After three rate cuts, is Canada's housing market finally making a comeback?

Canada’s spring market missed the memo in 2024, and in the following months, housing markets continued to see sluggish buying and selling activity. After a summer of subdued buyer demand, which caused home prices to plateau or decline in the third quarter across many markets in Canada, activity is finally starting to pick up ahead of further expected interest rate cuts.   While we may not see significant price appreciation in the typically-slower fourth quarter of this year, we believe we’ll see a pull-ahead of the spring market in 2025. Royal LePage® is forecasting that the aggregate1 price of a home in Canada will increase 5.5% in the fourth quarter of 2024, compared to the same quarter last year.   “Despite three cuts to the Bank of Canada’s overnight lending rate, buyer demand nationally remains weak, particularly among two key groups: first-time homebuyers and small investors,” said Phil Soper, president and chief executive officer, Royal LePage. “First-time buyers, who are more sensitive to interest rates, are adopting a wait-and-see attitude. With home prices essentially flat and interest rates steadily declining, they perceive no penalty in postponing their purchase.   “Similarly, small investors who typically buy condominiums to rent out and supply much of Canada’s rental housing, are also hesitant. Elevated rates have made the financials unworkable, with carrying costs surpassing rental income. While historically some landlords accept negative cash flow temporarily when properties are appreciating in value, the current flat prices do not justify many investments,” said Soper. “We believe that both groups will re-enter the market in significant numbers as property values begin to rise again. With further rate cuts from the Bank of Canada likely this year, we anticipate prices will appreciate more quickly, eliminating the advantages of waiting for first-time buyers and making calculations more favourable for investors.”   Home prices at a standstill in Q3   According to the Royal LePage House Price Survey, the aggregate price of a home in Canada increased 1.6% year over year to $815,500 in the third quarter of 2024. On a quarter-over-quarter basis, however, the national aggregate home price decreased 1.1%, following sluggish activity in most – though not all – markets through the summer months. Coast to coast, sales volumes began to pick up in September, and more than one third (38%) of regional markets covered in the report recorded positive aggregate price gains in the third quarter over the previous quarter.   When broken out by housing type, the national median price of a single-family detached home increased 2.0% year over year to $850,400, while the median price of a condominium increased 0.5% year over year to $590,200. On a quarter-over-quarter basis, the median price of a single-family detached home decreased modestly by 1.2%, while the median price of a condominium decreased 1.1%. Price data, which includes both resale and new build, is provided by RPS Real Property Solutions, a leading Canadian real estate valuation company.   Market revival uneven across major cities   As was true of the pandemic-era real estate boom, the recovery is not unravelling evenly. Just as two of Canada’s largest and most expensive markets reached higher highs and lower lows between 2020 and 2023, Toronto and Vancouver are now lagging behind in the recovery as well. Meanwhile, regional markets in the province of Quebec and in the Prairies have shown greater resilience through the period of elevated interest rates.   “It’s taking longer for activity and home prices to bounce back in major cities where affordability challenges are greatest. Following subdued activity this spring and summer in the Greater Toronto Area, we’ve begun to see a turnaround in the fall market with an increase in buyer demand and a boost in sales. Greater Vancouver has yet to catch up,” noted Soper.   New mortgage lending rules give first-time buyers hope   In recent weeks, a series of new regulations impacting mortgages and lending practices in Canada were announced. Starting on December 15th, all purchasers of new construction homes and all first-time buyers will be able to acquire an insured mortgage with a 30-year amortization period.2 In addition, the federal government announced an increase to the insured mortgage cap from $1 million to $1.5 million.   Following the announcement of these changes, the Office of the Superintendent of Financial Institutions (OSFI) revealed that, beginning November 21st, it will eliminate the mortgage stress test for uninsured borrowers who plan to switch lenders upon renewing their loan, provided they maintain the same amortization schedule and loan amount.   “These changes will have more impact on the early 2025 market than many anticipate. Expect a material bump in activity,” said Soper. “In addition to assisting first-time buyers, raising the cap on insured mortgages expands opportunities for move-up buyers in higher-priced markets, thereby freeing up inventory for new homeowners entering the market. While these updated mortgage rules are a timely strategy to alleviate some affordability pressure, they are not a silver bullet for the fundamental issue that persists: Canada urgently needs more housing supply. Continued efforts to boost inventory are essential for fostering a sustainable and healthy real estate market for future generations.” Reposted from Royal LePage blog dated October 10, 2024

Could the new Federal Budget impede the Bank of Canada anticipated rate cut?

