Canadian housing market got its hottest month ever – what measures government might introduce next week?

In March, Canada’s real estate market reached a new record of home sales, with growing prices attracting more homeowners to start selling.

According to the Canadian Real Estate Association (CREA), the number of home sales was up by 5.2% last month on a seasonally adjusted basis: 76,000 properties were sold, which is 14,000 more than the previous record seen in July 2020. Benchmark housing prices went up by 3.1% from February, with more supply reaching the market.

The national market keeps showing its strength amid a discussion on whether a housing bubble is growing in Canadaand how policy makers should react to it. Last week, OSFI saidit will determine whether to set a new benchmark interest rate for qualifying uninsured mortgage borrowers, and Prime Minister Justin Trudeau’s government is planning to introduce a tax for foreign, non-resident homeowners. Although certain economists believe it’s not enough, the last month’s supply growth may ease such concerns at least partially.

“It’s high time we talk about pent-up supply, which may be the answer to the question everyone is asking these days,” – Shaun Cathcart, CREA’s senior economist, noted. “As the uncertainty and danger caused by COVID wind down, some owners who didn’t want to sell during a global pandemic will enter the market with their listings, while some of the challenges from the demand side may ease.”

The supply growth has pushed the rate at which newly listed homes are sold from January’s 90.9% to the current 80.5%, which is still higher than the long-term average of 54.4%. One more measure of the balance between supply and demand, the inventory, reached its lowest level of 1.7 months.

According to one Liberal party member, a housing correction (prices decline) may not be the perfect decision for Canada’s issue of housing affordability. He hints at new rules aimed atforeign and institutional speculation in next week’s budget.

“When people want to reduce home prices by 10%… there is no magic button you can easily push to reset everybody’s home equity rates and real estate prices across the country,” – Adam Vaughan says.

“Nor can you make people sell for less.”

He says a home price correction would also have a negative influence on many of the recent homebuyers in Canada.

“It’s important to look at it from the perspective of the homeowners: people who have a single home to live in with their families… you can’t just aim at their equity as the solution,” – Vaughan added.

“It’s not fair to those who just purchased a property and maysuddenly find themselves drowning with their mortgages…”

The main goal for the Liberal government is to improve housing affordability for Canadians, Vaughan stresses. 

“If you have 10 condos, I can’t guarantee your investment any more than I can guarantee your stock investment. And I don’t have to. Nor does the government,” – he says, adding that the government’s aim is to pull speculation out of home pricesgrowth.

“A single-family house is being bought, not as an investment, but as a place to live. We need to be careful about what we do and how it affects people’s equity,” – he noted.

Vaughan hopes to see measures that would aim at foreign and institutional speculation when Ottawa sets the new budget next week.