5 months after the latest mortgage rule changes, we are starting to see some impacts in the real estate market, especially here in Vancouver. Many homeowners have been forced to come up with even larger down payments. Furthermore, they must undergo a new ‘stress test’ which in some cases limits their qualifying amount substantially.
Affordability:All of this ‘market cooling’ hasn’t exactly impacted ‘affordability’ as some may have hoped. Many families were optimistic these new rules would impact pricing enough that they could finally get in to the single-family home of their dreams. Even with Vancouver home sales dropping by 35% in April of 2018, (compared to the same period one year ago), it is still near impossible for many Canadians to get a single-family home here in Vancouver where the average home is priced over $1,000,000. This doesn’t mean they can’t get in to the market at all, rather that what once was thought of as the ‘ideal’ type of home to settle down and raise a family in, has now shifted to more affordable condos and townhomes. More to come on this shift in another article…
Why I think prices are not falling as much as anticipated:Many Canadians and Vancouverites were optimistic that the new rule changes would impact affordability in a positive manner, but many of us in the mortgage industry knew how this would probably end up… Making it harder to qualify for a mortgage to ‘protect’ Canadians from overwhelming debt loads does not necessarily mean that housing will become cheaper! It just means loans are harder to get. Not exactly as good for Canadians as I’m sure the government intended. I am constantly being questioned by clients about the drop in home sales when in fact home prices are still not falling themselves, and I’d like to try and shed some light on that as well.
In our market, sellers have been getting record profits on the sale of their homes for many years. The drop in housing ‘sales’ is a combination of people wanting to wait until market conditions change, and people pulling their listings off the market when they aren’t getting the offers they think they should be. Time will tell if this theory is correct as there is not currently enough data to really dig in to this. However, I suspect in the coming months we will see a lot more information that supports this theory. According to a recent Global News article (and government press releases), the new rules were never intended to decrease home prices. As stated above, they were intended to protect against taking on more debt than Canadians could handle and in turn protecting the mortgage lenders from potential default, (the default rate in Canada is EXTREMELY low by the way.).
So what will happen next? Will buyers begin to have the upper hand? Will sellers’ profits be impacted?
As more data is released in the coming months we will begin to have a clearer picture of what this all means for buyers and sellers alike. If I had to make a prediction, I would say that the effects are going to be two-fold. On one hand, prices I believe will start to fall because sellers won’t hold off forever if the market doesn’t shift. Over time, the comparables in many neighbourhoods will start to show lower prices which would eventually mean lower listing prices to begin with.
If rates were ever to rise substantially, this could also force sellers to list properties that might pose too big of a monthly financial risk. Sellers may opt for less expensive homes if their payments become unbearable, (this likely won’t happen until many of these mortgages are up for renewal). Let’s not forget however, that by less homes on the market, (especially right now), means less supply in general. Basic supply and demand would suggest that a seller can command the price they want when inventory is low and buyers don’t have many options. It’s a classic “lets see what happens” right now in the so-called ‘cooling’ Vancouver housing market. I look forward to sharing more information with you as it becomes available!
Do you have a mortgage or real estate question? Ask away or comment below! I would be delighted to highlight your question in an upcoming article.