´╗┐Regulatory overkill cited as housing outlook goes negative

Dated: 02/01/2019

Views: 10

Regulatory overkill cited as housing outlook goes negative

‘Combined effect of tighter mortgage guidelines and higher interest rates has been larger than previously estimated,’ says Bank of Canada

Photo: Dan Toulgoet

Economic growth in Canada from residential real estate investments will go negative in 2019, according to the Bank of Canada (BOC), which has conceded that stiff new mortgage regulations, local housing restrictions and rising interest rates have had a larger and more negative impact than expected.

Consumer spending and housing investment “have been weaker than expected” as housing markets adjust to “to municipal and provincial measures, changes to mortgage guidelines and higher interest rates,” according to a BOC statement.

“Staff analysis suggest that the combined effect of tighter mortgage guidelines and higher interest rates has been larger than previouslyestimated,” the BOC noted in its January statement.

The BOC left the overnight benchmark policy rate at 1.75% in its January 9 setting.

In 2018 Metro Vancouver housing sales fell 32% from a year earlier, to the lowest level since 2000 and 25% below the 10-year average. Prices for Vancouver-area detached homes in some regions dropped at least 10% compared with a year earlier, with even more dramatic declines in higher-end neighbourhoods.

The benchmark price for a West Vancouver detached house as of December was down 13.5% from a year earlier and dropped 11.8% in Vancouver’s west side, the Real Estate Board of Greater Vancouver reported.

“The B.C. government in its 2018 budget increased the foreign-buyer tax to 20% and added a speculation and vacant home tax, which – in addition to rising interest rates – dampened sales, especially for more expensive single-family homes,” noted Sherry Cooper, chief economist with Dominion Lending Centres.

The City of Vancouver is also taxing empty homes for the first time in 2019.

The varied disincentives to the demand side are also affecting the supply of new housing in Metro Vancouver, with housing starts falling 11% in 2018 from a year earlier, according to Canada Mortgage and Housing Corp. (CMHC).

Surrey led the decline in the region with a 27% plunge in starts, noted CMHC market analyst Eric Bond.

The contribution to average annual real economic growth from housing investment in Canada has now been revised down to minus 0.1% in 2019 from the plus 0.1% that the BOC forecast last October.

Blog author image

Steven Axford

Steve Axford grew up in Victoria, BC and has always been active in his community. Steve is a Victoria Cougars Hockey Team alumni as well as a Victoria Shamrocks (intermediate) alumni. During his time....

Latest Blog Posts

Weekly mortgage applications point to a remarkable recovery in homebuying

If mortgage demand is an indicator, buyers are coming back to the housing market far faster than anticipated, despite coronavirus shutdowns and job losses.Mortgage applications to purchase a home

Read More

Rent is due: worries about being able to pay

Property managers, landlords and building owners are bracing for bad news today, as the COVID-19 pandemic’s effect on the economy is expected once again to disrupt the property rental market

Read More

As sales decline, some home and condo prices increase

Despite a global pandemic that has decimated economies around the world, Victoria’s real estate market continued to chug along in April, albeit at a much slower pace.Selling prices in some

Read More

Victoria Spring market far from the usual as real estate continues to react to pandemic

A total of 287 properties sold in the Victoria Real Estate Board region this April, 58.8 per cent fewer than the 696 properties sold in April 2019 and 52.8 per cent fewer than the previous month of

Read More