With so much happening in real estate these days, I’ve decided to start a monthly News Roundup feature. Welcome to the inaugural July 2017 edition.
Interest Rate Hike
On July 12, 2017, the Bank of Canada increased its benchmark rate to 0.75%, the first hike since 2010. To read more about interest rate increases will affect Buyers, Sellers and Homeowners, click here.
Proposed Stress Test for Everyone (ugh)
Remember in the fall of 2016, when the federal government decided to introduce a ‘stress test’ for home Buyers with downpayments of less than 20% or who required CMHC insurance? [Related: What Now? Real Estate Changes Take Effect Today] The stress test required lenders to qualify Buyers at an interest rate 2% higher than prevailing rates…so if rates were at 2.79%, Buyers had to qualify at 4.79% (though they would still pay 2.79%). The stress test was intended to reduce risk in an environment where interest rates are increasing and significantly decreased how much mortgage a Buyer could qualify for: someone who previously qualified to buy a $930,000 house now only qualified to buy $775,000 house.
This month, the Office of the Superintendent of Financial Institutions (OFSI) proposed that the stress test be applied to ALL BUYERS. So anyone requiring a mortgage, no matter what their downpayment is, would have to qualify +2% higher than current rates. This could have HUGE consequences for the Toronto market, where most Buyers have more than 20% downpayments and weren’t impacted in November.
They are accepting public input on this proposed change until August 17th (you can email your comments to: B.firstname.lastname@example.org) – though most of my sources (people much smarter than me) expect that this will be implemented this fall.
The Market Statistics
The June stats weren’t pretty:
- Sales down 34.3%
- Listings up 15.9%
- Prices down 15.4% since March 2017 (though still up 6.3% since June 2017)
The mid-month July stats showed more of the same:
- Sales down 39.3% vs the same 2-week period last year
- Listings up 6.5%
- Average price of $760,356 (down from the June average of $793,915 though up 7.4% from last year)
None of this was a huge surprise….lots of properties have been languishing on the market and Buyers have had real opportunities to score deals.
We’re in a Buyers Market Now
For most of my career in real estate, Sellers have been firmly in control. With more Buyers than Sellers, bidding wars were the norm and negotiations fairly infrequent.
Enter July 2017, the month power moved into the hands of the Buyers.
Realtors and economists use the sales-to-listings ratio to determine whether a market is in Seller or Buyer territory. A 50% ratio means that 5 homes are sold for every 10 that come on the market in a month…at 40%, 4 homes sold for every 10 listed in a month, it’s considered a Buyer’s Market.
In March 2017? 86% of the homes listed for sale sold. In June? Less than 40%.
When the Wynne government announced the 15% Foreign Buyer tax and foreign buyer reporting rules in April 2017, one of the biggest challenges was that the decision was made in absence of any facts – nobody really knew how many homes foreign Buyers were buying in Toronto.
Earlier this month, the government announced that between April 24 and May 26th, 2017, 4.7% of all homes purchased in the Greater Golden Horseshoe were bought by people who weren’t citizens or permanent residents (860 homes). In Toronto, that number was 4.9%. Truth: that’s not a huge percentage, though of course reflects sales AFTER the foreign Buyer tax was in effect.. [Note: Foreign Buyers make up about 8% of our Buyers at the BREL team and we noticed only a very slight decrease in foreign buyer demand].
What’s most interesting about this statistic? Sales fell 40%+ since the Foreign Buyer tax was announced…which means that residents were responsible for the bulk of the change in Buyer activity. As always, Buyer psychology plays a pivotal role in determining what the market does.