Predicting the Real Estate Fall in Fall of 2018. So what is playing out this Fall? Well we can look at some of the things that might have played a role in the housing bubble.
1) Flipping. So this is people buying and selling for profit. It seems like the CRA is really cracking down on people selling for profit. In the last 3 years the CRA has gone over 30,000 files and found almost $600 million in missing taxes, and have added $43 million in penalties. The article: http://business.financialpost.com/personal-finance/taxes/if-you-sell-real-estate-expect-the-taxman-to-take-a-close-look-in-continued-cra-crackdown states that they are finding more missing money ($103 million more this year than last), and they are making sure to target pre sales. So this kinda ties into the fact that you now have to declare if you sell a primary residence. Basically the CRA is taking a closer look into flipping. It will be interesting if the CRA finds even more missing tax money this year.
2) Foreign buyers. So this may or may not be a big deal, but it does have the potential to make for a very interesting fall. This September Canada and China are going to be sharing tax and financial information. So this will show the Canadian government if the Chinese are avoiding taxes are possibly laundering money. It will show the Chinese government how people are taking money out of China and into Canada. There are actually 61 countries that have agreements with Canada to exchange information. The governments of the world want their tax money. This measure adds to things like the foreign buyer taxes and empty home taxes that are keeping foreign money away from Canadian real estate. http://vancitycondoguide.com/canada-china-to-share-tax-information-starting-in-september/
3) Interest rates. Interest rates in Canada are moving up. Now we can all argue over where they are going in the future, but I will give my take. As always I like to look at the bigger picture and the bigger trends. The history of interest rates show that they are normally much higher: https://tradingeconomics.com/canada/interest-rate They have been forced low for about a decade, so can they stay low forever? The other thing to watch is the bond market. Now the trend for the year has been up. And if you look at historic charts it looks like bottom has been reached and the trend will be up from here.
There are some things that the bulls can look to as positive for the Real Estate market.
1) Variable rates are going down. You now have the chance to get a variable rate mortgage at 2.45%. Now people who went with variable rates over the last 10 or so years have done very well. If rates stay low they will continue to do well. My personal take is that this may be a trap set by the banks. Get people into mortgages. If rates go up or housing values go down, the banks will be in a power position. Because of the new mortgage rules if you move banks when you renew your mortgage you will have to do a stress test. People underwater won’t want to do that, and their current bank won’t have to worry about giving their clients a great interest rate. They will be stuck. The other thing I have heard but don’t know a lot about is that the mortgage industry needs new mortgages to prop up the current ones. Or to basically stay afloat the banks constantly need new mortgages. So I guess it is possible that this push into lower variable rates could be a move of desperation to get more mortgages business.
2) The possibility of a reversal of regulations. This is the idea that when prices start to fall, or stagnate too long, the powers that be will start reversing all the rules and policies that have been put in place over the last year. A) hard to say if they would go that route. B) I don’t know if that will be enough to overcome the momentum down.
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