Top Stories

This Week’s Top Stories: Canada’s Real Estate Price and Income Gap Widens, and The Rich Use Homes To Reduce Taxes

Time for your cheat sheet on this week’s most important stories. 

Canadian Real Estate

Canada’s Gap Between Real Estate Prices And Incomes Looks Ridiculous Beside US Data

Canadian real estate price growth has far outpaced incomes, but it’s getting comically large. Canadian home prices have advanced 64% faster than disposable income from 2005 to Q2 2021. In contrast, the US has seen incomes rise 16% faster than home prices in that same period. Canada is placing a higher premium on space to warehouse people than the labor they produce.

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The Smith Maneuver: The Loophole Canadian Real Estate Owners Use To Lower Taxes

Wouldn’t it be nice if you could deduct Canadian mortgage interest the way they do in the United States? Wealthy households have done that since the 1970s, with the Smith Maneuver. The financial strategy involves converting your mortgage into a deductible loan for investments. The move also helps to create a substantial portfolio, deferring and minimizing taxes. Here’s a high level view of what you should know.

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Canadians Dedicate More Income To Debt Payments Than Any Other G7 Country

Canadians spend a huge share of their income on debt payments. The household debt service ratio (DSR) was 12.4% in Q2 2021, up from 12.1% in the previous quarter. Canadians dedicate a share of income 65.3% larger than Americans to repay debt. No G7 country comes even close to households spending as much as Canadians do on debt. 

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Canada’s Top 3 Real Estate Markets For Price Growth Each Climbed Over $250k

Canadian real estate prices are soaring right across the country. The price of a typical home increased $159,634 since last year. The top three markets were Oakville (+$398,754), Fraser Valley (+$270,537), and Toronto (+$262,200). Experts suggest home prices should be about three times a household’s annual income. The price of a typical home in those three cities has increased by a typical annual income in just one year. 

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The Canadian Government Just Put Real Estate Investors In Its Crosshairs

Canada’s recently re-elected government is targeting investors. The Minister in charge of housing has been ordered to create a few hurdles for investors. Measures include taxes on “excessive” rent collected and an anti-flipping tax. Tax favoring of REITs are also going under the microscope, leading to a possible change. One of the biggest plans however, might involve reducing investor leverage.

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Canadian Real Estate Data Is More Opaque Than Tax Havens: Anti-Corruption Org

An anti-corruption organization recently tried to investigate Canadian real estate. The process should have been straightforward in an advanced economy, but it wasn’t. Organized Crime and Corruption Reporting Project journalists encountered big hurdles when investigating. Just obtaining real estate data was prohibitively expensive. Even when obtained, lax collection policies mean it may not be accurate anyway. They found Canada is more opaque than some of the most notorious tax havens.

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Canada’s Real Estate Industry Had Forecast Slow Price Growth In 2022, But Not Anymore

Canada’s real estate industry had forecast slow price growth in 2022, but not anymore. CREA’s latest forecast shows the average sale price will hit $739,495 in 2022, up 7.6% from the previous year. In the summer, they were only forecasting an average price of $681,515, up 0.60% from this year. Typically large growth is followed by a breather. The extended (and questionable) use of low rates is breaking all logic.

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Canadian Mortgage Debt Rapidly Cools After Nearly Reaching The Size Of GDP

Canadian mortgage debt is seeing a sudden cool down after rivaling the size of total GDP. The balance of mortgage debt hit $1.92 trillion in October, up 0.6% ($11.5 billion) from the month before. This is down from the $17.8 billion climb seen in August, with mortgage debt hitting about 97% of GDP. 

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Canadian New Housing Starts Are Approaching A Record For Urban Markets

Canadian housing starts are approaching a record for urban markets. Seasonally adjusted annual rate (SAAR) starts reached 301,279 new homes in November. This was a 25% increase from a month before and a 15% increase from last year. Last month was 46.8% higher than the median number seen in November. This is one of the highest rates of starts for new homes ever. 

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Canadians Are Fleeing Ontario As Alberta And BC Manage To Attract More

Canadians are migrating to new provinces at one of the fastest rates ever. Interprovincial migration reached 94,248 people in Q3 2021, down 24% from the last quarter. It was 45% higher than the same quarter a year before, and the biggest Q3 since 2007. Ontario is the biggest loser, seeing the largest net outflow. BC and Alberta were winners of the trend, though — leading for inflows.

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Canadian Home Equity Has Been Used To Secure 69% More Debt Than HELOCs Show

Canadian home equity is being used to secure a lot more debt than HELOCs show. The outstanding balance of HELOC debt reached $166.8 billion in October, up 0.6% ($1 billion) from a month before. Outstanding credit secured by homes reached $281.9 billion in October, though. Home equity is being used to secure 69% more debt than HELOC balances imply. Just missing the size of Vancouver’s GDP pledged as housing debt, probably nothing. 

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