Canadian real estate is very overvalued, according to a massive credit rating agency. Moody’s Analytics released its Canadian real estate model this week. The firm’s model shows markets are overvalued by up to 91% across the country. As disastrous as that sounds, the firm isn’t expecting a big housing crash. The baseline model shows low to no price growth, as mortgage rates rise.
Higher Mortgage Rates Will Drag Canadian Home Prices
Canadian residential real estate prices are massively overvalued but aren’t expected to fall. The firm’s latest models show urban markets have deviated 22.59% above the trend as of Q2 2021. This is a huge overvaluation, but the firm doesn’t expect home prices to fall at the national level. At least in nominal terms, and with a few regional exceptions.
Higher mortgage rates are expected to grind growth down to a standstill. Urban prices are forecast to grow 2.62% over the next year (from Q4 2021 to Q3 2022). Another 1.38% growth is forecast to follow in the 12 months after. Not the end of the world, but interest rates are forecast to be higher than price growth in the last year. In the baseline, they are essentially concluding a lot of future growth was just borrowed. Markets will grow into their valuations.
Toronto Real Estate Is 40% Overvalued
Toronto real estate is massively overvalued at these levels, but no crash is forecast. Home prices are 39.5% above the trend as of Q2 2021, almost double the national numbers. Over the next year, prices are forecast to grow just 0.86%, followed by an 0.05% decline in the year after. No, you read that right. It was a strangely precise forecast of virtually no drop in that last year. When do we start the bailouts?
Vancouver Real Estate Is 23% Overvalued
Vancouver real estate is overvalued, but not to the same extent as Toronto. Home prices are 22.95% above the trend as of Q2 2021, nearly half the rate of the country’s largest market. Slow price growth is forecast at 1.17% over the next year, and 1.32% in the following year.
It may surprise some to see Vancouver is less overvalued than Toronto. Especially considering the city is so much more expensive. The conclusion is consistent with findings from the CMHC and IMF. That is, it’s still overvalued — just not as overvalued…read more.
Here’s an example of how zoning for more density increases land value.
On July 28, 2016, Vancouver city council approved the Grandview-Woodland Community Plan.
The plan provides direction for residential and other developments in the area bounded by Clark Drive, Nanaimo Street, East 12th Avenue, and Burrard Inlet.
At the southern end of the community is a sub-area called the Commercial-Broadway Station Precinct.
One of the properties in that precinct is 1985 East Broadway, a two-storey detached home built around 1932.
It is located on a block that the Grandview-Woodland Community Plan designated for six-storey residential projects with commercial uses on the ground floor.
Soon after council approved the community plan, the 1985 East Broadway property came on the market on September 21, 2016.
It had a listing price of $2.8 million, which was more than three times its assessed value in 2016.
For 2016, it had an assessed value of $914,400…read more.
A citizen of the People’s Republic of China reported average annual earnings of $40,615 to Canadian border agents yet went on to buy $32 million worth of Vancouver real estate after moving $114 million from Hong Kong-based depositors with connections to organized crime and the Chinese Communist Party, a case study by counsel for the Commission of Inquiry into Money Laundering in B.C. shows.
The study is one of over 1,000 commission exhibits, and it hits on a number of vital aspects of money laundering heard during the course of the 18-month inquiry, such as nominee purchases, obscure corporate structures, fraud, layering and placement of assets (particularly real estate) and links to organized crime and corruption.
Commissioner Austin Cullen heard closing submissions this month and is expected to submit a final report in December, with findings and recommendations that could include real estate regulations and anti-corruption measures.
The anonymized study describes a family affair of suspected money laundering. The ‘Man’ utilized his ‘Wife,’ ‘Child’ and ‘Mother’ to move funds from Hong Kong-based depositors, or so-called “money changers,” and into luxury homes in Vancouver as well as at least one Bahamas-based shell company…read more.
A CIBC Capital Markets analysis shows 30% of first-time homebuyers received a down payment “gift.” Not a little help either, but it was the primary source of funds for the majority that received a gift. It’s now occurring at such a scale, it might be driving home prices higher.
Nearly 30% Of Canada’s First-Time Home Buyers Received A “Gift” For Their Down Payment
Buying your first home in Canada isn’t hard. You just work hard, save up, and then ask your parents for the money, right? Well, that’s how it works for a large share of first-time homebuyers today.
The share of first-time homebuyers receiving a “gift” for a down payment is huge. Nearly 30% of first-time homebuyers received a gifted down payment. The share increased by almost 10 points since 2015, which is a huge demographic shift. Imagine if an extra one in ten adults under 40 needed their parents to help them cross the street? It would be obviously visible, not just a fringe amount. Now that’s not the total, just the increase in people who received help. It sounds small, but it’s huge…read more.
Buying a home in Nova Scotia may soon be more expensive for people from outside the province.
Premier Tim Houston has instructed Finance Minister Allan MacMaster to implement a deed transfer tax on any property purchased by individuals who do not pay taxes in Nova Scotia.
In a September mandate letter, the finance minister was also asked to impose a levy of $2 per $100 of assessed property value on every non-Nova Scotian taxpayer with property in the province.
The letter did not provide a timeline for implementation, though finance, and treasury board spokesperson Gary Andrea said in an email that “the department is working on it.”
However, realtors believe the taxes — targeting investors in hopes of slowing down the market and helping maintain housing affordability for locals — will have a minimal impact and do little to address the market’s main problem: lack of supply…read more.