KPMG report on HST's impact to Real Estate

For more information on HST's impact on real estate...check out KPMG's report here

Proponents argue that HST is going to beneficial for Ontario as a large portion of our economy is based on construction and manufacturing (industries that require a lot of start up capital rather than labour capital).

Some benefits include:

• More construction jobs. A recent C.D. Howe Institute report estimates there was an increase in construction machinery and equipment investment by 12.1 per cent in the Atlantic Provinces after a HST was implemented there. As the purchasing power of a business increased, thanks to the benefits of input tax credits, so did the investment.

• Infrastructure construction stimulus. The Ontario Road Builders’ Association (ORBA) have been longtime advocates for sales tax harmonization and say the new HST will help with competitiveness and clarity. With a simpler tax system it will eliminate a lot of bureaucracy and paperwork. Construction is a paper-heavy industry, but having a streamlined tax system will alleviate a lot of that burden.”

For finance, insurance and real estate (FIRE), which are huge component of the Toronto economy, this is not so much of a good thing, especially for real estate investors like us (will it drive jobs away from Toronto?). It will be inflationary and add significant costs to our business. Services such as home staging, legal fees, accounting, maintenance, real estate commissions, new home prices will all go up with no benefit to the parties involved.

Why Didn’t Canada’s Housing Market Go Bust?

"Housing markets in the United States and Canada are similar in many respects,but each has fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust."-

James MacGee Federal Reserve Bank of Cleveland

Full article here

Real Experts Comment: its hard for a Canadian without international perspective to understand the magnitude of what happened in the US and Europe. Our banking system is so far from collapse that we are more likely to see a resurgence in Nortel before our banks fail because of bad lending.

Hard numbers of the Toronto area Economy

Snap shot of the Economic Fundamentals of the GTA by CIBCWM available here.

Notice housing starts and permits plunged from 46k to 26k...Brad Lamb expects another supply bottle neck in 2012 as a result

TD also published their Employment monitor. Ontario gained 27,100 jobs (however according to Ben Tal, Senior Economist, CIBC World Markets Inc., Toronto is still hurting)

Graphical Representation of US Bubble by BBC

The US sub-prime mortgage crisis has led to plunging property prices, a slowdown in the US economy, and billions in losses by banks. It stems from a fundamental change in the way mortgages are funded.

Read full article here

Is this a bubble? - Comment on TD Housing Outlook

TD bank recently published a Resale Housing Outlook report (see here)



TD comments if the real estate market is in a bubble.

Conclusions:

• On a national level, they feel that prices are overvalued 12% based on market fundamentals (income growth, job growth etc).
  
• Most of pent up demand from the sales crash last year should be clear by now
  
• From next year on, we should see the real estate market return to growth based on fundamental drivers (or have price growth slow to catch up to the fundamentals since incomes are expected to go up).
  
• They don't expect prices to fall, in fact their fear is prices may continue to rise.

Real Experts Comment: Yes the market overshot, and people have been taking advantage of rates to get into the market. As more supply comes online in the market (finished condos, and new listings) and as supply of buyers capable buyers fall, prices should level off to a lower growth rate.

As of today, this is no bubble.