Real estate set for rise ahead of new rules and taxes
A rush of home buyers trying to beat higher taxes and tighter mortgage regulations could pump up the housing market just as it's showing signs of cooling.
The real estate market pulled back slightly in January after its record run, although both sales and prices were up sharply from the depressed levels of a year ago.
Economists believe, however, that home buyers will push to beat new regulations, unveiled this week by Finance Minister Jim Flaherty, which come into effect April 19.
They also think that there will be a rush to beat the new harmonized sales tax in Ontario and British Columbia later this year.
That could lead to a spike in sales in the spring, followed by a sharp pullback and lower prices in the second half the year, but nothing that would crater the market.
An increase in supply as owners were enticed to list their homes by high prices, and a slight ebbing of demand as consumers realized things were getting a little too pricey, led to a decrease in month-over-month sales in January for the first time since December, 2008.
The 2.8-per-cent decline was small, but comes as market watchers anxiously track the market in search of an asset bubble.
The federal government moved this week to curtail speculation in what has been a red-hot market.
It also made it more difficult for home buyers to qualify for mortgages unless they can meet more stringent criteria such as down payments.
The Canadian Real Estate Association said yesterday that while "one car doesn't make a parade," the market may have peaked in December as consumers took advantage of low rates and buyers who stayed out of the market during the depths of the recession finally closed deals on new homes.
"The monthly decline reflects waning pent-up demand," said Gregory Klump, chief economist at CREA. "You're also seeing continued price increases eroding affordability. It's actually unfolding exactly as we predicted."
Much of the bubble speculation has been spurred by dramatic year-over-year numbers, such as the 58-per-cent sales boost seen in January from last year.
Prices also saw a sizable gain, up 19.6 per cent from a year ago to $328,537. And while many economists expect the average price to keep rising as consumers flood into the spring market to take advantage of looser rules and avoid the new harmonized sales tax in British Columbia and Ontario, they expect the second half of the year to signal the start of a slowdown.
"Things could really heat up in the near term and then cool off in the back end of the year," said Scotia Capital economist Derek Holt. That would be good news to buyers such as Isabelle Philippe, who has been frustrated by frequent bidding wars in Toronto. She feels she has been priced out of the market. "I'd like to buy something before the taxes are higher and any new changes are introduced. My salary isn't that much, so if there's a bidding war I just don't bother any more. I'm still looking, but I'm not as eager as before and I'm hoping if I wait, prices will go lower."
