This Week’s Top Stories: Canadian Real Estate Drags The Economy, Risky Mortgage Debt, and Hidden Foreign Capital

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

Canadian Real Estate

Canadian Housing Investment Is Falling, And Will Be A Drag The Economy: BMO

Canadian real estate investment is starting to slow, and a big bank thinks it’s just the beginning. The GDP sub-component of residential investment made an annualized decline of 12.4% in Q2 2021. Since residential investment is such a large share of GDP, it drags the whole economy. The bank warned this is just the beginning of the slowdown. They expect moderation of housing investment to persist, at least for the near term.

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Canadian Real Estate Agents Are Discreetly Pushing Buyers To High Commission Listings

Ontario’s real estate regulator has found evidence agents and brokerages are “steering.” This is the illegal practice of withholding info from clients to shape their behavior. In this case, homebuyers have been directed to listings with better commissions.

Incentives are legal, but failing to disclose being paid an incentive, is not. Ditto for withholding better value listings, because one pays more in commission. In an industry email, they informed brokers and agents they will be cracking down on the issue.

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Canada Hid A Foreign Capital & Housing Study While Dismissing Intelligence Warnings

Canada was going through an odd phase in the 90s, where it buried any mention of foreign capital and real estate. This week, Canada’s tax authority confirmed to the SCMP they studied foreign capital and its impact on Vancouver real estate back in 1996. They found wealthy new immigrants were buying mansions with poverty levels of income. This is the first time they’ve confirmed the existence of the study. The public first found out when a retired auditor told the SCMP about its existence 5 years ago. It took 5 years for them to confirm it existed.

This bears an odd resemblance to an intelligence report made in 1997. An RCMP and CSIS task force alleged the immigration system was exploited for money laundering. Specifically, in Vancouver. The agents blamed political pressure for the report being scrapped and discredited. Years later, other countries began making similar claims to those in the report.

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Canadian Mortgage Debt Has Never Been Riskier [Video]

Business journalist Daniel Tencer takes a dive into the mortgage market. In our first video, he breaks down the surge of highly indebted borrowers buying homes. More importantly, he also discusses why regulators have been increasingly expressing concerns. Don’t forget to like, subscribe, and comment with the topic you’d like to see covered next time. We have big plans for exclusive content on our video channel, so stay tuned.

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Canadian GDP Drops Way Below The Bank Of Canada Forecast, Partially Due To Housing

Canadian GDP made an unexpected decline this week, largely due to real estate. GDP contracted 0.3% in Q2 2021, compared to the previous quarter, which followed 3 quarters of growth. Residential investment was the second biggest reason for the decline. It was only behind exports, which included a lack of exports for building materials.

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The NDP Hitting Canadian Homes With A 75% Capital Gains Tax Wouldn’t Change Much

The NDP, a Canadian political party, promises tough capital gains to stop speculators. If elected, they promise to increase the capital gains inclusion rate to 75% from 50%. While this has homeowners worried, it doesn’t really impact them. The only people that have a 50% capital gain inclusion rate are those with secondary properties. As for it stopping speculators, it shouldn’t technically do much. They should have been paying a business income rate anyway, not capital gains. Though there seems to be a big gap between what people should pay on their taxes, and what they do.

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Canadian Subprime Credit Inquiries Slow, But Still The Biggest Segment: TransUnion

Canadian credit quality is recovering, but subprime borrowers are still the biggest segment. The TransUnion Credit Industry Indicator (CII) reached an index score of 93.5% in Q2 2021. It’s up 9 points from the previous quarter, and 29 points from the August 2020 low.

Overall credit health was boosted by a rise in high-quality borrowers. This was the fastest-growing segment of credit inquiries as well. Though subprime borrowers still represent the most credit inquiries.

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Toronto Real Estate

Toronto Real Estate Prices Make The Biggest Monthly Drop In Nearly A Year

The “905” suburbs surrounding Toronto are still climbing in price, but in the City it’s another story. A typical home across TRREB, which covers the Greater region, reached a benchmark price of $1,059,200 in August, up 0.46% ($4,900) from a month before. In the City of Toronto, a typical home fell to $1,097,600 in August, down 0.45% ($5,000) from the previous month. The divergence might be coming to an end soon though, with both regions showing deceleration for annual price growth.

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