Back in December when the finance department hiked minimum down payments, it said the change would “dampen somewhat the pace of housing activity over the next year.”
If “somewhat” means “barely noticeable,” then the regulation has achieved its goal, at least in Toronto and Vancouver.
Effective February 15, the minimum down payment rose — up to 2.5 percentage points — on homes between $500,000 and $1 million. Since then, there’s been no perceptible slowdown in Toronto and Vancouver home sales. Those two cities, which are among the fastest-appreciating markets in Canada, were the primary targets of the Department of Finance’s new policy.
In the first full month following the rule change, the Canadian Real Estate Association (CREA) says that sales of single-family homes over $500,000 were the highest ever in March, in both Toronto and Vancouver.
“While it is still premature to reach a verdict on the efficacy of this measure to cool Canada’s two hottest markets, the early evidence suggests that it had little effect to date,” RBC economist Robert Hague said in a research note.
A breakdown of home sales by property value, courtesy of the Toronto Real Estate Board and the Real Estate Board of Greater Vancouver, further illustrates the runaway sales of higher-priced homes.
March data reveals that homes valued between $500,000 and $1 million rose 28% in Toronto and 27% in Vancouver compared to last year. There’s no telling what sales would have been without higher down payments, but take a $750,000 home, for example. An additional 1.67% down payment isn’t exactly an insurmountable obstacle for most buying at that price point.
First-time buyers will take the brunt of these changes. “The affordability of homes in these markets has taken a further hit…,” points out National Bank Financial in a report this week. Following the rule implementation, “…The time required to accumulate a minimum down payment for the representative home increased in Q1 by 11 months in Toronto and by 34 months in Vancouver.”
Moreover, while regulators have not materially slowed higher-risk housing markets, larger down payments have nonetheless had two positive outcomes. For one, new buyers in the $500,000 to $1 million range now have more to lose if they don’t pay their mortgage. In addition, as Hague notes “…We believe that the measure has enhanced the degree of prudence in the mortgage adjudication process.” And there’s nothing wrong with that.
Sidebar: Sales of homes valued at more than $1 million also exploded in March, up more than 60% in Toronto and Vancouver.
By Steve Huebl & Rob McLister