Happy Easter Everyone! April 2019   

 
March Statistics are in from the Woodstock Ingersoll Real Estate Board.

Can’t afford to buy a house? The government may take on part of the cost.  Read about the Liberals boldest proposal that Budget 2019 puts forth to help more middle-income Canadians fulfil their homeownership dream.

Will it help or cause turbulence in the market?

Thanks so much for checking out this month's newsletter. Please get in touch if you have any questions or comments regarding the articles, or real estate in general. It'd be great to hear from you!

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In this issue...
Woodstock Ingersoll Real Estate Board Statistics for March 2019 
Residential sales activity recorded through the MLS® system for the Woodstock-Ingersoll & District area numbered 108 units in March 2019. This was down 21.2% from March 2018.

On a year-to-date basis, home sales totalled 291 units over the first three months of the year. This was little changed (down 0.7% or two sales) from this period in 2018,.

“Home sales were still running at below-average levels in March, similar to the what we were seeing in February,” said Neil Krushel, President of the Woodstock-Ingersoll & District Real Estate Board. “That said, we did see a bit of a rebound in new supply in March following a real quiet February on the supply side, so we’ll have to stay tuned to see if that results in more activity in April as those properties get scooped up.”

The average price of homes sold in March 2019 was $367,068, down 5.2% fromMarch 2018.

By contrast, the more comprehensive year-to-date average price was $390,033, up 6.7% from the first three months of 2018.

There were 163 new residential listings in March 2019. This was little changed (down just 0.6% or just one listing) on a year-over-year basis.

Overall supply is still near all-time lows. Active residential listings numbered 254 units at the end of March, an increase of 22.7% from the end of March 2018.  The long-term average for this time of the year is more than 550 listings.

Months of inventory numbered 2.4 at the end of March 2019, up from the 1.5
months recorded at the end of March 2018 but well below the long-run average of 6.2 months for this time of year. The number of months of inventory is the number of months it would take to sell current inventories at the current rate of sales activity.

The dollar value of all home sales in March 2019 was $39.6 million, falling 25.3% from the same month in 2018.

Sales of all property types numbered 114 units in March 2019, a decrease of 19.7% from March 2018. The total value of all properties sold was $44.1 million, declining significantly by 30.7% from March 2018.

Homebuyers to get new mortgage incentive, Home Buyers Plan boost under 2019 budget 
Can’t afford to buy a house? The government may take on part of the cost.
That is the gist of the boldest proposal that Budget 2019 puts forth to help more middle-income Canadians fulfil their homeownership dream.

Under the new CMHC First-Time Home Buyer Incentive, the Canada Mortgage and Housing Corporation would use up to $1.25 billion over three years to help lower mortgage costs for eligible Canadians.

The money would go to first-time home buyers applying for insured mortgages. Borrowers would still have to pony up a down payment of at least five per cent of the home purchase price. On top of that, though, they would receive an incentive of up to 10 per cent of the house price, which would lower the amount of their mortgage.

For example, say you’re hoping to buy a $400,000 home with the minimum required five per cent down payment, which works out to $20,000. With the new incentive, you could receive up to $40,000 through the CMHC. Now, instead of taking out a $380,000 mortgage, you’d need to borrow only $340,000. This would lower your monthly mortgage bill from over $1,970 to less than $1,750.

The incentive would be 10 per cent for buyers purchasing a newly built home and 5 per cent for existing homes. Only households with an annual income under $120,000 would be able to participate in the program.

Home owners would eventually have to repay the incentive, possibly at re-sale, though it’s unclear yet how that would work.

Also, mortgage applicants still have to qualify under the federal stress test, which ensures that borrowers will be able to keep up with their debt repayments even at higher interest rates.

However, the incentive would essentially lower the bar for test takers, as applicants would have to qualify for a lower mortgage.
On the other hand, the amount of the insured mortgage plus the CMHC incentive would be capped at four times the home buyers’ annual incomes, or up to $480,000.

This means the most expensive homes Canadians would be able to buy this way would be worth around $500,000 ($480,000 max in insured mortgage and incentive, plus the down payment amount).

The government is hoping to have the program up and running by September.

Home Buyer’s Plan gets a boost

As was widely anticipated, the government would also enhance the Home Buyer’s Plan (HBP), which currently allows first-time buyers to take out up to $25,000 from their registered retirement savings plan (RRSP) to finance the purchase of a home, without having to pay tax on the withdrawal. The budget proposes raising that cap to $35,000.

