Andrew Moran – Personal Finance Hub

The Canadian real estate market is hot right now. The average sale price of a detached house in the city of Toronto reached $965,000 this past April, while the average sale price of a detached home in Vancouver is between $932,000 (east) and $2.2 million (west). Industry experts warn that the market risks overheating and potentially collapsing in the near future.

Comment: But then none of the article that follows has anything to do with overheating or collapsing. It just about high prices and land transfer tax. Oh yes, and putting words in the Prime Minister’s mouth and saying incorrect things about the CEO of CMHC.

A new Bank of Montreal report finds that home ownership in Canada is a lot costlier than initially thought. According to the financial institution’s “Fall Home-Buying Report,” 43% of potential home buyers can expect to pay an average of 21% more than when they first started browsing the market – in fact, only 5% of those surveyed reported a price decrease.

Comment: But that is because buyers always start out with a low budget, hoping to find a “deal”. Many of them also don’t have a realistic idea of what prices truly are. Or, they search Realtor.ca and see all sorts of houses in a certain price range, without realizing that they sold for more with multiple offers. Lastly, blame a lot of us realtors for not properly educating our clients.

Toronto home buyers noticed the biggest gap between what they had planned to spend and what they ended up paying for. A majority of Torontonians expected to pay approximately $630,000 for a home, but the current state of the housing market – demand surpassing supply and monthly skyrocketing prices – they really spend roughly $100,000 more.

Comment: Because they were looking at houses up to $599,900 that all had bidding wars and sold for more, or they say houses up to $650,000 hoping they could offer less. Then got in a bidding war. If your budget is $630,000, then you realistically cannot look at anything over $549,000 that has an offer date. That and people get caught up in the emotions of a bidding war, of trying to “win” their dream house.

This is close to what other housing markets in Canada are experiencing: Calgary (19%), Montreal (17%) and Vancouver (16%).

Martin Nel, vice-president of Personal Banking Products at BMO, noted that housing prices in the Great White North have gone up 18% over the past four years.

Comment: Which is only 2.5% per year, after inflation. Not exactly bubble territory there folks.

In addition to housing costs, potential home buyers are also revising their personal preference regarding the type of home they wish to acquire. A majority (55%) change their home preference after the first assessment of the market. At first, these Canadian home buyers want either a detached house or a condo, but later they lean towards moving into a semi-detached home or a townhouse.

“By shifting toward semis and townhomes and away from detached and condos, buyers appear to want their cake and eat it too — a backyard for the kids to play in, but also something that won’t break the budget, notably in Vancouver and Toronto,” said BMO senior economist Sal Guatieri.

Land transfer taxes the answer?

Despite Toronto Mayor Rob Ford running an election campaign on reducing or eliminating the land transfer tax – a tax that is applied by the government whenever a property is transferred from one owner to another – in 2010, it is being discussed by officials that the tax could be used to cool down some of the country’s hottest markets.

Comment: Yet Toronto, the ONLY city with a double tax, has one of the hottest markets in the country. Kind of proves that theory false, eh?

Although Prime Minister Stephen Harper doesn’t foresee a housing crisis, he has warned that many households are too indebted and are vulnerable in the event of a rate hike. Nevertheless, several high-level officials at the federal level of government are mulling over the idea, particularly Canada Mortgage and Housing Corp. (CMHC) chief executive officer Evan Siddal.

Comment: NO. Harper said that “some” households might be too indebted. He did not say “many”. And Mr. Siddal has come out publicly to say that he does not think their is a housing problem and that he thinks prices will moderate.

Toronto’s land transfer tax stands at 0.5% on the first $55,000, 1% from $55,000 to $400,000 and 2% over that – former New Democratic Party Member of Parliament and 2014 Toronto mayoral candidate Olivia Chow has suggested raising it on million-dollar homes. There is a push, however, to eliminate it entirely.

Comment: City can’t afford it. They are already addicted to the $350 million in tax revenue.

The Ontario Real Estate Association (OREA), which has pegged the tax as costing the average household $4,000, recently established a campaign that highlights the negative effects of the tax.

Comment: It actually costs the average property buyer more like $6,600. But it hasn’t slowed the Toronto market at all. While I find it is mean and costly to people, they keep buying. So why fix something that does not appear to be broke.

“Municipalities across Ontario are looking to the province for new revenue tools or taxes,” said Costa Poulopoulos, the association’s president, in a statement. “One of the tools being considered is a second [i.e., municipal, in addition to the provincial tax] land transfer tax on home buyers, similar to the tax imposed by the City of Toronto. This tax carries a huge cost – no Ontario city can afford the kind of job losses Toronto has experienced because of the municipal land transfer tax.”

Comment: While they are my association, I think that kind of over-wrought rhetoric does not serve anyone well. There is simply no proof that the Toronto land tax has cost any jobs. Sure, there was that one report that OREA commission and paid for (so it is suspect to begin with) that said that we are losing 800-odd sales a month. How that turns into billions in lost income and 1,000s of lost jobs, I just don’t know.

In the meantime, low mortgage rates will continue to fuel the aggressive Toronto, Calgary and Vancouver real estate markets. It is projected that there won’t be any declines in home sales until mortgage rates start to rise.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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