Vancouverites love to discuss real estate. Who knows what exactly this obsession stems from? Maybe it’s jealousy of “The Big Smoke” Toronto and the gloating that arises from knowing our prices are higher than there’s. Maybe it’s due to our absolute disbelief that YVR prices could actually outstrip places like LA! Whatever it is, we do love to talk about it. However for the first time in over a decade the talk is actually about how the bloom may be off the rose. Vancouver’s strategic (and I guess many would say enviable…) position as the city of choice for the millions of newly-minted Mainland Chinese millionaires to purchase property and at the same time place their money in a foreign “safe haven” and educate their children, has placed it front row centre for a huge influx of Chinese money. This city’s West Side property prices have skyrocketed literally into “silly money” territory over the last five or so years. With the US’s economic ills continuing, properties in LA’s Bel-Air, Holmby Hills and even Malibu neighbourhoods have appeared to us up here to sell for chump change (…btw, real estate is beginning to make a comeback of sorts stateside…).
So, is the bloom really off the YVR rose? With Europe and the US still struggling and the globe finding itself in a deflationary environment, will our vaunted Vancouver property values really plunge? And will they be tipped over the brink by the latest round of fed tightening of property financing rules? It remains to be seen. Between the federal Finance Ministry and OSFI (The Office of the Superintendent of Financial Institutions), together they have tightened HELOC (Home Equity Lines of Credit) rules, reduced the amortization period of CMHC (Canadian Mortgage & Housing Corporation) – backed mortgages to their erstwhile 25-year period (where they were for decades but had been extended to as much as 40 years recently), and tightened TDS (Total Debt Service) ratios for people qualifying for a mortgage. They even came out of the blue with an unexpected rule change: mortgages on properties over a $1M value will no longer be eligible for federal mortgage insurance. That may have had something to do with the fact that CMHC is not far off its $600B funding cap, which the feds say they won’t raise. Most of these changes will probably not make a huge difference to most people. However, the Total Debt Service rule change deserves a quick look as it will mostly affect first-time home buyers, the “feeders” if you will of the market as a whole. Before July 9, when these new rules kick in, for a buyer purchasing a $325,000 property with a 5% down payment and a 5-year-term mortgage at 3.09% and a 30-year amortization, with the present 44% TDS figure being applied, they would be require to have a $43,260 income to qualify. As of July 9, with everything else being the same but the mortgage amortized over the shorter 25-year time frame and the TDS ratio being brought down to the stricter 39%, that same buyer will require an income of $53,836 to qualify for that property OR at their $43,260 income, only qualify for a $254,000 property. If anything, this rule change may be the one that tempers the market the most, as the first-timers are the aforementioned “market-feeders”.
As a final note, the current “softer” (but not dead…) market we are experiencing has to be placed in perspective. With a blip or two to in 2008/09, we have had a “screamer’ of a market here in Vancouver for well over a decade and sooner or later reality has to set in. My take is that barring a major catastrophe of any sort, we will continue in this “balanced-to-buyer’s” market in Vancouver for the next two or so years, at which time the market slack will be gradually taken up (especially in the over-built condo sector) and things will start to pick up again. After all folks, this is “Lotus Land” and we have no land!!
Neil Hamilton is a Senior Property Advisor with Macdonald Realty Ltd. with expertise in the buying, selling and leasing of both residential and commercial properties throughout the GVA. He can be reached at 604-569-1940 or email@example.com.