Lately, there has been focus by federal and provincial governments on runaway sale prices and a potential bubble in the real estate market, especially in the Toronto and Vancouver markets. This has resulted in new rules and regulations over the last several months.
On January 1, 2018, the Office of the Superintendent of Financial Institutions (OSFI) extended “stress testing” to homebuyers with a down payment of more than 20%. The new stress tests mean that all home buyers will have to qualify for mortgage rates using the 5-year benchmark rates from the Bank of Canada (currently at 5.14%) or the bank’s mortgage rate plus 2%, whichever is higher.
Previously, you did not have to pass the stress test if your down payment was at least 20% (i.e. low-ratio mortgage borrower).
Essentially, under the new rules, your debt-service ratio must now reflect that your finances can accommodate a much higher mortgage rate, even if your actual mortgage payments are going to significantly lower.
BC’s Speculation Tax and Other Changes
The “speculation tax” is one of the most recent attempts to slow down real estate prices in BC, as well as increase rental units and manage very low vacancy rates. The levy was unveiled in the 2018 B.C. Budget.
What this does is to levy home buyers who are not resident in B.C. and who do not pay income tax in the province. The tax will start at 0.5% of a home’s assessed value in 2018, and increase to 2.0% in later years. This will affect homes in Metro Vancouver, Fraser Valley, Capital and Nanaimo Regional Districts, and the Kelowna and West Kelowna municipalities.
Property transfer tax (from 3% to 5%) and school tax rates have been increased on home valued over $3 million.
In addition, the foreign buyer’s tax that was introduced in 2016, has been expanded, increasing from 15% to 20% and covering additional localities.
Impact of New Rules on Housing Market
So far, the new rules appear to be having some of the intended impact, including lowering demand and slowing the rate of increase in prices. The new measures are expected to disqualify anywhere from 10% to 20% of prospective home buyers.
As reported by CREA, home sales fell sharply across Canada in January, and new home sales were generally depressed in December 2017, and so far in January and February 2018.
And, because some alternative lenders (credit unions and private lenders) are not also required to implement the stress test rules, they are seeing an increase in the number of borrowers.
With that being said, the outlook for the housing market remains strong, buoyed up by a strong economy. How far/fast will home prices rise in the short and mid-term? Your guess is as good as mine.
Other Readings around the Web
Earlier this week, I discussed how you can avoid paying the 30% U.S. withholding tax if you self-publish on Kindle Direct Publishing.
If you are a freelancer earning some income on the side, here is a list of expenses you can deduct while doing your taxes. Also, note that your side-gig could result in a higher tax bracket for ya! If you have kids under age 18, do not forget to claim your child-care related tax credits and deductions at tax time.
The 2018 Federal Budget was released on Tuesday and contained some interesting side-notes:
If you are still holding onto your $1,000, $500, $25, $2, and $1 bills, it may be time to clean out your drawers and splurge on yourself, as they will no longer be acceptable as legal tender soon.
A more generous version of the Working Income Tax Benefit is in the works for 2019, expanded Pharmacare, and changes to small business tax rate.
The 6-Big Banks are killing it by handily beating profit estimates, and increasing dividends.
Are you thinking of backing out of a subscription without cancelling since your old credit card on file has expired? Think again. Your credit card may be passing on your new credit card data without your knowledge.