The Dreaded HST and the Housing Market

What is the proposed HST going to do to the housing market? Even more worrisome is the forecast that interest rates are likely to rise around the same time as the HST kicks in. Low interest rates have boosted affordability and the combination of low interest rates and relatively lower housing prices have drawn first-time buyers into the market in droves. In fact, where first-time buyers would have made up approximately 25% of December sales, they actually accounted for 40% of December 2009 sales.

The proposed HST (Harmonized Sales Tax) will combine the PST and GST. Some items which were previously PST exempt will now carry HST, meaning a whopping 7% increase in taxes on those items. In recent years, purchases of building lots have only carried GST, not PST, but, if the tax comes into effect July 1, as expected, HST will apply, increasing the cost by 7%.

New home sales have also only carried GST, with some rebates allowed if the home was to be owner-occupied. That is also the case with the proposed HST. HST will apply on new homes where the Buyer takes ownership or possession on or after July 1, 2010. There will be some exemptions and threshold limits that may mean rebates of the tax for some home buyers.

Local Real Estate Boards did have some success in lobbying the government for increased thresholds for the proposed tax. It appears that the maximum threshold for rebates on HST will be raised from $400,000 to $525,000; Over $525,000, everyone will receive a rebate of $26,250, (71.43 of the provincial portion of the HST), if the home is going to be owner-occupied.

So, what does this mean for the real estate market? In Mission, the impact on prices and activity should be less severe than in more urban areas, since a large portion of our new homes being sold are below the threshold of $525,000. Independent of any interest rate hikes, which have a lowering effect on prices, due to decreased affordability, the newly-imposed HST could potentially have the impact of increasing prices to some degree, albeit not likely by as much as 7%. The problem is, what will that do to market activity?

The HST doesn't only affect new homes, since activity in one market segment affects activity in other market segments. Regardless of whether your home is the kind of home that first-time buyers are purchasing, or if your home is more in the second-home range, there are always “trickle down” effects of activity. For example, a person selling their home to trade-up for a newer one may not be able to afford a new build, but maybe you can. Perhaps your home is exactly the one that someone would want to trade up to, even if it is no longer meeting your family's space requirements. Perhaps this is the year to make that move you have been considering, to get into a brand-new home before the HST kicks in? (Particularly if you are thinking about buying a new home worth more than $525,000.)

The greatest likelihood is that the looming HST will mean that the number of sales will decrease after May 1, 2010, as many people will make sure their completion dates fall before July 1 to avoid the HST. I am expecting a very busy spring market, with lots of sales. But the likelihood is that the summer and fall months will experience fewer sales than we have experienced in recent months. And, don't forget that a drop in demand usually means a drop in prices, so waiting too long could cost you money.

With my skills, knowledge and area expertise, I can help you to use the right strategies that work to get your Mission home sold. Call me to help you make the most important decision of your life an INFORMED decision. Call Cyndi Polovina today at_604-820-7733!