A week after B.C. marks Family Day on February 8, new rules kick in for mortgages insured by the Canada Mortgage and Housing Corp. (CMHC) that will require at least 10% down on the price of a home over $500,000 – double what’s currently required. For example, buyers eyeing a $600,000 property will have to assemble an extra $5,000 after February 15 to qualify for mortgage insurance. It doesn’t sound like much, but making the down payment is often the biggest hurdle first-time buyers face when approaching a property. “It’s driving urgency in our presentation centres,” said Scott Brown, president of Fifth Avenue Real Estate Marketing Ltd. But it’s not singles who are likely to be hardest hit by the new rules; it’s the families ostensibly celebrated just a week before the new rules kick in. Because most singles who want in can find a place that’s less than $500,000, spare a thought for the buyers trying to find a place for themselves and a child (already hard-pressed by a lack of family-sized premises). “The buyer that’s likely to be affected is the move-up buyer,” Brown said.
Servicing a mortgage once they’ve got it isn’t usually the issue for buyers, Brown said. The rate of B.C. mortgages three months or more in arrears has been falling and now stands at just 0.3% – the lowest since 2009. But the greater down payment for insured mortgages will likely prevent some people from even taking on debt in the first place, even if they can manage the load. Still, the impact from the well-intentioned program is likely to be minimal, according to Royal LePage Real Estate Services Ltd. “The change will produce an added benefit akin to a slight tap on the brake,” said Phil Soper, president and CEO of Royal LePage, in a review of the national housing market. “On a nationwide basis, we expect the number of transactions that this will impact to be minimal – significantly less than the initial industry reaction would lead consumers to believe.”
Royal LePage expects an extended period of “exceptionally low” mortgage rates, a prospect enhanced by the emerging prospect of a grisly bear market in stocks slowing economic growth. This means tightening loan requirements is one of the tools Ottawa can use to keep borrowing in check.
But when Soper talks of a “slight tap” to prices in Vancouver, what kind of a tap does he mean? Royal LePage pegs the aggregate year-over-year gain in Greater Vancouver house prices for the past year at a modest 12.4%. That compares with a 19.2% increase in the Real Estate Board of Greater Vancouver’s benchmark price for the region. (However, Royal LePage’s aggregate house price is $949,468 versus the REBGV benchmark of $760,900.) Soper expects the price increase for 2016 to edge back into the single-digits, gaining just 9%, driven (as in 2015) by detached house values.
The real question, of course, is how strong demand will be. Fifth Avenue’s Brown said demand has continued to be steady from 2015, a year in which the Real Estate Board of Greater Vancouver said sales tallies hit a record 42,326 units despite listings being below the long-run average. Fifth Avenue, which focuses on new homes, isn’t lacking for product, however. CMHC numbers indicate that strong demand for new homes pushed the total number of starts for 2015 to 20,863, the second-highest tally since 1993. (Just six years ago, they plumbed levels unseen since 1963.) Indeed, construction was so strong in December that if annualized it would equate to 25,101 starts – well above the 20,700 that CMHC forecasts for 2016.
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