Ask anyone which of Canada’s biggest cities have the most overvalued real estate and every one of them would guess Toronto or Vancouver. The Bank of Montreal released data earlier this month that Ontario’s major metropolis is outdistancing BC’s in this regard, with a 76% average overvaluation that is presented in comparison to the average overvaluation of homes in the country overall at 38%. With interest rates rising (and another rate increase expected this week from the BoC) and the market becoming suppressed because of it, this overvaluation of homes is going to be more relevant in general. Particularly for anyone looking to sell a home and having expectations as to what is should sell for.

That said, the one factor that will keep the dip from being way too severe is the fact that the demand for housing will insulate home values to a fairly considerable extent. Enough to prevent the average homeowner’s concern about the depreciating equity they have in their home? Quite possibly, but that really does in large part depend on where you live. As a realtor you will be well served to have a strong understanding of the potential ramifications of declining home values in relation to overvaluations for home in the area.

This is all part of being a knowledgeable professional, and that goes a long way in securing clients who are ready to trust you to the point that they will buy or sell a home through you. A good thing considering how it can be difficult for new realtors to build up their client base, but if that struggle is something you’re going through right now you will benefit greatly from becoming an agent with maximum insight into Canadian real estate where you live, and taking advantage of our online real estate lead generation system here at Real Estate Leads may be a wise choice too.

But back to topic, let’s look at these home overvaluation numbers from more of a countrywide perspective here, and see if there are others than can stay within striking distance of Hogtown.

Over 50% for All Ontario

It’s not just Toronto, and the BMO data from the same report shows that average home prices were 55.4% overvalued in Q1 for 2022, and industry experts and economists say having any entire market overvalued so highly is a fair sign that a correction of some sort IS needed. This is with the understanding that when shelter costs rise too high they redirect capital away from the productive economy. This is around the understanding that housing a non-productive investment, since it doesn’t produce anything.

Add the fact that the larger mortgages become, the more future income buyers have no choice to borrow. Doing so means they are spending big share of the economy’s future labor value. More indebted households means slower growth for the economy, and the same basics applies for people who are renting their homes. Consider as well that younger adults spend a much higher share of their income on goods and services than older ones.

These same experts say a correction in housing values and the economic ramifications of it can go one of two ways. Either prices fall in real terms and the economy’s healthy balance is restored quickly, or prices continue to disconnect through policy intervention until the end result is systemic failure. That likely comes with a financial crisis.

Highest Overvaluations in the Suburbs

Metro Toronto real estate may be estimated to by around 40% overvalued, but it is in the suburbs of the GTA where those overvaluations are seen to be highest – in some places as high as 74%.

Some numbers around that? Sure.

• Cottage country around Bancroft, Kawarthas, Muskoka-Haliburton, and South Georgian Bay is estimated to be 63% overvalued.
• Cities that are just outside what would be considered a ‘satellite’ city – examples being Barrie, Guelph, Hamilton, Kitchener-Waterloo, London, Niagara, Orillia, St. Catharines, and Windsor – come in as being near 76% overvalued, and that is really somewhat staggering considering the way homes in these areas have been valued going back as far as the post-war period.

Leaving Ontario, what about other areas of Canada?

• Quebec as a whole – 33% overvalued
• Atlantic Canada – 35% overvalued
• British Columbia – 21.4% overvalued (with a reminder that the Lower Mainland and Victoria certainly do not reflect the entirety of a very large Province)
• Manitoba – 12% overvalued
• Saskatchewan (-3.4%) and Alberta (-5%) are the two Provinces that buck the trend here and aren’t with overvalued property averages according to this same report

BC, Quebec, and Atlantic Canada are all estimated to be more than 20% Overvalued

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Anyone with a correct understanding of the situation will have told you that the overheated housing market in Vancouver has primarily been the product of 2 factors. The first being demand far exceeding supply given the rate of population growth for the city, and the second – and likely the most influential one – is cheap money. What’s meant by that for anyone who might not have an understanding of economics is that it hasn’t cost much to borrow money in Canada for quite some time now. Interest rates needed to rise as it is and now that inflation needs to be repressed there was no choice for the BoC to raise the rates.

