Buyers looking for detached homes in Metro Vancouver have more choice as sales weakened again in June.
Detached home sales fell 42% to 766 and the Real Estate Board of Greater Vancouver says that the sector is leading the move towards a buyers’ market.
“Buyers are less active today. This is allowing the supply of homes for sale to accumulate to levels we haven’t seen in the last few years,” Phil Moore, REBGV president said. “Rising interest rates, high prices and more restrictive mortgage requirements are among the factors dampening home buyer activity today.”
Although new listings were down 7.7% across all residential property types year-over-year and down 17.2% from May 2018, total active inventory was 8,515, 40.3% higher than a year earlier.
While detached sales recorded the largest decline year-over-year, apartment sales were also down sharply (by 34.9% to 1,240) along with attached homes (down 37.3% to 419).
Price growth is slowing
The increased supply and weakened demand means that, although prices continue to rise, the acceleration of prices is slowing.
The benchmark price for a detached home is $1,598,200, up 0.7% from a year earlier but down 0.6% compared to May 2018.
For apartments the benchmark is $704,200, up 17.2% y-o-y and up 0.4% m-o-m; for attached homes the benchmark price of $859,800 is up 15.3% y-o-y but virtually unchanged month-over-month.
“With reduced demand, detached homes are entering a buyers’ market and price growth in our townhome and apartment markets is showing signs of decelerating,” noted Moore.
Canadian housing starts declined in May as overall multi-family construction in urban areas weakened.
CMHC’s 6-month moving average shows 216,362 starts in May compared to 225,481 in April.
“In May, the national trend in housing starts declined following several months of stability,” said Bob Dugan, CMHC’s chief economist. “This reflects a decline in multi-unit urban starts in May that leaves them close to their 10-year average following several months of historically elevated levels.”
The figures show a divergence in construction trends in the two hottest markets.
Vancouver saw continued growth in multi-family, which led overall gains. Multifamily starts increased 9% in the past year.
Toronto, by contrast, saw fewer overall starts and this was notable in the multifamily sector. CMHC says that the CMA’s stronger supply of existing units and higher mortgage costs are key factors.
Langford saw strong gains for condo starts in Metro Victoria and the metro as a whole has seen increased building activity especially in rental units.
Multifamily has also led to a rise in overall starts for Saskatoon while it was single-family homes that increased most in Brantford due to more affordable home prices than nearby Hamilton.
Although multiple units led construction in some markets, nationally they declined 16.4% in the standalone monthly figure (seasonally adjusted annual rate) to 119,811 units while single-family units increased 2% to 58,390. Overall, the monthly figure was down 11.1% to 178,201.
The national rate of home price appreciation has averaged more than 10% in the past 2 years but that’s set to change significantly.
In its latest housing market forecast, RBC Economics predicts a rise in home prices of just 1.8% for 2018 as policy actions and interest rates conspire to cool the market.
Economists are also expecting that home resales will be weaker in 2018 than 2017 (down 4.5% following a 4.3% drop in 2017) making the second year of annual declines, something not seen in Canada since the mid-90s.
But while price appreciation is to soften, RBC Economics does not see a significant correction nationwide; this risk, it says, is contained.
Supply-demand balance is expected to be seen in most major markets including Ontario and British Columbia, with steady support coming from economic fundamentals.
The mortgage stress test’s long-term impact
The tighter lending rules created by the new mortgage stress tests introduced by OSFI at the start of 2018 “will ultimately dampen homebuyer demand in Canada” RBC Economics senior economist Robert Hogue believes.
He adds in the report that the stress test will impact homebuyers’ budgets leading to growth for the lower-priced housing types at the expense of pricier units. This, he notes, is already being seen in Toronto and Vancouver and is expected to extend to other cities.
Interest rates will also continue to impact the market, with four more hikes forecast through to mid-2019 taking the rate to 2.25%. Hogue says that this will start to have more pronounced impact later in 2018.
SURREY, BC – Buyer activity in the Fraser Valley stayed coy throughout April despite a bump in inventory across all three major residential types.
The Fraser Valley Real Estate Board processed 1,708 sales of all property types on its Multiple Listing Service® (MLS®) in April, a decrease of 23.4 per cent compared to the 2,230 sales in April of last year, and a 2.6 per cent increase compared to the 1,664 sales in March 2018.
Of the 1,708 sales processed last month 413 were townhouses and 498 were apartments, together representing 53 per cent of all transactions in April.
Active inventory for the Fraser Valley finished at 5,667 listings last month, increasing 18.2 per cent month-over-month, and 15.3 per cent when compared to April 2017.