The new limit would apply to HBP withdrawals made after March 19, 2019.
New measures would encourage more borrowing, possibly drive up home prices

Economists said the new CMHC incentive and the enhanced HBP would encourage Canadians to take on more debt, stimulate housing demand, and possibly push up housing prices.

“It’s a different kind of borrowing,” David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, said of the CMHC incentive.
And with a home-price limit of around $500,000, the program is unlikely to help middle-class millennials buy homes in Vancouver and Toronto, where average property values are far higher, said TD economist Brain De Pratto.

Those taking advantage of the higher HBP limit, on the other hand, would have to keep in mind that the government is not extending the program’s repayment timeline, said Doug Carroll, a tax and financial planning expert at Meridian.

Home buyers must put the money back into their RRSP over 15 years to avoid their HBP withdrawal being added to their taxable income. Now Canadians will have to repay a maximum of $35,000 – instead of $25,000 – over the same period, Carroll noted.

In general, the economists and financial experts Global News spoke to saw the budget as being focused on demand-side housing measures, rather than policies that would encourage the construction of new homes.

And while the budget does earmark $10 billion over nine years for new rental homes, it does not propose major tax breaks for homebuilders.

Tax incentives proved to be an effective way to stimulate residential construction in the past, said Don Carson, tax partner at MNP.
“They really drove supply,” he said.

By Erica Alini

Liberals Plan To Help Homebuyers Will Mean 'Turbulence' In Market, And Won't Help Pricey Cities: Analysts 
The federal Liberals' plan to help homebuyers could slow down home sales in the coming months while doing little to improve affordability, analysts say.

As part of the budget, Finance Minister Bill Morneau announced last week a plan to help homebuyers struggling with the worst home affordability levels Canada has seen in three decades.

The plan surprised many observers by not including a number of measures the industry had been pushing for, such as a loosening of the mortgage stress test and an increase in insured mortgage amortizations to 30 years.

But it did put in place some unexpected measures, including a First-Time Homebuyer Incentive that will see the government-run Canada Mortgage and Housing Corp. (CMHC) contribute up to 10 per cent of the price of a new house, or five per cent of the price of an existing home, to qualifying first-time buyers.

CMHC would recoup its money only when the home is sold, though it's not clear if the plan is for the corporation to take back the initial capital or a percentage of the home's sale price.

The program could mean "turbulence" in Canada's housing markets in the coming months, Royal Bank of Canada said in a recent client note, because first-time buyers will be tempted to sit out the spring season and wait for the new aid program, which launches in September.

"This could depress the market even further during that period," RBC economic analyst Robert Hogue wrote. Those delayed purchases could mean a bounce-back in activity come September, Hogue noted, ahead of the fall federal election.

Not much help for Toronto, Vancouver

Analysts have also pointed out that the program will be of limited use to homebuyers in Toronto and Vancouver, Canada's priciest cities. It's available to households earning no more than $120,000 a year, and the mortgage plus CMHC's contribution can't be more than four times household income or a maximum of $480,000.

By Hogue's calculations, this means the maximum house price a buyer can afford under the program is $505,000 with a 5-per-cent down payment or up to $600,000 with a 20 per cent down payment. That's perfectly reasonable in Calgary or Ottawa, but it is well below the selling price of a majority of properties in Toronto and Vancouver today.

The CMHC program "may be enough to buy a small- to medium-size condo apartment in those markets but probably not a family-friendly home," Hogue wrote.

A boost for home construction?

The CMHC program was designed to boost construction of new homes by making support more generous for new-home purchases — 10 per cent of the purchase price, versus 5 per cent for existing homes.
According to Capital Economics, a similar scheme introduced in the U.K. in 2013 boosted home construction in that country by 10 to 15 per cent.
But the U.K. program was more generous, with the government offering to cover 20 per cent of the purchase price outside London, and 40 per cent of the price in London.

Participation in the U.K. scheme was "very high," but "given the far less generous nature of the Canadian version, all else equal we might expect a boost to construction of 5 per cent at the very most," economist Stephen Brown wrote in a client note.

The U.K. program did coincide with a spike in house prices. The average house price in the U.K. had seen no growth for years until 2013, when it began to rise, jumping nearly 23 per cent in the following three years.
The Canadian experience may prove to be different.

British Columbia itself tried out something similar in recent years with a fund that contributed 5 per cent to the purchase price of a home. The province shut the program down last year, due to a lack of interest from homebuyers. It had received 3,000 applications, well short of the 42,000 the province had been expecting.

"First-time home buyers found the program difficult to understand and unappealing to have the government co-own their home," said James Laird, co-founder of mortgage comparison site Ratehub.

By Daniel Tencer



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