The market did need to return to some level of normalcy, and that’s true whether you’re a homeowner or a person who is looking to buy a home. That’s because people of average incomes should be able to afford a home that fits their family, and a city cannot forget that when creating policy. But what we are seeing now with Vancouver real estate will be bringing the value of homes down. Will they come down to the point that many more people will be able to buy a home?

That remains to be seen, but in a city like Vancouver you will see modest value decreases and overall it’s not a bad thing.

This will affect realtors working with certain clients and especially those who are looking to buy. But there will also be homeowners who will put off putting their home on the market to wait and see if home values in the Lower Mainland go up again in the future. Considering this has always been cyclical (albeit with some long cycles) that is likely, It can all be contributing to struggles gaining and retaining clientele and if so realtors are encouraged to use our online real estate lead generation service here at Real Estate Leads.

But more to the interest of realtors as it relates to this is that clients may be wanting to abandon purchasing commitments, and that’s a scenario realtors in this part of the province may have little to no experience with. Let’s look at the real estate cooldown in Vancouver in more detail here, as modest as it will likely be.

+ Recession?

The fact that many economists believe there is no way Canada is going to avoid a recession in the near future may well factor into all of this too, and again especially with regards to real estate in Vancouver or Toronto. We’ll see how painful the hit to the housing market will be for homeowners. Again for Vancouver and Toronto high immigration and migration from elsewhere in Canada may stimulate sufficient demand for housing to make any recessionary blow less impactful.

Right now there are areas of Vancouver where homes have sold for about 15% less than similar area houses did a few months ago. But as mentioned what we are also seeing is some homebuyers giving thought to walking away from their deposits and cancelling purchase commitments. Well, it’s not that easy and there can be repercussions, including lawsuits from others involved to compensate for any lost money.

For example, let’s say a home involved in a cancelled sale sells at a later date for a 10% discount. It is possible the courts could state the original contracted buyer who walked away from their purchasing commitment must now compensate the original owner for the difference in the home’s value.

Mortgage Factors Too

New and 1^st time homebuyers will have difficulty finding a 5-year fixed mortgage for less than 4% today, while last year that same mortgage may well have been had for 1.5% or only slightly higher if at all. The Vancouver Real Estate board has stated that the benchmark price for all residential properties in Vancouver had a 1% price increase in April compared with March.

However, many industry experts and knowledgeable realtors will say this is an unreliable indicator of the current market because of its algorithm that determines what exactly a benchmark property is. Long story short, many of these people will see you won’t see real price declines in that home price index for at least 6 months, and probably longer.

Also consider Canada Mortgage and Housing Corporation’s April forecast suggested the country’s average home price would be around $782,400 by the end of the year, a drop of 1.7% from $796,000 in March. This will result in mortgages being more expensive, which may again take out the pool of qualified buyers who might want to consider purchasing a home at this time because of moderately lower prices.

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Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads. The real appeal here is that these leads are going to be delivered to YOU exclusively, and that gives you the first opportunity to be in touch with people who have shown themselves to be genuinely ready to make a move in the local real estate market where you work as a realtor, either selling their home or buying one. This is a great way to supercharge your client prospecting efforts.

When the rumors of the Bank of Canada’s interest rate hikes started to circulate last year economists were quick to point out how they would almost certainly factor into a cooling of the housing market. Now that the higher rates have been in place for a while we are starting to see this factoring occur, and we should be keeping in mind that there may be further rate hikes in the not-too-distant future either. And we will be plain about it and say that a cooling of the housing market is in line with interests of the collective good as homes in so much of the country are priced out of reach for the types of people we would want to see in those homes.

As expected, the biggest price depreciations are being seen in the big cities and those who are in favour of falling home prices also tend to be people living and hoping to one day be able to afford to buy there. Ideally that is something that is attainable for them, and we need to remember that a home is part of facilitating the right progression through life for people who are at that stage in it where they are ready to settle down and start a family.

At the same time these price drops will not be in the interest of those who have equity in their homes, and especially when it is the case for so many where that equity and increasing value is a key to their future retirement plans and / or to help their children with owning a home in the future. Both of those are very noble aims, and here at Real Estate leads our online real estate lead generation system is ideal for real estate agents who are new to the business and keen to increase their wealth by working in what is a potentially lucrative but VERY competitive business.