“While it’s great to see the increase in inventory we were looking for, both buyers and sellers remain careful as pricing continues to climb,” said John Barbisan, Board President.
The Board received 3,429 new listings in April, a 19.7 per cent increase from March 2018’s 2,865 new listings, and a 16.2 per cent increase compared to April 2017.
“This isn’t the same spring market we saw each of the last two years, but listings that are selling are still going fast. If you’re considering buying or transitioning from a strata to a detached home, be prepared to move quickly, and talk to a REALTOR® who can support you through the whole process.”
For the Fraser Valley region the average number of days to sell an apartment in April was 14, and 16 for townhomes. Single family detached homes remained on the market for an average of 26 days before selling.
HPI® Benchmark Price Activity
• Single Family Detached: At $1,009,200, the Benchmark price for a single family detached home in the Valley increased 0.8 per cent compared to March 2018, and increased 13.5 per cent compared to April 2017.
• Townhomes: At $549,900, the Benchmark price for a townhome in the Fraser Valley increased 1.5 per cent compared to March 2018, and increased 23 per cent compared to April 2017.
• Apartments: At $447,500, the Benchmark price for apartments/condos in the Fraser Valley increased 1.6 per cent compared to March 2018, and increased 45.8 per cent compared to April 2017.
One of the toughest challenges for homebuyers is being able to save money at the rate of property price increases.
We know many high-income renters would like to be homeowners, but they’re just unaware of how to make the transition and are unable to save fast enough.
There are several options which are great for a down payment if you can use a combination or one of the traditional methods
2. Gift from parents
4. Selling an asset
Kindly keep in mind this option won’t be for everyone as the following criteria must be met; it’s simply to illustrate the opportunity to go from renter to owner as soon as possible.
The Flexible Down Payment program allows homebuyers to use existing credit facilities as their down payment.
Minimum household income required is $200,000 combined
• Minimum 650+ beacon score
• Minimum two years history reporting on Credit Bureau
• Sources of down payment: line of credit, credit card, personal Loan
• Include borrowed down payment in the debt servicing of the deal. Example: Unsecured LOC at 3%, Credit Card at 3%, store brand Credit Card at 5%, Personal Loan at actual payments.
• No late payments in the past 36 months
• High Ratio Deals only: 90.01-95% LTV
• 25 year amortization
• Strong Employment History
• No previous bankruptcy or consumer proposal
We can walk you through the details, contact a Dominion Lending Centres mortgage professional today!
The Canadian mortgage market used to be very simple. We had the big banks, credit unions, and trust companies.
However, almost 20 years ago, the Canadian government made three major changes to the Canadian mortgage industry. First, the government and CMHC put their weight behind Canadian mortgages by guaranteeing an insurance payout to lenders in the event that a borrower does not pay. Yes, the Canadian taxpayers are on the hook if CMHC goes under.
Second, Canada also began to allow lenders to pay for mortgage insurance for their borrowers, even though the insurance was not required. Borrowers would not know that their mortgage is insured, rather the lender would pay for, and insure the mortgage on the “back end” in order to make the mortgage less risky. I.E: if the borrower did not pay, the insurer would pay the lender (just as they would pay if the borrower had less than 20% down payment and was charged for insurance themselves).
And third, Canada allowed its lenders to bundle up their mortgages and sell them to investors. The securitization of mortgages (the process of taking the mortgages and transforming them into a sellable asset) allowed investors to purchase many mortgages at once, knowing there would be a specific return. The return here would be just less than the interest rate on the various mortgages (less because the lender has to make a little bit of money for creating the mortgage bundle or security).
Now, mortgage investors are looking at two things: investment return and mortgage risk. The lower the risk of an investment, the lower the return an investor may be willing to see. Because Canadian lenders can insure their mortgages against default (non-payment), investors are very keen on purchasing these mortgages. Thus, investors provide lenders with a lot of inexpensive money to lend out, which in turn, provided for better interest rates for borrowers.
As an aside, an example of investors may be one of Canada’s large banks, an American bank, pension funds, and/or other financial institutions.
The result was the emergence and major growth of mortgage finance companies, called wholesale lenders or monoline lenders.
Monoline lenders, encouraged by access to cheap capital, set up efficient mortgage underwriting (approval) operations and were able to provide flexible mortgage products and better-than-the-banks interest rates for their clients.
The overwhelming majority of wholesale lender mortgages are back-end insured by the lender, packaged up, and sold to investors.
What is interesting here is that wholesale lenders will insure mortgages transferred from one institution to another – something that banks do not do. This allows for better interest rates when renewing with a wholesale lender than if renewing with your current bank lender.
If you have any questions related to mortgages, contact your Dominion Lending Centres mortgage professional today.