The following is an update from Glynis MacLeod PREC* of the MacLeod Group.
This week the Bank of Canada announced that it would maintain the overnight rate at 5%. In the accompanying statement, the Bank stated that economic growth is slow, wage pressures are easing, and the economy overall appears to be in a state of modest excess supply. The Bank noted that shelter costs remain the largest contributor to inflation. The next meeting is scheduled for April 10th - the first meeting in which a rate cut is a real possibility. The BC Real Estate Association expects the Bank will eventually lower its overnight rate by a total of 100 basis points this year.
“Clearly, the mood in the market is starting to improve,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets, adding, “The market is starting to internalize that interest rates have peaked.” The start of the year has shown signs of a rebound in some major markets in Canada. Greater Toronto Area reported sales up 37% in January compared to a year ago. Vancouver sales jumped by 38.5%, Calgary by 37.7% and Montreal at 18%.
Victoria tends to lag the larger centres. We saw sales up 2.2% in February and it was encouraging to see listings increase by 10.5% compared to a year ago. We are slightly above the “balanced market” range.
The B.C. government continues to make changes and add legislation which they hope will free up more housing. As of Jan. 1, 2025, homes in British Columbia sold within the first year after being purchased, will face a tax rate of 20% of the profit, while that tax rate drops gradually to zero after two years.
According to the chief economist of the B.C. Real Estate Association, Brendon Ogmundson, the incoming provincial flipping tax could end up reducing the overall number of homes on the market while only applying to a small number of properties. Ogmundson said, “I think that the cost of this policy and the unintended consequences of it on the supply side of things, are more trouble than it’s worth in terms of its effect on affordability, which is very minimal.” He stated the following:
Flipping activity, by any definition, is an insignificant share of overall transactions in BC.
We estimate that the flipping tax will lower sales in BC by 1.7 per cent, but will have minimal impact on home prices.
There is a significant risk that the tax will cause potential sellers to delay listing their homes, leading to lower resale housing supply and tighter market conditions.
Good news, as of April 1, 2024, the BC government has raised the the fair market value threshold for a full exemption of property transfer tax for newly built homes from $750,000 to $1,100,000 if it is a principal residence.
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