What it can do for new client generations is readily apparent for anyone who has already taken advantage of it. One thing that will happen if home prices continue to drop is that there will be more potential clientele as ever-greater numbers of people can get a home in line with what they’re approved for in a mortgage. But enough about that for now, and let’s look at back-to-back months of home prices dropping in greater detail.

Down 6% Overall

Canadian home prices went down 6% to $746,000 last month (April 2022), and primarily as the result of higher interest rates putting a new chill on what was a red-hot real estate market that had been red-hot for a long time. Home sales themselves dropped 12% nationally in April, and as mentioned the biggest declines have happened in big cities like Toronto, according to the CREA. What we can assume now is that the $816K median price for a home in Canada that was seen in February 2022 will probably stand as the high water mark for some time now.

In March it went down to $796 and that of course was right in step with higher interest rates taking effect. And let’s not look past the fact that a decline in April is one that is happening during a month that is typically strong for the housing market, with lots of buyers typically buying homes in April and May of each year as has been the case for many decades.

May Be Misleading

The CREA is quick to remind people that the average selling price can be misleading because it is easily skewed by big cities like Toronto and Vancouver having such a high number of expensive homes sales, and just more home listings and sales in general. They point to the House Price Index (HPI) in this argument as a better gauge of the market. It is better because it adjusts for the volume and type of homes sold.

And although prices are indeed down from their recent peak, they remain up by about 7% from where they were at this time last year, and that is likely because we are still experiencing the pent-up demand affect resulting from the pandemic. But nonetheless the housing market is cooling from the feverish activity that characterized it just a few short months ago. The numbers put out by the CREA are national, but there’s no debate that Toronto and Vancouver are dragging them down. Especially Toronto, where prices have decline by about $80,000 since March.

This has the potential to be a problem for both buyers and sellers. While it is true that lower prices may be welcome news for buyers trying to get into the market, they can be majorly dissuading for someone who might have been listing their home without hesitation if prices were higher. Let’s keep in mind that lack of supply is the number one factor that is keeping real estate markets hot here in Canada.

Another scenario is someone who bought high assuming lenders would loan them a certain amount and then discovering in the appraisals process that the property is much less valued by the bank than anticipated. What this does is force the buyers to have to come up with more than they were expecting to need up front.

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Sign up for Real Estate Leads here and receive a monthly quota of leads for potential clients who have indicated their willingness to buy or sell a home in the near future and doing so in the city or town where you are working as a real estate agent. But what’s most relevant here is that only ONE realtor receives these leads – you! That means you have the exclusive opportunity to reach out to these people and offer your expertise to them as a person who knows real estate and will help them have the best outcome when selling a home or the perfect fit when buying a new one.

Government intervention in the housing market is the hottest topic around these days, and when you have a country with so much of its GDP in real estate it’s not surprising that you have the skyrocketing price appreciations and real apprehension on the part of policy makers to be messing with something that in the big picture is quite integral to keeping the ship afloat. It’s certainly not a beneficial reality, but it is the path that was chosen for Canada a long time ago.

So in the here and now of 2022 it is what it is, but we shouldn’t expect the constituents and their outcries about housing affordability to be diminishing anytime soon. As is always the case elected officials need to be receptive to the wishes of those constituents, and what they are asking is for housing to be more affordable than it is now. Easier said than done? You bet it is and as we’ve gone about at length here there is no fix to this if demand continues to way outstrip supply and the country’s population continues to grow by hundreds of thousands of people each year.

Another reality that there’s no escaping is that fewer qualified buyers and more money than ever chasing after goods, services, and commodities it makes things difficult for people who have only just recently begun to work as realtors. Many would-be clients will be reaching out to established agents to help them, but with our online real estate lead generation system here at Real Estate Leads they will have a leg up on that and be directly connected with these same individuals or couples.

Concerns Across the Board

Recent survey results from RE/MAX Canada finds that 78% of Canadians have taxation, interest rates, economic recession, climate change, mixed housing, and/or public transportation as very real concerns, with some of them saying these factors may influence their home-buying prerogatives over the next five years.

With that understood, let’s start by considering that 2020 saw the Canadian economy experiencing a 5.2% decline. That was buttressed some by 4.6% growth in 2021. But now we have the Government realizing they have had no choice but to raise interest rates to combat inflation, and most economists will tell you they’ve been artificially low for way too long if we’re going to be right honest about it.

