2021 Stress Test
On June 1st, 2021, the province of British Columbia introduced a new stress test to prospective home buyers. The stress test was initially introduced in 2017 in hopes to cool down the market after the influx of sales we saw in 2016. As for 2021, the rate has now increased.
The stress test essentially affects how much people can afford when going to their lender prior to purchasing a home. The general purpose of this is to ensure that home buyers are still able to afford mortgage payments if/when interest rates eventually do go up. This is a way to mitigate defaults should the rates rise.
Although the interest rates are at an all-time low that still means there is a probability for interest rates to increase if history repeats itself. Previously, as a prospective homebuyer looking to borrow, they had to qualify for 4.79% plus 2%. Now, the minimum qualifying rate is based on the rate of 5.25% or the rate offered by their lender plus 2% – whichever is higher. This is applicable to all insured (under 20% down payment) and uninsured (over 20% down payment) purchases.
The new qualifying percentage is about half a percent higher than it was previously, but this can equal a $47,000+ difference in how much someone is able to borrow when purchasing a home. Otherwise, the purchaser will need to have an income of $9,000 more per year to qualify for the same amount before the new stress test. (Source: zoocasa)
The May Market
The spring market has been heating up before the new stress test came into play. The month of April was a record-breaking month in real estate sales but with these numbers, you can see a small decline in May due to hesitations knowing the new stress test would be introduced at the beginning of June. Regardless, the numbers are still soaring when compared to the sales and listings of 2020.
In May alone, the Fraser Valley Real Estate Board (FVREB) processed 2,951 sales on MLS which is an increase of 267% compared to May 2020 and a 2% decrease compared to April 2021. The board received 3,926 new listings in May 2021. This is an increase of 78% when compared to last year but a decrease of 22% when compared to April 2021.
There were several new construction projects that launched in May with homes absorbing at record prices, depending on the area. Many new construction projects were expedited and began sales in advance of their presentation centre/show home being ready. This was to take advantage of the hot market with sales teams conducting showings on a by-appointment basis and taking prospective purchasers through construction tours of the soon-to-be-built developments.
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