08 Dec How the New Prime Minister May Change the Canadian Real Estate Market
It may only be a few weeks since Justin Trudeau and his Liberal MPs were elected, but that’s not stopping Canadians from anxiously awaiting an update on one issue that hits us right in the pocketbook: the state of Canadian real estate.
Throughout the election, we’ve heard talk of the overheated Canadian housing market. Warnings are coming from all over the world. And it’s all over the news.
In a recent report, the Organization for Economic Co-operation and Development warns that, “In Ontario, and especially Toronto, economic activity has been relatively buoyant and demand by foreigners has been boosted by the falling Canadian dollar. That said, newly completed but unoccupied housing units have soared in Toronto, increasing the risk of a sharp market correction.” (bnn.ca)
The Economist warns the Canadian market is overvalued by 34 per cent when comparing prices to disposable income.
As recently as October 29th 2015, the Canada Mortgage and Housing Corp. (CMHC) reported housing markets in certain large Canadian cities – including Toronto – were showing “evidence of problematic conditions”. Overbuilding and overvaluation are listed as factors to the “code red”.
According to a recent Huffington Post article, even Canada’s Parliamentary Budget Office (PBO) is issuing warnings about an overheated market. According to the PBO, “gains in real house prices are expected to moderate and residential investment is projected to decline during 2016 to 2018.”
Radio silence from the new Prime Minister hasn’t stopped the predictions. TD Economics told BNN that it expects the market to cool in 2016, affecting Ontario and British Columbia the most. They are not, however, predicting a large crash in housing prices.
So how could our new Prime Minister change the Canadian real estate market?
Many are asking Trudeau and his government to step in before the real estate bubble bursts. Some want mortgage rules to be stricter, as an increase in interest rate could put younger homeowners in a tough spot.
Others are asking the government to impose restrictions on foreign real estate buyers. Foreign investors are often blamed for driving up the price of Canadian real estate. They are also linked to multi-million real estate purchases in major cities like Toronto and Vancouver.
During the election, the Liberal party proposed changes to RRSP withdrawal rules for first time home buyers. The potential changes include allowing Canadians more opportunities to access the HBP program, like when relocating for work for example.
Trudeau did announce back in September that his government would review the Canadian housing market for affordability issues specifically in Vancouver and Toronto. No word yet on when that will be done and what steps could be taken to improve the situation.
What else could Trudeau and the liberals do to change the overheated market? They could further stimulate the economy, in part with deficit spending. Spending more on infrastructure, for example, helps keep Canadians employed, and therefore able to afford their mortgages. Lower unemployment rates can help protect our real estate market and avoid the much-feared bursting of the Canadian housing bubble.