HST Depresses Canadian Housing Market In July

by Mike Godfrey, Tax-News.com, Washington

20 August 2010

It has been suggested that the introduction of harmonized sales tax (HST) in British Columbia and Ontario has contributed to a sharp fall in home sales in Canada as homebuyers brought purchases forward.

The Canadian Real Estate Association (CREA) has noted that national home sales activity continued to trend down in July 2010, almost entirely as a result of fewer sales in British Columbia and Ontario.

According to TD Economics, the July 1 implementation of HST in Ontario and BC likely impacted sales "substantially."

"While existing homes sales are not directly taxed, they could still experience an outsized pullback during that month as some previously untaxed housing-related services now fall under the HST," TD Economics stated in a commentary on Canadian house sale figures.

"Additionally, anecdote is that a certain of amount of new homebuying was moved-forward by mistaken homebuyer perceptions that purchases ahead of HST implementation would save the tax, ignoring that the pre-HST rush may have actually pushed up prices, with consequent give-back in July," the commentary observed.

According to the CREA, significant falls in seasonally adjusted home sales activity in British Columbia (14.1%) and in Ontario (8%) caused national sales activity to contract by 6.8% as recorded by the Multiple Listing Service.

CREA President, Georges Pahud, said that depressed activity during July “can be attributed to accelerated home purchases earlier in the year,” but activity will not remain low as a result of the new tax burden, Pahud surmised.

“[While] activity is expected to remain at lower levels for some time, a more stable market is expected to emerge, with demand coming back into line with economic fundamentals,” Pahud said.

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