For over a year now the federal government has been actively trying to cool down the real estate market in Toronto & the GTA. For a while, everyone was expecting drastic policy changes and tightening of regulations. This is because while real estate investors and speculators were too busy cashing in their profits, the average canadian homebuyer was barely able to keep up with increasing property values.

In October 2016, we witnessed the first major set of changes. By increasing the benchmark rate on CMHC insured mortgages and by reducing qualifying amortization down to 25-years, roughly 20% of the population lost their ability to mortgage their home using CMHC insurance. Despite these changes, the market remained strong.

Then in April 2017, the federal government introduced the foreign buyers tax and capped rent increases in an effort to further cool down the market in Toronto & the GTA. These were primarily directed towards foreign speculators and real estate investors sitting on vacant homes.

Surprisingly, while the new rules and changes had little to do with your average first-time homebuyer, the real estate market in Toronto & the GTA cooled overnight. In scenarios where you would typically have 20-30 offers on a detached home in Toronto, the number of registered offers dwindled to as few as 1-3. From a seller’s market, it has turned into somewhat of a balanced market. Sellers expectations, however, remained as high as months ago.

While most real estate professionals recognize the slow-down, and claim it to be temporary, those who understand the fundamentals of real estate investing continue shopping for homes.

However, something that could have been only a small hiccup in an otherwise still hot market, was exacerbated by the Home Capital Group scandal. After going through audits, restructuring and the resignation of CEO Martin Reid, the Home Capital Group scandal reached its climax at the end of April. Within a month of the new federal regulation changes, Home Capital Group’s stock collapsed overnight on April 26. With the loss of investor confidence due to their earlier non-disclosure issues, HCG lost over $840 Million in assets during the month of April – which subsequently crippled their ability to lend mortgages.

The impact of this is that, one of Canada’s largest B-lenders providing mortgages to clients that don’t qualify with traditional banks, faced serious liquidity issues.

Considering that this segment of the mortgage market is geared towards business for self clients (~60% of the Canadian workforce) and applicants with bruised credit (anyone with a 650 credit score or below,) the possibility of losing Home Capital as a mortgage lender could potentially further complicate borrowing. Consequently leaving the market to a standstill, with less borrowers being able to qualify for B-mortgages and less homes being purchased.

With less people able to obtain funding and more people looking to cash in their investment properties for profit, the market is destined to take a turn toward being oversaturated with inventory. Although this is really only a temporary issue, as many of HCG’s competitors have picked up the slack, it is still definitely a major moment in Canadian Real Estate.

The majority of market influences remain the same, despite the new regulations and the demise of HCG. There is still a lack of available land to purchase the closer you get to the downtown core. Furthermore, besides the availability of land, there is a shortage of quality detached homes in the area. As downtown Toronto focused primarily on developing condos, the supply of detached homes became even more rare and exclusive. Finally, because of the previous two factors, the cost per square foot in Toronto & the GTA is at a premium, precisely because the neighbourhoods are tying to accommodate so many people. Therefore detached homes are becoming all the more rare and valuable.

In a nutshell, more potential home buyers are going to start to realize that the events described above are likely to leave no long-lasting impact on the real estate market in Toronto & the GTA. We are likely to see it all go back to “business as usual” in 3-4 months.

For now, with more inventory being available for the next little while, the market will become more balanced. However, it is important to remember that the fundamentals and shortage of detached houses will remain the same, which ultimately continues driving prices up.

If there’s ever been a good time to buy Real Estate, that time is now.