chronic supply crunch in large cities and their surrounding regions. Accordingly, experts are warning about the stakes for domestic housing markets, which range from spiking mortgage rates to intervention at the provincial level.
“There is now a full-scale attack on Canadian home prices across various levels of policy,” Robert Kavcic, a senior economist at BMO Capital Markets, wrote in a note to clients titled “House prices in the crosshairs”. He made this comments after the Canadian Real Estate Association (CREA) revealed that in January and December, national inventory levels in the housing market were at an all-time low. This resulted in a record annual increase of 28 per cent in the non-seasonally adjusted aggregate home price index in January, the trade association said.
Accordingly, Kavcic points to four factors which could disrupt the surge in home prices, with two of the items being new provincial moves that were announced Tuesday (29 March). This includes the expanded tax on non-resident homebuyers in Ontario, together with a tax of two per cent on foreign homebuyers which was unveiled in Nova Scotia’s budget.
The recent jump in mortgage rates is also among the four factors which Kavcic believes would disrupt house prices increases, as anticipation builds among lenders for additional rate hikes from the Bank of Canada. While fixed-rate mortgages have been made more expensive as a result of moves in the bond market, a number of economists have made the case for an increase of a half-point at the bank’s next policy meeting in April. “Five-year fixed (mortgage) rates are already around four per cent, and variable rates should be well into three-per-cent territory by early summer,” Kavcic wrote. “This market was feasting on low-one-per-cent rates through the pandemic. No longer.”
Meanwhile, the BMO economist pointed out that we are yet to see what Deputy Prime Minister and Finance Minister Chrystia Freeland will include in the federal budget on 7 April. During its last election campaign, the Liberals vowed n extensive plank of measures aimed at improving home affordability, including a two-year ban on home purchases by foreign buyers, as well as an anti-flipping tax on residential properties.
