Market Update – What is happening, Where is it going?

In June we had a few developments. From the Interest Rate Reduction, the Implementation of the new Capital Gains tax and then the BOC inflation report. So lets get into what those are and what the mean to the market for you.

First lets talk about Some Interest Rate Relief…Finally!

In its June 2024 rate announcement, the Bank of Canada (BoC) decreased the benchmark rate by 0.25% and signaled that further rate cuts are on the horizon if inflation continues to show signs of stabilization.

When the BoC started increasing interest rates post-COVID, nobody expected them to go as high as they did or stay high for as long as they have. Today’s announcement was welcome news after almost a year at 5%.

So, what does it mean? Let’s dive in.

As I’ve said before I tend to watch the Toronto Market as that is the leading indicator to what will happen here more locally to us. With the interest rate hike people are expecting to see iIncreased activity in Toronto’s real estate market. We know buyers have been watching and waiting – listing views on realtor.ca have been at record levels without a corresponding increase in showings – a clear sign of pent-up demand. However this also means that Buyers are still either waiting for more price reductions OR the current prices are still out of reach for them. With the ¼ % reduction mortgages are still expensive, though, so I expect a more gradual recovery over the next 6-12 months.

The good news…If you have a variable-rate mortgage or line of credit (HELOC), you’ll get instant rate relief. For every $100,000 of mortgage, your monthly payment will decrease by $15.

With lower rates, buyers can qualify for more mortgage, easing some pressure. Make sure to talk to your bank or mortgage broker to update your qualification.

Investors aren’t likely to get too excited yet. It’s not a big enough cut to bring them back to the market.

In May the GTA real estate statistics paint a picture of the dreaded triple threat. Compared to May 2023 statistics:

Sales volume ⬇ 21.7% (less demand)

New listings ⬆ 21% (more supply)

Average price ⬇ 2.5%

But, of course, that’s not the whole story. When we look at the May 2024 stats for the City of Toronto (excluding the 905 regions), we see that, compared to May 2023:

Sales volume ⬇17%

New listings ⬆ 28%

So what does that mean? It means that with the increased # of listings there is more choice which will lower prices and with lower sales we also see that Buyers are still waiting.

These stats would normally keep me up at night, but the BoC interest rate drop I expect to see some positive month-over-month improvements throughout the summer months. However there won’t be a huge rush back to the market for Buyers. I still expect the next 6 weeks will be a normal summer slow period but I think mid Aug to Thanksgiving will see a bump in sales as Buyers want to get into a home before Christmas.

Changes to Capital Gains Taxes – How does this impact you?

June 25, 2024, the Liberal government ushered in harsher capital gains taxes for Canadians. This impacts a large number of people but for today I want to focus on what that means for those who own real estate. If you own a 2nd property, whether it’s a cottage or an investment property and you have more than $250,000 in capital gains will see the inclusion rate rise from 50% to 67%.

What is a Capital Gaine? A capital gain is the difference between the sale price and the purchase price, minus costs. In Canada, we don’t pay capital gains taxes on our primary residences (yet, this change is just the beginning) so this change only affects investors or people with cottages or second homes.

Example: You purchased a property for $100,000 and sold it for $500,000:

Before June 25, 2024: Your capital gain is $400,000, and you would be taxed on 50% of it, or $200,000. If you were in a 50% income tax bracket, you’d pay $100,000 in capital gains tax.

After June 25, 2024: Because your capital gain is higher than $250,000, you would be taxed at 50% on the first $250,000 and 67% on the remaining $150,000. Assuming once again that you’re in a 50% income tax bracket, you’d pay the following capital gains taxes: $62,500+ $50,250 = $112,750, or $12,750 more.

Summary:

So I expect that the next 4-6 weeks will see a continued levelling in prices and sales with any increase in sales starting mid Aug and lasting until mid October (allows 60 day close to move in by Dec 15th) and then to get slower as we get into Christmas. If you are a buyer this is the best time to get the most choice of properties and a chance to get a better price. If you’re a Seller there are buyers out there and they are looking however your home will have competition and you can expect buyers to be more aggressive with offer prices. As an Investor the demand for rentals is still strong and those opportunities are out there.

Whatever stage you are at (or will be at) please let me know and I will be happy to have a conversation about your options and what is best for you and your family in your situation.

Enjoy this great summer and I hope you have great times with friends and family! Cheers!

Market Update – What is happening, Where is it going?