54% of Canadians Think Foreign Buyer Ban Will Boost Housing

For the last several years, foreign investors have viewed the Canadian real estate market as a terrific investment opportunity, particularly in the Toronto and Vancouver housing markets. But the prevalence of foreign homebuyers has led to charges by critics that they are removing supply from the housing market, forcing Canadian households to either sit on the sidelines or pay higher prices. This complaint became even more ubiquitous during the 2020-2021 housing boom when the average selling price for a home in Canada went north of $800,000. Due to heightened grumbling among voters and observations from industry experts, public policymakers took action to address housing affordability concerns. One of these measures was introducing a two-year foreign buyer ban.

This past summer, the federal government introduced legislation — the Prohibition on the Purchase of Residential Property by Non-Canadians Act — restricting foreign homebuyers from purchasing residential property in Canada. It prevents foreign buyers from acquiring detached homes, semi-detached houses, townhomes, condominium units, and similar buildings and premises. The bill also applied to residential properties situated in a census metropolitan area (CMA) or a census agglomeration.

“Homes should not be commodities,” said Housing Minister Ahmed Hussen in a statement in December. “Homes are meant to be lived in, a place where families can lay down roots, create memories and build a life together.”

The policy officially took effect on Jan. 1 and will remain intact for two years. But are Canadians optimistic that it will exact change and allow more families at home to buy a house or condo?

What do Canadians Think About the Foreign Buyer Ban?

According to the RE/MAX 2023 Housing Market Outlook Report, 54 per cent of Canadians said they believe the two-year foreign buyer ban will increase housing supply and potentially result in affordability for local buyers.

In the coming months, the Canadian real estate market should gain some insight into determining if this federal policy has led to any success on the supply front. Market watchers are also optimistic that the ban will generate new buying opportunities in the coming months because of fresh supply coming online.

In January, with the ban in place, the number of new residential listings rose 3.3 per cent month-over-month, led by gains in British Columbia, according to the Canadian Real Estate Association (CREA). But industry experts noted that new listings remained historically low, with January 2023 being the lowest since 2000.

“The big question on everyone’s minds after last year was what will housing markets do in 2023?” said Jill Oudil, the Chair of CREA, in a statement. “We may have to wait another month or two to see what buyers are planning this year since new listings are currently trickling out at near-record low levels, but that should change as the weather warms.”

But if a ban on foreign buyers does result in new supply, what could that mean for prospective homeowners?

Why and How to Use This Time Wisely

Benchmark home prices in Canada tumbled three percent month-over-month in January and 37.1 per cent year-over-year. The average home price declined by 18.3 percent to $612,20, although this figure slides below $500,000 when Toronto and Vancouver are out of the equation.

In addition, mortgage rates have likely peaked, so homebuyers may not be taken aback by a sudden and dramatic boost in borrowing costs. Households can better budget their mortgage costs, whether they take on a fixed- or variable-rate loan to acquire a home.

Remember, according to the RE/MAX 2023 outlook, more than half of Canada’s housing markets will slide into balanced territory or a buyer’s market, meaning that the pendulum will have swung to homebuyers.

With less competition from cash-filled foreign buyers, this could be an excellent time to enter the market.

Here are four steps to incorporate into your home-buying process:

• Ensure you have put together a sizeable down payment.
• Get pre-approved for a mortgage.
• Consider what type of home you want to purchase, what amenities you want, and where you want to move.
• Work closely with a real estate agent.

Meanwhile, it has already been an exciting time in the 2023 Canadian real estate market. The three most crucial developments involved interest rates and supply.

First, according to the Canada Mortgage and Housing Corporation (CMHC), housing starts declined 13 per cent year-over-year in January, totalling a little more than 215,000 units. New housing constructive levels dropped 52 per cent in the Toronto real estate market and 14 per cent in the Vancouver housing industry.

Second, the number of months of inventory, which gauges the number of months it would take to exhaust current supplies at the present rate of sales activity, rose to 4.3.

Finally, the Bank of Canada (BoC) raised interest rates by 25 basis points at the January policy meeting but paused on further rate hikes in March and April, as it assesses economic conditions and determine how interest rates are travelling through the financial system. At the same time, the financial markets are betting that the BoC will wait until 2024 to cut the benchmark overnight rate.

Sources:
CMHC: https://www.cmhc-schl.gc.ca/en/professionals/housing-markets-data-and-research/housing-data/data-tables/housing-market-data/monthly-housing-starts-construction-data-tables
Yahoo: https://ca.news.yahoo.com/markets-raise-bets-boc-rate-hike-this-summer-cuts-in-2024-154015811.html
CREA: https://creastats.crea.ca/en-CA/