TREB says a foreign-buyer tax would be ‘misguided’
By Lucas on Feb 01, 2017
The Toronto Real Estate Board (TREB) released its Market Year in Review & Outlook Report 2017, focusing on consumer intentions, affordability, supply, and foreign buyer activity.
On behalf of TREB, Ipsos conducted a homebuyer survey in 2016 so the industry could have a better grasp on consumer intentions. Compared to a similar survey conducted in 2015, the number of likely buyers in the Greater Toronto Area (GTA) has decreased, but those who do intend to purchase in 2017 remain upbeat about home ownership. The amount of first-time buyers looking to buy this year went up to 53% compared to 49% the previous year.
“One standout for me in the research conducted by Ipsos was the continued importance of the REALTOR®,” says TREB President Larry Cerqua. “Over 80% of likely buyers are planning on engaging the services of a REALTOR® in their purchase this year. This shows the value TREB Member REALTORS® add to the transaction. Home ownership is a great investment and TREB Member REALTORS® are professionals who will expertly guide you through each step of the process.”
For the third consecutive year, TREB is forecasting more than 100,000 sales in the GTA for 2017. The forecasted range is from 104,500 to 115,500 sales, with a point forecast of 110,000. This is slightly lower than 2016’s 113,133 total sales reported through the MLS.
“While changes to federal mortgage lending guidelines and higher borrowing costs may impact some would-be home buyers, the big impediment will be the lack of inventory,” says Jason Mercer, TREB’s Director of Market Analysis. “Active listings at the end of December were at their lowest point since before the year 2000. It is unlikely that the shortage of listings will improve to any great degree over the course of the next year. This will put a ceiling on sales growth.”
When supply is down during a time of high demand, prices go up. TREB says to expect annual price growth in the double digits. The growth rate of the average selling price will range from 10% to 16%, with an average price range from $800,000 to $850,000, with a point forecast of $825,000.
Low-rise homes will experience the strongest price growth, and the high-rise market will be tight, too. The survey found that likely buyers are expecting prices to rise over the course of the year, so much of the buying power shouldn’t be too shocked by price tags.
One of the more interesting findings of the survey is that likely buyers are anticipating having a large down payment. Overall, the average buyer is expecting to have about 27.6% for a down payment, while first-time buyers expect to have 23.9% for a down payment. Ipsos reported a variety of sources for the down, including savings, RRSP, gifts from friends and family, and equity built up in current home.
“Housing affordability, and affordable home ownership in particular, is a growing concern,” says TREB CEO John DiMichele. “Home prices will increase well above the rate of inflation and income growth in 2017, as the supply of listings remains very constrained. While governments have been focusing their policy solutions on allaying demand, what is needed are policies that focus on the lack of available homes for sale and for rent. The public, private, and not-for-profit sectors need to come together to focus on innovative solutions to the housing supply issue.”
TREB had the Canadian Centre for Economic Analysis conduct a study to see how improved transit infrastructure would impact housing affordability in the GTA. Focusing primarily on the Metrolinx Regional Express Rail plan, the study found that improved transit had a positive effect on affordability in the GTA and Greater Golden Horseshoe. While improved and expanded transit would create new prospective areas for development, it can also add price premiums of up to 12% to existing housing.
How would a foreign-buyer tax affect the GTA housing market?
As soon as British Columbia announced its plans for a foreign-buyer tax to try and ease price growth, there was talk of Toronto and the GTA implementing a similar tax. Based on TREB’s research, they believe a foreign-buyer tax would be “misguided.”
In November 2016, Ipsos surveyed TREB members to get a better grasp on foreign buyer activity in the GTA. The survey found that only 4.9% of GTA transactions involved a foreign buyer, 40% of which bought as a primary residence. 25% purchased with the intention of renting it out to a tenant, and 15% bought for another family member. Less than 2% of the TREB members were aware they were working with a foreign buyer that was impacted by the new tax in BC.
TREB warns that a new foreign-buyer tax in the GTA could lead to tighter market conditions and stronger price growth in neighbouring areas without a tax, there may be less rental opportunities in an already competitive market, and it could negatively impact immigration rates.
Overall, it looks like sales will stay steady, demand will not be met, prices will rise, and likely buyers are prepared for it all. How will the new home market be affected by the state of the resale market? Is the GTA housing market in a healthy state? It looks that way, but time will tell!
Feature image: Aura Condos penthouse
