When it comes to the HST and real estate, consumer uncertainty reigns supreme.
But the much-despised tax will likely not impact the real estate market much, despite the widely held perception on the part of consumers that the HST is pure evil.
During a market analysis session at the Kamloops head offices of the Bank of Montreal Tuesday, BMO economist Michael Gregory said the HST, set to come into effect July 1 in both B.C. and Ontario, has already had some impact on real estate markets.
In both provinces, the looming implementation of the combined provincial and federal sales taxes has pushed buyers into the market earlier than they might otherwise have jumped in.
As a result, the spring selling season has ranged from warmer than usual in Kamloops to downright overheated in major markets such as Toronto and Vancouver.
But Gregory said the beat-the-HST rushes will soon end and a lull will follow. That downturn will continue through the rest of the year, he added.
That doesn’t mean the HST is an overall drag on real estate, he said. The tax has simply shifted buyers to the early part of the year. Once the numbers are crunched at year’s end, the impact will flatten out.
The HST will be felt most on new homes, which will be subject to the full HST, and existing homes above $525,000. Pre-existing homes below that level will not be subject to the tax.
Perceptions of the HST aside, the fact is Canada’s economic foundation is strong, said Gregory. The economy and job creation are on the rise in all parts of Canada.
Those factors ultimately have more impact on housing sales than the HST will ever have. If the financial fundamentals stay strong, so will markets.
It may take six months for people who have shied away from buying now because of the HST to get back into the market, but they will return, Gregory predicted.
“It’s only a matter of time,” he said. “It could be enough to postpone their desire until they have a little extra savings.”
Dick Pemberton, president of the Kamloops and District Real Estate Association, agrees. He said the Kamloops market is strong, despite the potential for a short-term HST lull, and he does not expect the HST will matter much in the end.
There are other more pressing factors that will affect the market before the HST, he said, including the potential for increased mortgage rates in the coming months.
Higher borrowing costs affect affordability, he noted.
The HST will see consumers charged more for all the professional services around the house-sale process — everything from legal fees to realtor commissions.
Will the HST force people to pay more for those services? Not necessarily, Pemberton said. He expects it’s likely consumers will be able to negotiate new deals with the professionals they deal with to compensate, at least in part, for the added cost of the tax on services.
Pemberton said of all the taxes the real estate market contends with, the HST means nothing compared to the impact of B.C.’s property transfer tax, which has been in place since 1988, when it was introduced by Socred Premier Bill Vander Zalm.
The transfer tax thresholds remain at the same levels they were in 1988, Pemberton said. Then, it was seen as a luxury tax. Today, due to the rise in property values, the tax affects more than 88 per cent of home sales in B.C.
The tax badly needs an overhaul, Pemberton said. Raising the threshold levels from the current $200,000 ceiling to $525,000 would immediately benefit consumers and make housing more affordable.
“Any tax that erodes affordability is a concern,” Pemberton said.
Darryl Caunt, president of the Kamloops chapter of the Canadian Home Builders Association, said many builders are not yet certain how the HST will impact them.
“We are still seeking some clarity,” he said. “The HST — it’s a risk. The HST will affect us, because it (affects) the affordability of the product. It’s a cost to the consumer.”
Of more concern than the HST is the level of inventory in Kamloops, he said. Typically the Kamloops market has shown it can absorb no more than about 120 new homes a year.
The city has already seen that many housing starts this year, raising the spectre of a competitive new home market as the year winds down.