New Year’s Blues For Toronto Real Estate And Our 2018 Market Prediction
Stress Tests Now Online
Jan. 1, 2018 marked the beginning of a much tougher regime of stress tests on first time homebuyers, putting more pressure on them to prove their ability to handle huge mortgage debt. Combined with other government measures, the conservatism of Canada’s banks and projected long term incremental increases in interest rates, first time buyers will undergo historically unprecedented scrutiny to qualify for what will be massive mortgages. This is especially the case in expensive, in-demand markets.
Foreign Buyers will still trickle in, are mostly Chinese
The introduction of 15% foreign buyer taxes in Vancouver and Toronto has proved to be a strong disincentive to foreign buyers and had downward pressure on prices. However, high-income foreign individuals will continue to purchase real estate in Canada due to a perception of stability and long term value and our openness to foreign investment. They will not be dissuaded by a 15% tax. A recent report by the Globe & Mail showed that over 70% of foreign buyers are Chinese, with the second largest group being Americans. It also showed that the real number of foreign owned property in Toronto is higher than official reports. The same report outlined that foreigners are paying 40% more on average than domestic buyers for property.
Market Prices And Dynamism Is Damp Compared To 2017’s Blistering Highs
But prices and demand will remain healthy over the long term. The condo market is seeing continued double-digit growth and demand and many experts believe it will continue to drive health and growth in the market. November condo prices rose 17%, and yet their affordability compared to detached homes or townhouses is attractive, especially for heavily scrutinized first-time buyers.
Interest Rates Are Definitely Going Up in 2018
If there is one prediction Tembo will make with absolute confidence it’s this. Central banks around the world are entering a more hawkish, or conservative mentality and are all raising rates. Tembo encourages its blog readers to research the Bank of International Settlements (BIS), or the bank of central banks. This elite international economic institution lays the framework for central bank operations and has released numerous reports outlining its belief that higher interest rates are a must. The Bank of Canada will be eager to raise rates early this year as the Federal Reserve has already done so before the end of 2017. The era of ultra-cheap money is beginning to end.