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HST won't necessarily slow housing market

March 20, 2010
Stephen Dupuis
Toronto Star

 

If there’s one common theory I’ve heard about the housing market for 2010, it’s that the first half of the year will be much better than the second. The two most common reasons cited for slower second half sales, neither of which I’m completely buying, are rising interest rates and the implementation of the harmonized sales tax (HST) on July 1, 2010.


It would appear that the first part of the theory is holding true. Both the new and resale markets got off to reasonably healthy starts this year, putting us well on the way to a solid first half. Will the bottom fall out in the second half? While many analysts believe so, I tend to disagree.

Exhibit number one for those that predict a slower second half is rising interest rates. My view is even if rates rise, they are rising from 50 year lows. Five-year fixed money can currently be obtained in the 4 per cent range while variable rates are at 2.25 per cent. If rates go up a full percentage point or even two points, they will still be unbelievably low by historical standards.

I’m also hearing from economists that don’t believe rates will rise until early next year. Peter Andersen, consulting economist to the Canadian Home Builders’ Association, wrote in his most recent internal industry newsletter that interest rates are not expected to show significant increases until 2011. “Rates are on hold through the end of the year,” Andersen told a recent gathering of builders from across Canada.

The other factor cited by the slow second-half theorists is the impact of the HST. I’m not sure whether these analysts are thinking that demand is being pulled forward by buyers trying to beat the HST or that demand will simply evaporate after July 1 due to higher house prices.

If higher prices are the concern, let’s not forget that up to $400,000, the HST is fully offset by rebates and input tax credits. Above that price threshold, the $24,000 rebate substantially cushions the impact of the HST through the middle price ranges. Where the HST does start to bite is in the higher price ranges, but that’s obviously a less price-sensitive buyer and a much smaller market segment.

As for beating the HST, the reality is that homebuyers have not been able to beat the HST since June 18, 2009, which is the day the Ontario government announced that any homes purchased after that date would be subject to HST unless delivered no later than June 30, 2010.

Believe it or not, the HST has been in effect for nearly nine months on new homes. Yet buyers have apparently been more influenced by great prices and great interest rates, making their decisions on a bottom-line basis and not getting all hung up about the HST. I don’t see this changing after July 1, 2010, which is why I don’t buy the second-half slowdown theory.

My optimism is buoyed by the results of the recent RBC Homeownership Survey which revealed that 92 per cent of Ontarians consider homeownership a good investment. That’s the highest level in 12 years and it’s consistent with the survey finding that 64 per cent of Ontarians expect house prices to rise in 2010.

So, while buyers may not be able to beat the taxman, they can beat rising prices. That would explain the survey finding of very healthy increases in the number of Canadians intending to buy a home in the next two years.

Stephen Dupuis is president and CEO of the http://www.bildgta.ca/Building Industry and Land Development AssociationEND. The views expressed are those of the president. Email: president@bildgta.ca.

 

 

 

 

 

 

 

 

 

 

 

 

 

Posted on Tuesday, March 30, 2010 at 02:00PM by Registered CommenterElaine in , | CommentsPost a Comment | References1 Reference

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