Real Estate, Taxes

Ottawa Considers Making It Harder to Buy a Home


Kiyoko Fujimura
Buzzbuzzhome Corp.
February 12, 2010

You can’t read about Canadian real estate news right now without hearing the word bubble. While we’re still unsure whether or not a bubble is truly in our midst, Finance Minister Jim Flaherty is considering policy options to curb a bubble in the housing market. With Toronto housing prices up as much 19% (by some estimates) in one year, it seems like the market needs a readjustment.

Under consideration are two policies. First, an increase in the minimum down payment. Second, a decrease in the maximum length of mortgages (amortization period). The larger down payment or the increase in monthly payments associated with a decrease in the amortization period would leave some potential buyers unable to purchase. This, in turn, should lead to an easing of demand and cooling prices.

Peter Aceto, head of ING, said:

“There are some concerns because of what’s going on with real estate, in terms of rapidly increased property values and the theory they’re being fuelled by very low interest rates, that a bubble is being created similar to what happened in the U.S.”

Interest rates have sat at record-low’s for a while now triggering what some are considering a bubble. For further analysis of this trend see my previous blog post here.


Given Flaherty’s track record (I, of course, mean the Income Trust debacle), he’s very much capable of doing something drastic.

I’ve been a nervous wreck trying to decide if it’s the time to sell our condo. Real estate agent promos tell me I should sell now!

Future potential negatives for the Canadian, and in particular Toronto, real estate are:

  • Property taxes in Toronto are set to increase soon.
  • Then we have that stupid HST this summer – instead of 5% people will be paying 13% on closing and legal fees. Not to mention a reduction in disposable income due to all these extra levies and taxes.
  • Interest rates, supposed to increase this summer.

By the way, did you notice, they’re heavily advertising government tax relief programs? I see what they’re doing though! Instead of waiting for the income tax revenue (which would probably be lower this year), they will now take their share “on the spot”. You won’t have a choice but to pay.

They end up looking ‘kind of’ good because of the temporary income tax cuts, yet they get to eat their tax pie thanks to the HST.

I know I’m over-simplifying.

Ok, let’s assume they really raise the minimum downpayment or decrease the amortization period. Wouldn’t it mean that people would buy smaller, more affordable units?

What are the signs of a real estate bubble? Everyone says it’s a bubble, and sentiment-wise, I don’t think bubbles are that obvious, right? Or have people wisened up after the US real estate crash?

I need some input. If you were patient enough to read this, please take a minute to voice your opinion. Is Canadian real estate in a bubble? Why or why not? And what would happen if there was another “Flaherty massacre”?