Markets work better than gov’t controls….ESPECIALLY when it comes to Real Estate Markets.

 WHY THE GOVERNMENT SHOULDN’T MESS WITH HOUSING AFFORDABILITY :

The Real Estate markets in the city of Toronto account for  23% of Ontario’s GDP and about 9% of the country’s economic output and an even higher % to the city’s local economy.  So why would the city even think about punishing buyers by raising the Land Transfer Tax.  Not only is the tax unfair (punishing only about 5% of the city’s population) but it does NOTHING to cool the market and lower home prices.  Only SUPPLY MEETS DEMAND will attack this issue.  (What politician has the nerve to gently raise our property taxes just a tad so EVERYONE shares in the contribution to the city coffers? Our current taxes are notoriously/comparatively low vs ANY major global city!  A modest hike would not be felt by the citizens, and the income stream would be reliable and sustainable!!!)

Canada’s GDP fell by 0.6 per cent last month, but the real estate sector has kept growing. It has grown so much that it represents approximately half of the country’s economic growth, Brian DePratto, an economist with TD Bank, told BNN following the release of a Statistics Canada report last week.

Housing affordability has become a point of concern in Canada. Significant increases in immigration over the next five years will continue to keep demand high and put even more pressure on affordability unless more supply is made available. As well, a common issue in nearly all regions was municipal red tape and lengthy approval processes, which are also limiting supply and driving up costs.

How has the government attempted to protect us from ourselves when it comes to taking on too much debt?

If has shortened amortization periods, raised the bar on purchasers’ ability to qualify for a mortgage (they have to qualify at the posted interest rate now, not at the favourable interest rate they qualified for), it raised the down payment requirements for purchases over $400K, and lowered the amount of mortgage that CMHC will insure.

We read that Canadians are dangerously close to the edge of a financial cliff with mortgage debt outstripping income by a gzillion % points but look at the numbers and do the math!

The foreclosure and/or  arrears stats remain remarkably low and unchanged (as of Q3 2016 Canadian rate of arrears .28%)…suggesting that though incomes are not rising like home prices, the ability to assume the financial burden of a mortgage is sustainable.  BTW…incomes are NOT the sole source of revenue for these purchases…40% of new buyers are gifted by their parents.  More from inheritance $$.  And for young families moving up to their second homes? Well those downpayments come from the leverage they gained in buying and selling their first property. 

And, very importantly, unlike back in the day, after the first mortgage payment, at a borrowing rate of 2.5% with a 25 year amortization, 1/2 of the payment goes toward paying the interest, and 1/2 goes toward paying down the principle) and the very next payment allocates even MORE towards the principle than the interest!

Only a few years ago, when rates were at 6% (with a 25 year am.) 80% of the mortgage payment went to interest and 20% went to principle.  I remember the days when interest rates were 16% and I NEVER wanted to look at an amortization chart because the amount of interest paid over the principle during the term of the mortgage was so egregious…you were basically renting from the bank for 20 of those 25 years!

So today, Canadians are actually putting themselves into a forced savings scenario…They are paying down their mortgage, and increasing their equity.  So again, WHY would the gov’t make it MORE difficult for Canadians to own homes and increase their asset wealth??  And Canadian homeowners have on average, one of the highest records for % of home equity and mortgage-free status in the home-owning world.

(about 1% of Canada’s population are millionaires)  Canadians in total have approximately $7.3 trillion($7,300,000,000,000) of combined net worth, ($9.2 trillion in household assets and$1.9 trillion in liabilities.)

So please Government….do continue to lead with some responsible stress test procedures and watch over those banks so they don’t get “greedy” (which is in their DNA), but pay more attention to the SUPPLY side of the problem.  Fix that and you will never look back.

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