Biggest Monthly Drop In Canadian Home Sales In Nearly Five Years
Canadian home sales dropped drastically last month. This was as a result of an attempt by the Ontario government to cool the hot market by imposing a tax on foreign buyers in the Greater Toronto Area (GTA).
After this new law, the number of residential properties sold across the country dropped by 6.2 per cent in May as compared to April. This happens to be the largest month-to-month decline in nearly five years, the Canadian Real Estate Association (CREA) said. The Canadian Real Estate Association, which represents real estate agents, mortgage brokers and salespeople in Canada, stated that sales fell by a large 25.3 per cent month-over-month in the GTA.
The recent data showed that while real estate may be local, the high impact of the changes in Toronto’s hot market can have a general effect on the country.
CREA Chief Economist, Gregory Klump said in a statement, “This is the first full month of results since changes to Ontario housing policy made in late April. They provide clear evidence that the changes have resulted in more balanced housing markets throughout the Greater Golden Horseshoe region.”
“For housing markets in the region, May sales activity was down most in the GTA and Oakville. This suggests the changes have squelched speculative home purchases.” He added.
The Ontario government which aimed at balancing and cooling Toronto’s red-hot housing market introduced many measures, including a 15 per cent tax on foreign buyers. Since then, prices have continuously accelerated out of reach for many potential home buyers both in and on the outskirts of the city.
Sal Guatieri, a senior economist with BMO Capital Markets said while the rules have had an effect, they merely brought back “some semblance of normalcy after a manic winter” that will likely be short-lived.
“Given the strong economic, demographic and financial backdrop, don’t expect the GTA market to stay down for the count,” Guatieri said in a note to clients.
“Policy tinkering will do little to cool demand on a sustained basis. Time to take out the heavy artillery: higher interest rates. The ball is now firmly in the Bank of Canada’s court.” He added.
It has been pointed out by the central bank that the time of low interest rates may be coming to an end. Governor Stephen Poloz said cuts to the benchmark rate have “done their job” as the economy builds momentum; a statement that some market watchers have interpreted as a sign that a hike could be six to 12 months away.
As for the Vancouver market, sales went up by 22.8 per cent month-over-month. There are concerns that the city may be returning to bubble territory less than a year after he British Columbia government instituted a tax on foreign buyers of properties in the Vancouver area.
Nationally, the average price for all homes sold last month was $530,304, pulled up by Toronto and Vancouver, where it was $863,910 and $1,110,376, respectively.