TORONTO – After implementation of the provincial Foreign Buyers tax, the Bank of Canada’s latest interest rate hike could prolong the cooling-off period that the Toronto housing market is experiencing, a prominent economist said Wednesday.
But the recent drop in the number of home sales in the Greater Toronto Area – down 37.3 per cent in June from the year prior – is not expected to last long-term, said Benjamin Tal, deputy chief economist with CIBC World Markets.
A similar slowdown occurred in the Vancouver area – another hot housing market – following the
implementation of British Columbia’s foreign buyer tax a year ago, but Tal said the measure hasn’t deterred non-resident buyers and the market is rebounding.
“We haven’t seen a significant decline in foreign investment activity in Vancouver following the tax,” he said.
While Toronto should follow a similar trajectory, there are two other factors now at play, Tal said.
“We also see interest rates going up and the regulators are talking about introducing more measures to slow down the market,” he said. “That’s why it’s possible the slowdown in Toronto will be more durable than the slowdown in Vancouver.”
Tougher Mortgage Rules
The Office of the Superintendent of Financial Institutions has proposed tighter rules that include requiring a
qualifying stress test for all uninsured mortgages. While Tal said he supports the changes, he cautioned it might be prudent to reconsider the timing of their
implementation, which is currently set for the fall.
That advice doesn’t apply to Bank of Canada’s decision Wednesday to raise its key interest rate to 0.75 per
cent from 0.5 per cent, he added, considering the many different economic agendas at play.
The Ontario government released new data Wednesday that show foreign buyers were involved in seven per
cent of residential real estate transactions in Toronto and nine per cent in York Region, a suburb north of the
city, between April 24 and May 26, the month following the introduction of the foreign buyer tax.
READ MORE: Toronto-area home sales drop in May after province introduces foreign buyers’ tax
Tal said the figures show foreign homebuyers are having “non-trivial” impact, pushing up home prices in
Toronto and surrounding areas, but added Canadian demand remains more dominant.
The foreign buyer tax was one of 16 housing affordability measures the provincial government announced in
April, including expanding rent control, allowing Toronto to impose a tax on vacant homes and using surplus
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