All of this comes in stride with demand for new housing starts as demanded by the populous. With the influx of immigration expected in the coming years and the Fed’s goal to welcome 432,000 immigrants in 2022, we are going to see demand go through the roof with our housing market and – as always – Vancouver and Toronto will take the brunt of it all on the chin. With massively rising demand, how can affordability still exist? Is taxing existing homeowners on the value of their home a possibility?

Real Life Investment in Real Estate

Well, despite the moral impropriety of that suggestion and the fact it would create (legitimately) a massive outcry from people who have worked hard and are looking forward to using their home equity for retirement, this is what some are actually suggesting. The Canadian housing market has historically given homeowners great long-term returns and solid financial security, and so the smart move would be to have governments and policy makers taking a more collaborative approach that takes the worries Canadians have when it comes to home ownership into account.

Respondents to the survey responded in the exact same way that anyone would expect they would in the face of heavy-handed government intervention in a market where so many people are life-invested in what they have their money in there. 64% have concerns about rising property-related taxes. 58% have concerns about ongoing home affordability with a mortgage in the face of the rising interest rates.

But most notable is that more than half (55%) are concerned – and likely borderline offended – at the idea of a capital gains tax on primary residences. Now to be fair the current Liberal government has said this type of tax is not something they are considering, but let’s not lose track of the fact that Liberal Governments have a decades-on-decades track record of saying one thing and doing another. Anything for votes after all.

The Great Dissuader?

Economists and level-headed real estate market experts will tell you that economic decision-makers should instead make pragmatic and evidenced-based decisions that do not penalize Canadians. And instead incentivize then with regards to interest rates, immigration and taxation. That is the approach that will help the housing market be stable over the next decade, even if it doesn’t become inexpensive in the way some hope it will.

So what would the realities be if the capital gains tax exemption was removed? For starters it would upend the retirement plans of millions of Canadians who plan to cash in on the full gains from the sale of their principal home to fund their retirement. Which, of course, is the way it should be and the way it’s been for generations.

What WILL happen is that a) fewer homeowners will sell their home on the same timeline they would otherwise, and b) homeowners will list their homes for higher amounts to cover the difference they’ll be expected to pay in capital gains tax to the government. And they’ll do that knowing that bidding wars will still mean their home will sell for over asking at any price because – again- demand exceeds supply in Canada in a way that is unmatched in any G7 country in the world.

Would there be an initial surge of properties on the market put there by sellers who were planning to sell already and hoping to avoid the tax before it is implemented? Absolutely, but that’s it as far as positive ramifications. After that there will be nothing positive to come of it at all, and you can be darn sure that hardworking and financially responsible Canadians who have worked hard to have the equity in their home that they do will not be voting Liberal next time around.

For what it’s worth, that would be a smart choice no matter what transpires around removing a capital gains tax exemption on principal residences.

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Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads that are delivered to you as the only real estate agent who is to receive them. This exclusivity is exactly what makes this system so advantageous, as you will have the opportunity to be first in touch with these people and impressing upon them that you have the expertise with real estate they need to buy and sell with confidence. It is a proven way to supercharge your client prospecting efforts and you’ll quickly see that for yourself.

Ask any real estate agent and they will tell you how common it is to have clients who’ve just sold a home be putting offers in on a new home in immediate succession. They have the confidence in doing that knowing that buyer of their previous home has contractually agreed to purchase the home, and the sale being complete that way meaning that they can comfortably go ahead and pay what they need to for their new home. Now imagine if they might be surprised in a few days time to learn that their buyer has had second thoughts and isn’t buying the home now.

Needless to say that can be throwing the largest of wrenches into their plans and in many cases it will mean they don’t get the new home they would have it the current BC NDP Government had any sense of discretion when it comes to their new ‘Cooling Off’ legislation that will allow buyers to have a grace period where they can back out of a home purchase without repercussions. The optics of all this may be good considering the housing crisis in Canada, but the working of it look absolutely terrible for home sellers, buyers, and the realtors who are working with these clients.

This is something that is fairly cut and dried for those of us here at Real Estate Leads. While our online real estate lead generation system is ideal for new realtors who want an advantage in being first in-touch with prospective clients is worth talking about, we’re going to skip that promotion and focus on this 4-page bill that is rather ominously being described by industry experts as being ‘painfully’ short on details.

