In January 2018, much of the Canadian real estate market landscape changed. Rule B-20 came into effect requiring that Canadians pass a stress test at higher interest rates than before to receive a mortgage. Previously, someone seeking a mortgage would have to qualify at the rate of their proposed loan. If a lender was willing to loan money at 3%, as long as they passed the stress test at 3%, they were golden. Now, B-20 tightens that up by making the stress test at the mortgage rate + 2% or the 5-year benchmark rate, whichever is greater. In our hypothetical example, the borrower would have to now qualify at approximately 5% even though the contract is only for 3%. A rule such as this might sound odd, but the intent behind it to prevent an American-style housing collapse. In the States, mortgages were given out like candy, and when the rates went up, the foreclosure ripple that ensued was catastrophic. Canada is more proactive by making borrowers qualify for the inevitable rate hikes that will come in the future.
The Greater Vancouver Real Estate Board released its numbers, and while 2,638 homes sold represents an impressive 44% jump over the previous month, it is still about 7% lower than May of 2018. The 44% jump might make some believe that real estate is making a swift comeback for the summer months. However, I would argue that the market remains lukewarm.
There were 2,638 homes sold in Vancouver in May of 2019. That’s a jump of 44% over the previous month but sales are still down 7% when compared with May 2018.Greater Vancouver Real Estate Board Figures
One key statistic that the GVREB publishes is the ratio of sales to active listings. In other words, for every home listed on the market, how many of them sell? That ratio is 14% for detached homes and 20% for condos and townhomes. 20% for the lower-priced properties is a fantastic ratio that bodes well for the market. Prices there are likely to keep steady and go up. For detached houses, the numbers paint a much less frenzied market. Prices will probably stabilize or even go down.
Likely what is happening is that the combination of sky-high detached house prices combined with the B-20 regulations are resulting in more buyers priced out of homeownership. An $800,000 mortgage on a $1 million property at 3.29% is $3,906 according to TD Canada Trust’s calculator. That same mortgage at the 5.34% Bank of Canada rate is $4,808. B-20 means that buyers will have to qualify for about $900 more than before. If the buyer is eligible for a mortgage at $3,900, they could be eligible under B-20 for approximately $650,000. In the Vancouver market, that might be able to get a buyer a much better condo than it would a detached house – if they could even find one that cheap!
If you’re looking at buying Vancouver real estate, consider what type of property you want to buy. If you’re looking at homes, it’s probably advisable to wait a little bit. The ripple effects of all foreign buyer’s tax, B-20, and so on have still not fully worked through the system even all this time later. On the other hand, if you’re out to purchase a condo, you probably want to find something now. As people continue to get priced out of the detached house market, condos will continue to become more popular and expensive. Of course, if you’re selling the opposite is true. Condo owners might want to wait, and detached homeowners would be advisable to list as soon as possible.
No matter what your situation is, contact your local Vancouver real estate professional to get the best advice. Nobody can predict the future, but your real estate professional can help find the right housing fit for you.