Showing Signs Of Recovery

The Canadian housing market is showing signs of recovery, with pent-up demand expected to drive more home sales in the coming months. However, TD economist Rishi Sondhi warns that this surge in activity won’t last indefinitely, projecting that the rush will likely subside by the first half of next year. While the initial wave of demand should push housing prices higher, Sondhi notes that large supply backlogs, particularly in Ontario and British Columbia, will continue to weigh on the market and take time to resolve. As demand outpaces supply, home prices are likely to rise in the short term.

New Mortgage Rule Changes And Interest Rates

Additionally, there are factors that could further support the housing market in the coming months. Falling interest rates and recent federal mortgage rule changes, which took effect on December 15, are expected to give a boost to both home sales and prices. Among the key changes are an increase in the maximum mortgage amortization period for first-time buyers from 25 years to 30 years, as well as a rise in the insured mortgage cap from $1 million to $1.5 million. These measures, coupled with the potential for continued economic growth, should help sustain the housing market’s momentum. According to TD’s forecast, home sales across Canada are expected to rise by 16 percent in 2025, while the average home price could increase by 8 percent.

For homebuyers, recent policy changes have improved affordability, particularly in light of the national banking regulator’s decision to eliminate the stress test for uninsured mortgages. As of September, the Office of the Superintendent of Financial Institutions no longer requires lenders to apply the minimum qualifying rate when borrowers switch their mortgages to a different institution, provided their loan amount and amortization schedule remain unchanged. Ratesdotca’s mortgage expert Victor Tran believes these changes will contribute to a hot spring market in 2025, as more buyers take advantage of the improved conditions.

In Vancouver, housing affordability is showing slight improvement, although challenges remain. The Royal Bank of Canada’s December 2024 report notes that rising household incomes have helped ease some of the affordability strain, and home prices in the region are stabilizing. However, despite these gains, affordability in Vancouver remains an issue, with 96.7 percent of the median household income required to cover homeownership costs in the third quarter of 2024. This is in stark contrast to other Canadian cities, such as Calgary (42.2 percent), Edmonton (33.6 percent), Ottawa (47.3 percent), and Montreal (49.4 percent). While the Bank of Canada is expected to cut interest rates further in 2025, which could lower homeownership costs, RBC’s Robert Hogue cautions that any significant price increases in Vancouver would be a setback, making it even harder for average households to afford a home.

Overall, while the Canadian housing market is poised for a stronger 2025, the recovery will be uneven, with regional disparities in affordability and supply challenges continuing to shape the landscape. The interplay of interest rates, federal policy changes, and local market dynamics will play a key role in determining how the market evolves in the months ahead.

Want to know how this impacts you as a buyer or seller? Give me a call or email today, and I’ll help you understand how this affects your personal real estate situation.

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Details provided by The Canadian Press & Business Intelligence for BC 

https://www.bnnbloomberg.ca/business/real-estate/2024/12/30/housing-market-poised-for-2025-comeback-as-lower-rates-unleash-pent-up-demand/

https://www.biv.com/news/real-estate/homeownership-costs-ease-a-little-in-vancouver-but-affordability-still-elusive-says-rbc-10025840#:~:text=RBC%20anticipates%20a%20two%2Dper,Hogue%20said%20in%20the%20report.

 The BC home flipping tax, effective January 1, 2025, targets profits made from selling residential properties within 730 days of ownership, including presale contracts. Imposed under the Residential Property (Short-Term Holding) Profit Tax Act, this tax applies whether the seller is a B.C. resident or lives elsewhere. The tax rate is 20% of the net taxable income from properties sold within the first 365 days of ownership, with the rate decreasing over the next 365 days. After 730 days of ownership, the tax no longer applies. For example, if you purchased a property on May 1, 2023, and sold it on January 31, 2025, the profit would be subject to the tax because you owned the property for 642 days. However, if you sold it on May 31, 2025, after 762 days of ownership, no tax would apply.

The tax applies to any property sold or transferred on or after January 1, 2025, if it was owned for less than 730 days, but it is distinct from federal property flipping rules and is not tied to B.C. or federal income tax. There are some exceptions, such as transfers between related persons (e.g., gifts), where the property may be exempt. For instance, if Michael buys a property from his father, who originally purchased it in 2020, Michael is deemed to have owned the property since 2020, thus exempting him from the tax, even if he sells it within the 730-day window. Similarly, the day you buy a property is generally the closing date, and if you purchase from a related person, the "purchase date" is based on when they first acquired it. The tax’s purpose is to deter short-term property flipping for profit, part of B.C.'s Homes for People Plan.

