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rob carrick

Governments hate to interfere in housing because of how precious it is to voters.

So, it's huge that the B.C. government will tax foreigners investing in Vancouver's residential real-estate market and that Ontario is considering a similar move. These provinces are worried about overheated housing markets, and you should be, as well. A warning light on our hottest housing markets has just switched on.

What does this warning light mean? For one thing, it says there's hope for all the young buyers who are priced out of the market now and waiting for price declines or, at worst, a plateauing of price growth. Vancouver's housing market isn't about to keel over, but it did just get a nudge from the tax on foreign buyers. Toronto may soon get one, too.

If you're hell-bent on buying, my 10/10 rule applies. Put at least 10 per cent down and plan to stay for 10-plus years, which should be long enough to let any price correction play itself out. Now is not the time to buy a starter home you'll dump in a few years to upgrade.

And if you're the owner of a house that has doubled or tripled in value, it's time to map out the next phase of your life. Sell now, or commit to staying for another decade or more. Nervy types may try to sell near the top, rent for a while and then buy after a correction. But this sounds too stressful for most and probably a marriage-wrecker in some cases.

June data shows the average resale home price in Toronto rose 16.8 per cent on a year-over-year basis to $746,546, while Vancouver rose 11.3 per cent to just more than $1-million. We've seen many monthly reports like these in recent years. Cumulatively, they have given us a housing market that is finally starting to scare politicians.

The federal government announced a month ago that it would create a working group to study the Vancouver and Toronto housing markets. This week, the B.C. government acted by introducing an extra 15-per-cent tax on Vancouver-area residential properties purchased by people who aren't permanent residents. Foreign money might now flow into Toronto, which explains why the Ontario government is looking closely at the same type of tax.

These measures are driven by a concern that housing prices have risen too far and too fast. We've been hearing about real-estate bubbles since forever here in Canada, partly because there actually was one in the United States last decade that exploded with great force. The question of whether we have a bubble in Canada now is still up for debate. What we do know is that the level of worry has increased on several levels.

Canada Mortgage and Housing Corp. said Wednesday that it has detected overvaluation in nine cities, notably Vancouver. The federal Office of the Superintendent of Financial Institutions has asked smaller banks to see how they would be affected by a price decline of at least 50 per cent in Vancouver, at least 40 per cent in the Toronto area and 30 per cent in other areas. This exercise is about regulators trying to explore a worst-case outcome, not a price forecast or preparation for an expected storm. Still, it does show that Canada's overseer of banks is taking the risk of an overheated market very seriously.

A tax on homes bought by foreigners is not a market-stopper all by itself. TD Economics projects a drop in sales of 15 per cent to 20 per cent in Vancouver over the next nine months and a decline of about 5 per cent in average prices. But the foreign buyer tax is a much stiffer measure to constrain housing than the down payment changes the federal government introduced late last year.

It's important to note that there are still some solid supports for housing. Interest rates remain low, employment levels are stable and immigration continues to stoke demand. But recent house price increases still seem out of whack with inflation running at 1.5 per cent and wage increases in pretty much the same zone.

The warning light on housing may prove to be a false alarm. But it's telling that the B.C. government is taking steps to control price increases. You win the most votes by leaving housing to fatten, not with measures that could make prices fall.

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