I know what you want me to tell you. That Canada’s new mortgage regulations have quelled the stormy seas of our real estate market. That you’ll finally have a chance to compete; maybe even take part in that long-time bidding war fantasy you’ve secretly been harbouring. That just maybe, you will realize your dream of owning a home. Unfortunately, I can’t tell you that. In fact, from what I’ve seen Canada’s new mortgage regulations have just created bigger competition amongst entry-level buyers. Here’s how:
SUPPLY & DEMAND IS NOT AN URBAN MYTH
Though it may be just as terrifying, the Vancouver real estate market is not The Blair Witch Project. It is real. And as such, there is one great truth about it. In a few words, ten to be exact, the real estate market is run by supply and demand. Period. If demand exceeds supply, prices go up. And vice versa. What seems to have happened with the new mortgage regulations in Canada is that it has compressed more potential buyers into the same category. Those that were once approved for homes selling above $450k are no longer being approved for the mortgage one needs to go with them. As a result, they have the income for a more expensive home but not the mortgage so they’re being pushed downwards into lower to medium level homes. And what we need to remember here is that in Vancouver, $450k is an entry-level, small condo.
The new rules have raised the level at which buyers must qualify making it even harder for borrowers to enter the market with their existing income. This could have the reverse effect on the correction that was set to sweep Vancouver this year. In yet another piece by CBC, it was predicted that the new mortgage rules will also hit the Alberta real estate market hard. For buyers unable to put down 20%, a family with an annual income of $80,000 and a down payment of just 5% would have previously qualified for a $400,000 home but will now only be approved for a $300,000 home.
All too often what happens when regulations like this take effect is that they harm the very markets they intend to help. $380k may go far in a rural area, but the reality is that the biggest problems lie in the city centres like Toronto, Calgary and Vancouver. Last time I looked, there wasn’t much in this city going for less than $400k.
BABIES & CONDOS — THE NEW PB & J
An increase in competition for condos has also arisen as a result of these new regulations. Homebuyers previously interested in a detached or semi-detached simply no longer meet the mortgage requirements. Even young families are being forced into condo spaces. A CBC radio broadcast in late 2016 with Shannon Lee Simmons, a certified financial planner, stated that the new mortgage rules mean “We are all going to be raising babies in apartments. That’s what it’s going to come down to.” Simmons was talking about her fellow millennials, particularly those in Toronto and Vancouver.
MORE LAYERS THAN SUBTEXT
Since 2008 the Canadian government has tightened mortgage lending regulations six times. And this slow but steady layering is quickly leaving many buyers behind. With home prices rising at substantial levels every years, first-time homebuyers are being squeezed out of the market entirely. As Simmons pointed out, many of her clients have simply given up because they feel that it’s impossible to save at the same rate that home prices are going up.
Just last year the CMHC issued a first-ever “code red” warning, declaring that real estate affordability problems could spread far beyond the Toronto and Vancouver markets. Many experts have simply stated that buyers must lower their expectations about what is feasible, but it’s hard to lower your expectations when they’re already sweeping the floor.
I know a great many people who would be open to looking at condos or smaller spaces when what they really want is a house. The real problem is that, at least in Vancouver, there aren’t any.
Like I said, supply and demand.
THE ROAD TO HOME OWNERSHIP
Can be a bit bumpy sometimes, but the right person will sit beside you the whole trip. So, if you’re looking for a co-pilot on your journey to homeownership, feel free to contact me. I provide impartial advice and real-world experience.