Time flies over us, but leaves its shadow behind.
- Nathaniel Hawthorne
Every time there is a slowdown in the market and people lose on their investments there are loud promises made about never doing it again. No more short term gains with long term pain attached. Unfortunately the optimistic side of human nature asserts itself and is certain that there will be no downside to this buoyant market. This time it’s different. Not so much.
A lot of the blame for the slowdown in the Vancouver market has been placed on the federal government mortgage stress test which has reduced the buying power of qualified purchasers. Many suggestions have been made to ameliorate some of the effects of the test while still maintaining financial responsibility. A major recommendation being a return to a 30 year mortgage amortization term to make monthly payments more affordable. The Office of the Superintendent of Financial Institutions stated that no adjustments are necessary and the B20 stress test set up to strengthen mortgage lending requirements is working just fine. In many markets with lower housing prices the stress test has been absorbed more readily. In the major high price point markets of Vancouver and Toronto there is still a huge gap in affordability.
Evan Siddall, CEO of CMHC is a big supporter of the stress test who criticizes the development industry, real estate groups, mortgage professionals and sundry organizations who make thoughtful suggestions for change. He rightly points out that the high cost of real estate is the reason that the stress test impacts people trying to buy into the market. However, even with the latest price adjustments that market remains the real world for buyers and owners with equity.
Photo by Scott Webb on Unsplash
A side effect of the mortgage stress test has been the strengthening of the secondary lender mortgage market where borrowers can go who can’t qualify for a sufficient mortgage under the stress test. The B20 stress test protects the government against loan losses on insured mortgages but leaves the Canadian borrower at more risk of higher rates. There is a general misunderstanding of insured mortgages: they protect the bank’s investment, not that of the consumer. With the stress test and borrowers going elsewhere without the stress test the banks are losing billions of dollars of mortgage business.
As a counterpoint to all the political fallout from the stress test the Liberal government ordered CMHC to loan money to qualified buyers. The Financial Post stated that essentially the program is for people who already qualify and have lower than average debt ratios for a first-time buyer. They are preaching to and servicing the choir. All less qualified applicants need not apply.
The president of VanCity Credit Union that has always done a substantial mortgage loan business states about Metro Vancouver housing:
"We still have a huge affordability issue, of course, where it is still out of reach for household incomes of 100,000 or 120,000," she said. "We don’t have the right mix of housing."
Let’s hope that the three levels of government get the memo about infrastructure and tax incentives to rezone and build family rental housing.
Detached homes sales have declined 1.4% compared to May 2018. The detached benchmark price across the region is $1,421,900, a 11.5% decrease from May 2018.
Townhomes are desirable to downsizing buyers but the drop in the numbers of sales of detached homes has put many buyers plans temporarily on hold. Attached sales numbers are up slightly by 0.6% from May 2018, The benchmark price across the region is $779,400, a 7.6% price decrease compared to May 2018.
Condominiums which were the choice of first time buyers and investors in 2017 and early 2018 have been heavily impacted by the mortgage stress test and provincial taxes. Apartment sales numbers are down 12.9% from May 2018. The regional benchmark price is $664,200, a 7.3% decrease compared to May 2018.
"High home prices and mortgage qualification issues caused by the federal government’s B20 stress test remain significant factors behind the reduced demand that the market is experiencing today."
as stated by Ashley Smith President, Real Estate Board of Greater Vancouver.
For all property types the sales to active listing ratio for May 2019 is 18%. By property type the ratio is 14.2% for detached; 20% for townhomes; 21.2% for apartments.
In May 2019 the benchmark price for a detached in North Vancouver was $1,508,300 down 11.1% in one year, up 49.5 % in 5 years and up 92.2% in 10 years.
In Richmond the detached benchmark price was $1,503,700 down 12.8% in one year, up 48.5% in 5 years and up 111.9% in 10 years.
In Vancouver East the detached benchmark price was $1,347,000 down 12.5% in one year, up 49.1% in 5 years and up 122.3% in 10 years.
In Vancouver West the detached benchmark price was $2,927,600 down 14.5% in one year, up 31.4% in 5 years and up 112.8 in 10 years.
In West Vancouver the detached benchmark price was $2,518,000 down 16.6% in one year, up 24.4% in 5 years and up 97.9% in 10 years.
First time buyers are particularly hard hit by mortgage stress tests, high prices and lack of affordable inventory. As prices decrease their ability to buy increases.
In May 2019 the benchmark price for a condo apartment in North Vancouver was $557,100 down 8.8% in one year, up 55.2% in 5 years and up 77.4% in 10 years.
In Richmond the condo benchmark price was $637,900 down 4.9% in one year, up 76.1% in 5 years and 102.0% in 10 years.
In Vancouver East the condo benchmark price was $569,300 down 6.4% in one year, up 71.9% in 5 years and up 109.2% in 10 years.
In Vancouver West the condo benchmark price was $758,500 down 10.3% in one year, up 53.6% in 5 years and up 82.0% in 10 years.
In West Vancouver the condo benchmark price was $1,022,700 down 18.6% in one year, up 50.0% in 5 years and up 63.6% in 10 years.