The Liberal Federal government unveiled a 2024 Budget Statement with a significant increase in spending, surpassing the previous Fall Economic Statement.  Spending is set to increase by $53 billion over the next 5 years.   In anticipation of this budget, former Liberal government minister and Former Bank of Canada governor David Dodge said it was set to be "the worst since 1982."   In a limited attempt to make offsets on the revenue side of the equation, the Trudeau government introduced new tax measures headlined by higher capital gains taxes on individuals and corporations.  The budget proposes to increase capital gains inclusion rate from 50% to 66.67% for corporations and trusts, and from 50% to 66.7% on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.     The positive argument is that $19 billion is being allocated to housing initiatives, although there has been debate as to th efficacy of these initiatives.  The large increase in the Capital gains tax is meant to offset some of the increases in spending, but will it work.  The increase in the tax is projected to generate approximately C$6.9 billion in the final months of the fiscal yaer 2023-2024, with an anticipated total of nearly $20 billion over the span of five years.  The estimate is based on the assumption that investors will hurredly sell their assets, resulting in substantial tax revenue. "It's simple. $6.9 billion was a magical plug figure to avoid having to break Minister Freeland's promise to keep the defecit under C$40.1 billion this year in th wake of all of the heavy spending that has been announced at various photo ops of late" - Derek Holt is VP and head of Capital Markets economics for Scotiabank.  What if investors simply hold off selling in anticipation of a new government and if the revenue doesn't come in? If Canada's economy worsens beyond the optimistic projections of the Budget over the next five years, deficits and debt will increase, leading to more payments to bondholders (as yields go up) rather than to important priorities.   Another relevant consideration is the jab at investment in Canada at a time when our economy is weakening.  Canada will now penalize capital gains with higher taxes than most of the countries in the world.  "This anti - competitive budget will be a future of ongoing Canadian dollar depreciation - which will only make us all poorese as a nation." Dave Rosenberg, Globe and Mail.   Oh yes! What about those anticipated rate cuts?   On Feb 1st Bank of Canada Governor Tiff Macklem said Prime Minister Justin Trudeau should avoid major spending increases in the next federal budget so they do not hinder the central bank's effort to bring down stubborn inflation.  "If there are large spending increases...that could start getting in the way of getting inflation back down to target on the timeline we've laid out." Macklem.   That next BoC rate announcement is on June 5.   On 

Purchasing a leasehold vs a strata freehold. What are the key differences?

Purchasing a leasehold property instead of a freehold strata property is likely going to be a cheaper option, but it's important to understand the differences.   What is a Leasehold Property?   A leasehold property means that the owner owns the townhouse/condo/house itself but NOT the land it is built on.  That land is leased to the home owner by the land owner.  Leasehold land is basically a plot of land that has been rented out to a developer, who then  builds on the land and rents the property for a certain sum of money (or a portion of it as with a condo). The leases on the plots of land are typically for an extended period of time. (ie 100 years or more). The prepaid leases often belong to the city (properties typically found in areas such as south False Creek in Vancouver), a University (Simon Fraser University in Burnaby and UBC in Vancouver), a corporation (Vancouver West End), or are First Nations Reserve lands.   How long can I Own a Leasehold Property?   If you decide to purchase a leasehold property, you are essentially purchasing the righ to possess that property until the end of the lease, or until you sell it to someone else.    Can I get a Mortgage on a Leasehold Property?   There is no easy answer to this question.  Generally speaking, acquiring a mortgage on a leasehold property may be a bit more challenging.  Your options will be reduced for a First Nations Reserve leasehold or a private leasehold.  City and University leaseholds are easier to finanace.   Leasehold properties can offer affordability, especially in desirable areas.  It's essential to understand the terms thoroughly, seek advice from professionals, and assess your financial situation before making the decision if this form of property purchase is right for you.

Government Incentives for homeowners

The Canadian government has made financial incentives available to support indiviuduals and families in various areas of life including housing.  Understanding and accessing these incentives can impact your financial planning goals.     The government offers several financial incentives, each with their own set of eligibility criteria.  To ensure that you're making the most of these opportunities and to fully understand the incentives you qualify for, it's advised that you seek guidance from an accounting professional.  Personalized advice can help you navigate these options effectively, aligning them with your own unique financial situation and real estate goals.   Key incentives to consider include:   First Home Savings Accounts (FHSA's) which are aimed at first time home buyers, the FHSA offers tax advantages to help save for a first home, allowing annual savings up tp $8,000 and a lifetime limit of $40,000. Contributions are tax deductible and withdrawals for a home purchase are tax free. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html Home Accessibility Tax Credit (HATC) is an incentive aimed at those needing to make accessibility improvements.  The HATC provides a credit of up to $3000 on a $20,0000 investment, supporting seniors and indiviuduals with disabilities. HATC Home Buyers' Amount (HBA) is an incentive that offers a federal tax reduction of $1,500 for first time homebuyers, applicable on up to $10,000 of the home purchase price, facilitating easier access to homeownership. HBA Multigenerational Home Renovation Tax (MHRTC) offers up to $7500 for modifications to create secondary suites for seniors or disabled adults, aiding families in providing a supportive family environment. MHRTC As a landlord, you can reduce taxable income with property related expensees which may include: advertising, property taxes, insurance premiums, etc.  Contact an accountant for what is allowable in your circumstance. If you are relocating more than 40KM for work or education, you may want to look into deductions for moving expenses. For detailed guidance, consult an accounting professional.