http://www.mikestewart.ca/wp-content/uploads/2017/06/Vancouv...
I officially don't understand how markets work anymore.
The central banks wanted inflation, but they got some perverted form, where wages and prices remain stagnant, and only stocks/real estate/etc have had their prices increase.
I mean, as a sorry Java jockey, I make around $5,000 per month. I frequent Reddit, a news aggregator with comments. Reddit is worth $1,700,000,000 dollars, according to the latest funding round.
It's seriously disappointing, but if the claims by people crying out about "Chinese money" are correct, 15% was never going to be enough. If your concern as an individual is your currency losing 50% of it's value over night [likely worse case for these individuals], then a 15% tax, even in a bubble market starts to look like a good deal.
The government and their developer pals were counting on the tax not making a huge difference. And when prices started moving down they immediately relaxed it to counteract that. At least that's one way this story can be told.
There were already loopholes where foreigners could avoid the tax through local corporations or have relatives buy for them.
It has huge push on the surrounding City housing markets.
People either leaving Toronto to retire selling while prices are high.
Or simply people giving up on Toronto and moving outside the city to commute, happy to pay high prices for the city but low compared to Toronto.
The thing is labor/wages in smaller towns hasn't increased to match the rising house prices. A city like Toronto with lots of jobs the costs can be justified. But when you have 'rich' people from Toronto come in to buy a home they push local First Time buyers/less affluent out or cause them to take on bigger mortgages(and when rates go up with their lower incomes, they'll suffer most).
I live in Markham (suburb bordering the north end of Toronto) -- houses here get sold over asking within days of the listing, and most of the houses in my area are actually occupied by the owners. The demand appears to be real. Any time a house in my area has an open house, there are piles of cars on the street.
I've seen home prices in my neighborhood triple in the 12 years I've been here, and houses here are more expensive than a lot of areas inside the 416. Our property taxes are also generally higher than Toronto.
If prices level off in the GTA (I don't think prices will sink), I think it will be because of the upcoming bylaws relating to AirBnB more than the foreign buyer tax.
Don't you mean the other way around? Homes worth less than the mortgage?
Canada has something like 240,000 immigrants per year, and half of them come to the Toronto region- or 10,000 people per month. Then you add in the thousands of Canadians who are moving to the city as small towns and suburbs stop being attractive. There's a greatly increased demand for housing here.
But supply is tricky. Toronto is full, land-usage-wise. There's something like two small parcels left (Downsview Park and I forget the other place) where there is honest-to-goodness undeveloped land. Apart from that, all new homes are in the suburb cities around Toronto.
This means all new housing supply in the city is from building up and other densification- which is moving too slowly. The suburb cities are also growing like mad, but the infrastructure to support all that growth isn't there, causing smaller price booms nearby any Go-train station.
But that's just the start. High demand, low supply caused housing prices to rise- leading to speculators buying second homes to flip, which shrinks the supply. It leads to people buying homes they don't want, at prices they can barely afford, because they plan to sell it in 3 years for a profit. The bubble inflates.
So why pop now? Ontario passed laws saying foreign buyers have to pay an additional 15% tax. And foreign buyers were a large chunk of sales. The latest numbers say sales are down something like 50% or more. Prices will start to sink soon.
When the Bank of Canada finally raises interest rates to prevent total catastrophe on the exchange rate, things will really get wild. In Canada, most mortgages have to be renegotiated every few years- how many of them are going to have homes worth well less than their mortgage with rates so high they can't afford to make payments? That leads to a 2008-USA style pop.
It's going to be a bumpy ride...
Edit: also worth noting, this is just Toronto. Vancouver has some similar dynamics. The rest of Canada may not have a housing bubble at all- they'll just have to deal with the economic fallout of this mess.