Figure-it-Out Later Approach

It is no secret to anyone that the current NDP Government in BC has taken a sit on the fence approach to governance, and like many governments that have come before them there has always been a focus on placating people and hopefully doing it with as little as possible. What this legislation is yet another example of Government that wouldn’t be particularly inclined to facilitate changes to the housing market even if they did have even the slightest idea where to get started with that.

But they fully understand the importance of at least looking like they care, so here we go with a hastily and sloppily put together attempt to show the voting populous that there is some way for the Government to make housing affordable again. Of course it will do nothing of the sort, but again with these types of Governments the optics are all that matters.

A major change to how real estate purchases will work in British Columbia was quietly passed by the legislature this week, enabling new “cooling off” periods for home buyers.

List of What’s Missing

For starters, we here in the industry have no idea when this ‘cooling off’ period legislation is even going to be put in place. That’s the first of many parts of this that are missing entirely, and it does speak to the Government flying by the seat of its pants and saying what people want to hear despite their knowing full well it’s the furthest thing from a smart idea.

None of us know when will it start. None of us know how many days the cooling-off period will be. None of us know if you will have to pay a financial penalty if you back out of a deal to buy a home? We also don’t know if this will apply to every community in the province or just Metro Vancouver and Greater Victoria. Considering that left-leaning Governments rely on blind-faith voting bases in big metro areas to be able continue with their malfeasance this might not be surprising.

What we do know is that this has the potential to make homeowners selling their homes be subjected to unnecessary consternation and being put a big-time disadvantage. And for no other reason that both Federal and Provincial Governments in Canada have allowed this housing shortage and affordability crisis to grow on their watch with little to nothing in the way of trying to slow it much less put a stop to it.

‘Rationale’

The NDP’s Finance Minister is saying that they are still waiting on recommendations by an independent financial agency on how a cooling-off period would work, and in which cities it should apply. She did state though that she wanted to pass the bill now so the province could be in a position to act before the busy summer real estate season. So let’s get this straight; in the interest of disadvantaging home sellers as means of advantaging home buyers because one needs more protection than the other it’s important that this gets done asap and we’ll just rush it out and figure out the details later.

Right then. Gotcha.

2 things are certain in all of this; One, this is going to nothing to bring down the cost of homes for buyers, and – more importantly – this is going to do very little to stop buyers from having to bid on homes without going through the proper processes because housing demand outstrips supply more in Canada than in any other G7 nation. And more than 70% of the real estate offers in BC these days are made without conditions, because of how competitive the market is and all the bidding wars.

The reality of the situation is that the playing field is altered for new homebuyers in Canada now and it simply is what it is. Any thing that works to cater to the inequality of that without addressing the root cause of it is simply window dressing, but in this case it is window dressing that stands to hurt homeowners who should have the security of a legally-binding agreement when someone makes the choice to buy a house.

Certainly nobody is forcing them to do so, and it is a purchase of such a significance to both buyer and seller that letting anyone get a ‘refund’ because they’ve reconsidered is simply not appropriate or acceptable.

If you’re a prospective home seller who is displeased about this you are encouraged to speak to you local MP. It is high time this ongoing collection of half-measures and ‘look at us’ empty actions from the Provincial NDP come to an end.

A Better Suggestion

BC’s real estate sector has a much better idea around implementing a 5-day ‘presale’ period where a new listing goes online but no offers are to be considered until those 5 days pass. Buyers could use the five days to line up inspections and financing, and sellers wouldn’t have to take on the uncertainty of being locked up in a cooling-off period with just one buyer that might fall through.

There is not debate that this is the much less potentially-harmful means of protecting the interests of buyers while still seeing to it that home sellers aren’t disadvantaged ‘just because’ of market conditions that have nothing to with them whatsoever.

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Sign up for Real Estate Leads here and receive a monthly quota of buyer and / or seller leads that are delivered only to you as a real estate agent working in that same area of any city or town in Canada. Looking for a proven-effective way of getting more out of your new client generation efforts? This is the way to do it and you will soon be like all the realtors who’ve joined us before you and see Real Estate Leads as a very good investment in growing their real estate business as exponentially as possible.