So what does this mean for you moving forward in 2025? Well you have no worries if you have held your property for over 2 years. If you have owned for less than 1 year most likely you will be subject to the tax, if you  have owned for a period between 12-24 months you will most likely be subject to a portion of the taxes. The government has initiated this program with hopes of fewer people (investors) buying places and flipping them for a profit, in a short period of time. In theory this should make things easier for new buyers to enter the real estate market in British Columbia however it could penalize people who need to sell for one reason or another after only owning the property for under 730 days. 

Details provided by BC government webpage- https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax

New mortgage rules aim to provide relief for more homebuyers

Homeownership has long been a major milestone for Canadians – the “Canadian dream,” if you will. But in recent years, the dream has felt increasingly out of reach. With rising home prices and the high cost of mortgage payments, first-time home buyers in particular have been priced out of homeownership.

But there is good news for both those looking to enter the housing market, as well as homeowners ready to renew their mortgage.

New mortgage rules announced by the Canadian government are designed to help reduce the barriers that exist for first-time homebuyers. Here’s a rundown of the changes and the benefits they offer.

Reduced down payment for homes worth up to $1.5 million

Currently, someone buying a home that costs less than $1 million is allowed to make a down payment of less than 20 percent, provided they take out mortgage insurance. This insurance, which protects lenders from default, allows buyers to finance up to 95% of the home’s purchase price.

However, starting December 15, 2024, new mortgage rules will expand eligibility for mortgage insurance to homes valued at up to $1.5 million. Under these rules, buyers will need to put down a minimum of 5% on the first $500,000 and 10% on the portion between $500,000 and $1.5 million. This means that on a $1 million home, the minimum down payment will drop to $75,000—significantly lower than the current requirement of $200,000.

This change acknowledges the realities of today’s housing market, particularly in high-cost areas such as Vancouver, Toronto and much of Southern Ontario, where homes often exceed $1 million.

More Canadians can quality for 30-year mortgages

Back in July 2024, the government announced that lenders could offer 30-year amortizations on insured mortgages for first-time homebuyers purchasing new builds. As of December 15, 2024, this measure will be extended to all first-time homebuyers, and all buyers of new builds, including condos. By stretching mortgage payments over a longer period of time (30 years instead of the current maximum of 25), homeowners can benefit from lower regular mortgage payments.

Stress test no longer needed when switching a mortgage at renewal

As of November 21, 2024, any mortgage holder looking to switch their mortgage to another lender will no longer need to undergo a “stress test.”

The stress test requires lenders to ensure borrowers can still make their mortgage payments if their interest rate goes up or they experience an increase in household expenses. The policy change means that mortgage holders can switch lenders at renewal without being subject to another stress test, provided they are renewing under the same amortization schedule and loan amount.

The change applies to both insured mortgage and uninsured mortgages and enables more Canadians to switch to a provider that better meets their mortgage needs.

A complement to current programs

These measures are in addition to existing programs and tax benefits that can help pave the way to homeownership for first-time homebuyers.

• First Home Savings Account (FHSA). This registered account allows Canadians to contribute up to $8,000 per year over 15 years, up to a lifetime contribution limit of $40,000 towards their first down payment.  Contributions, including any investment income, are tax-deductible and withdrawals to purchase a first home are not taxable, helping first-time buyers maximize their buying power.

• The Home Buyers’ Plan (HBP). Under the HBP, first-time homebuyers can make tax-free withdrawals from their Registered Retirement Savings Plan (RRSP) to help finance the down payment on a home. The withdrawal is not taxable as long as it is repaid within a 15-year period. The withdrawal limit was recently increased from $35,000 to $60,000. For couples who are buying a home together, that limit reaches $120,000.

• Land Transfer Tax Rebates. Land transfer tax rebates are available to first-time homebuyers in the provinces of Ontario, British Columbia and Prince Edward Island. There is also a land transfer tax rebate available for first-time homebuyers in the city of Toronto. 

• First-Time Home Buyers’ Tax Credit (HBTC). First-time homebuyers can claim up to $10,000 for the purchase of a qualifying home. At a 15% tax rate, the $10,000 claim equals a one-time $1,500 tax reduction.

• GST/HST new housing rebate. If you buy a new-build home preconstruction or make substantial renovations to an existing home, you could qualify for a rebate on the GST or HST. The amount of the GST/HST new housing rebate depends on the purchase price of the home.

*Information courtesy RBC