Canadian home sales have reached a five-year low in 2018, with the decline in the number of transactions being attributed to stricter requirements for loan qualifications and taxation

To put it in simplified terms, more potential buyers are now being turned away due to a tightening in mortgage regulations, while some homeowners may be hesitating due to a recent increase in taxation on their property transactions.

The overall decline in home sales stems from a combination of several factors, most notably the recent introduction of the stress test, which requires potential buyers to qualify for mortgage rates at least two per cent higher than the actual contract rate. This has had an immediate impact on qualifying capabilities, resulting in a drop in the number of people eligible for mortgages.

Another major factor is the recent implementation of the foreign buyer tax by the provincial government of British Columbia, which targets international buyers who are not Canadian citizens or permanent residents. The tax translates into a 15% surcharge placed on all purchases of residential properties in the region, making it much more expensive for foreign buyers to invest in the market.

In addition, a recent implementation of the Ontario Non-Resident Speculation Tax (NRST) requires non-Canadian residents and corporations to pay an additional 0.5% tax on the value of residential properties purchased in the Greater Golden Horseshoe region of the province. This has resulted in a decrease in activity from foreign investors, further contributing to a decline of total home sales.

Finally, rising interest rates have also played a role in the decline of Canadian home sales, as they increase the cost of borrowing money and, in turn, the price of purchasing a house. Although the move was expected to help Canada’s economy by cooling off the housing markets, it has instead resulted in fewer buyers opting to purchase homes, either out of fear of rising rates or simply because of a lack of available financing options.

As a result of these numerous contributing factors, the Canadian housing market has been left in a weakened state, seeing an overall decrease in home sales of 3.9% in the first quarter of 2018 compared to the preceding year. This indicates a downward trend that could potentially last throughout the rest of the year, as the stringent loan qualification requirements remain in place and the effects of taxation linger.

In summary, the decline in Canadian home sales has been linked to changes in mortgage regulations, taxation, interest rates and foreign investment. These changes have resulted in fewer potential buyers who can afford to make the purchase, while the increased costs have further contributed to the decreased demand for real estate. Looking ahead into the remainder of 2018, the weakening market will likely continue, with home sales remaining below the 2017 level.

This article was contributed on Jul 24, 2023