2016 year over year, an amount that totalled $4.2 billion. What is most impressive is that these number are coming off a previous record breaking year! Simply put, 2016 was a good year for selling property.

Toronto Real Estate Market

One of the driving forces behind these staggering numbers was the Toronto real estate market. It was a difficult year for home-buyers. This graph shows that as of January 2015, a single-family home in Toronto averaged $716 127. As of November 2016, that number was $1 058 273, just shy of a 33% increase. There’s not much more that needs to be said on that.

The Perfect Storm

To say that 2016 was a good year to sell your house in Canada is an understatement, with Alberta and Quebec being the major exceptions. Conditions like record low borrowing rates, decent employment numbers and a drastic lack of supply drove house prices upwards like Dorothy’s home in the Wizard of Oz. These conditions created the perfect storm for a red-hot market. View Housing Prices across Canada here.

New Mortgage Rule – Oct 17 2016

The first major change of 2016 was the introduction of a new rule designed to limit those who wouldn’t be able to tolerate a substantial increase in mortgage rates. This rule means that default-insured borrowers would have to qualify for the Mortgage Qualifying Rate (MQR) of 4.64% to get approved. This is a sizeable increase compared to the current five year, fixed rate. In summary, this law was passed to make sure that anyone near the margins for approval can handle a significant rate increase. You don’t need a crystal ball to see why this was passed.

New Mortgage Rule – Nov 30 2016

The first change was introduced to make sure that high-ratio borrowers didn’t get themselves into trouble, then the second law was passed to make sure that Canadian tax payers won’t be on the hook for those that do. The Government essentially made it harder to get mortgage insurance for those putting down less than 20%, a category labelling you as a high-ratio borrower. There was concern that tax payers would be on the hook for borrowers who would fault on their payments, and the current $450 billion of insured mortgage-backed debt became too great of a risk. Essentially, they made it tougher to get mortgage insurance for those who are ‘risky’ borrowers.

Vancouver’s Real Estate Market

The west coast was red hot this year! A record number of homes were sold in British Columbia, 112 209 to be exact, which was a 9.5% increase from 2015. Furthermore, there was a huge increase in the total sum of these sales. The combined sale price of all these homes amounted to $77.6 billion!, an incredible increase of 18.8% over last year. It was so hot that locals demanded government interference. The shocking part was not that they did react quickly, but how effectively their new rule worked.

Change in Real Estate Laws for Foreign Buyers – Aug 2 2016

Vancouver residents demanded change and the government agreed. There was an introduction of a new tax for foreign home-buyers, but more importantly, they closed a tax loophole that foreign buyers used to avoid paying capital gains for selling property in Vancouver by claiming it was their primary residence. In a nutshell, home buyers had to go to greater lengths to prove their Canadian residency.

 Within a month the effects were evident. September 2016 saw a 33% decrease in home sales year over year as a result of the BC Governments introduction of a 15% tax on foreign home buyers. That translates to an extra $300 000 on a home worth 2 million, which there are a lot of in Vancouver.

Political Uncertainly In the US

Is Trump winning the election a big deal? Yes. Not only for political or social reasons, but a Trump presidency is affecting the economic outlook of Canada, a country which depends heavily on American influence. While the central bank has acknowledge a positive outlook economically for 2017, the presidential election will have an impact as this article states his presidency “warns of the significant uncertainty tied to potential policy changes by the United States, its largest trading partner”.

Conclusion

2016 was truly a remarkable year.  Let’s hope 2017 provides some more clarity in the near future.

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