Vancouver real estate: new mortgage regulations slow sales
Okay, now we’re finally hearing a new reason why real estate sales are slowing down in Vancouver and throughout the Lower Mainland. It’s not just that the foreign buyers are staying away, it’s because good ol’ working class Canadians are finding it harder to meet the tough (well, tougher) new mortgage regulations from the Big Five banks.
This morning, the BC Real Estate Association (BCREA) announced that Just over 5,300 homes changed hands through the Multiple Listing Service in August -- a nearly 18 per cent dip compared to the same month last year. Prices were also down about nine per cent over the same period, with the average residential home fetching just over $491,000 -- a figure which includes condos, townhomes, and detached homes.
BCREA chief economist Cameron Muir told CTV News tougher mortgage rules imposed in July put a damper on the housing market, but he's predicting a rebound by the end of the year as the economy picks up.
Of course, statistics always lag behind what the ‘reality’ on the street is, though this new revelation should come as no shock to people who have been listening to Bank of Canada chairman Mark Carney since the beginning of the year. Carney, the fittest finance guy in the world (and we’re not just talking about his bank account) has been sending out alarm bells about Canadian families and their personal debt levels for some time now. Fearful of an American style real estate meltdown that has gouged almost 40 percent off the price of a home – resulting in an enormous number of ‘underwater’ mortgages – where the cost of the mortgage exceeds the value of the house – our Central Banker encouraged Canadian lending institutions to tighten their rules.
In June, federal Finance Minister Jim Flaherty announced two major changes to mortgage lending: the end of the 35 year amortization (30 years is the maximum time to repay your mortgage), as well as an increase in the down payment in houses costing one million dollars or more to $200,000. The amount of equity that homeowners could tap into – the Homeowners’ Line of Credit (HELOC) also dropped to 80 percent from 85 percent.
Empirically, many Vancouver real estate agents remain hopeful that sales will pick up now that kids are back in school, and the fine late summer weather has certainly been conducive to looky-loos hitting up the many open houses around the city. Like window shopping at Holt Renfrew or MCL Motor Cars, if you haven’t got the pre-approved mortgage for close to the asking price, you’re still not likely going to be able to afford one. Better get your credit house in order first, before you look for a real house.
The big question is: how much will prices have to drop to attract an entirely new crop of buyers into the market who were previously ‘priced out?’ As the fall buying season fades, many listers take their homes off the market rather than be subjected to lowball offers.